Nestlé Ice Cream In Cuba Case Solution

1. What issues faced firms like Nestle operating in Cuba historically? What did the firm face when first entering the market in the 1990’s? 

After more than twenty years, Nestle was still unclear on whether or not the investment was a right decision. In the 1990’s, Cuba was faced with economic crisis and the government adopted policies to prevent economic collapse. On entering the Cuban market, Nestle was faced with multiple issues. Firstly, the Cuban government decided on joint ventures, or any foreign investment and approval was required. Secondly, Cuba had a dual currency system that complicated matters further regarding product pricing and customer segmentation. Another important factor was the labor market in Cuba where the government hired all employees and loaned them to firms. Foreign companies paid wages to these government agencies. The Cuban government has been unstable in its stance towards foreign investment, and companies have been facing the brunt of it. In 2000’s when the economy recovered, Castro cancelled joint venture contracts. This instability and complicated processes were some of the major issues firms like Nestle faced in the Cuban market. 

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

The success of the venture can be determined by the profitability of the Cuban operations. 

The profitability of the business is divided among two entities. The launch of the ice cream is a joint venture with Coralac – a government ministry. The calculations show that the fixed cost of the operation sis high. The reason for the high cost is that from an operations standpoint, Nestle faced supply shortages and heavy government regulations in the industry. The price of the product is maintained at $2 (which is lower than the price in other markets) because Cuban customers also had limited purchasing power. A premium ice cream brand was considered by the marketing team as too expensive. The financial projections have indicated an annual profit of $2,976,000. Thus, the venture is feasible from a financial standpoint, Nestle reported financial region-wise. This projection is based on the international visitors that are growing at an increasing rate in the region. Thus, the annual revenues are expected to grow beyond $19,200,000 if the supply chain of the business becomes consistent.