Cola Wars

slow process, with the leaves to be handpicked at the right time, which is achieved through experience. Only some countries, other than Cuba, have the climate suitable for growing tobacco. So the threat of new competitors entering the cultivation and harvesting tobacco is low.

The cigar industry operates under sizable economies of scale, i.e. higher production volume mean a lower cost for each item produced, since fixed costs are shared over the goods produced. So new entrants in the cigar industry must also enter on a large scale, which can be a costly and risky move; or they can accept a cost disadvantage and consequently lower profitability. In either case, threat of new entrants is low. Moreover, two major corporations Altadis and Swedish Match control the distribution of Cuban cigar worldwide, increasing the barrier to entry.

3. Other Industries Offering Substitute Products

Cigarettes can be considered as a substitute product for cigars, in terms of shape, production and method of consumption. But, the person who smoke cigarette and cigar are totally different things and those who smoke cigar normally don't wants to substitute one for another as people who smoke cigar wants to show them as they belong to the upper class while cigarette smokers do not feel the same. The quality and reputation of cigars are far better than those of cigarettes. Thus there are no threats of other industries offering substitute products.

4. Bargaining Power of Suppliers

The cigar industry is a study in Cuban history and in the Cuban people. It is a part of the culture and folklore. The production in the premium cigar factories is under the direct control of Cuba's Union of Tobacco Enterprises and is completely separate from the Altadis-Habanos joint venture. Tobacco growers can buy land through government loans and they are responsible for that land, even though they must produce to meet the state of quota. The Cuban government is the only buyer of the output from the private firms, partly due to the Helm-Burton Act of 1996. This Act limited trade that subsidies of U.S. companies in other countries could conduct with Cuba, allowed the U.S.to impose sanctions on countries trading with Cuba, and it barred officials of corporations doing business in Cuba from entering the U.S. In a way, U.S. was trying to extend its embargo to other trading partners of Cuba. With these restrictions in action, Cuba could not trade with other suppliers rather than its own government, thus giving it a high bargaining power.