Nestlé Ice Cream in Cuba Case Solution

Soon after the fall of the Soviet Union in the 1990s, an economic crisis enveloped the Cuba, and hence it became a need of the time to amend the investment policies in order to bolster and stabilize the economic and political foundations of the country. Moreover, when Raul Castro took over in 2008, he introduced a good number of financial reforms. These reforms also presented a Foreign Investment Law that supported the investment policies of the 1990s. That was the time when Nestle found a good opportunity to make its way into the Cuban business market.

2. Has the venture been successful thus far? Develop profit estimates using case data to support your answer.

The joint venture of the Nestle experienced amazing success. The factory had a worth of $7.9, and it had the capacity of producing 12 million liters of ice cream every year. Furthermore, it produced over twenty flavors of ice cream that included classics as well as the tropical flavors. Recently in 2015, the factory was estimated to be producing 8 lakh liters of ice cream every month. The company also strengthened the chains with the suppliers by providing them equipment and agricultural knowledge.

Based on Nestle’s success in previous years and the case data, the operating profit hovers around 15-18% in Cuba region. Growth in business will cause this profit to cross 20%. In particular, ice cream business is expected to have operating profit of more than 18% in the coming years.

The table below shows the high performance of Nestle compared with the other rival companies.

Since Cuba is part of North America so we can use the graph figures provided in case as our base assumption.

• Assumption

• A conservative growth estimate in overall sales of Nestle has been assumed as 10% for next five years.

• Case provides that Sales in Americas region constitute 40% of total based on 2014 results. My assumption is that sales in Cuba will also be reflecting same percentage for next 5 years of future sales.

• Case also provides Trade Operating Profit of Americas region to be around 20% of regional sales. Based on that information my assumption is the percentage will be stable for next five years. We can use this information to project revenues for Americas Region.