Luiz Guilherme Osório
According to a recent WTO report on trade in services, the services sector represents the most dynamic segment in international trade. In the last 20 years, its growth was faster than the trade in goods, and now, it represents an important portion of the global economies’ exports. Service exports are also growing in specific markets such as that of Cuba. Airbnb serves as a case study. This post describes the steps that Airbnb followed, which are applicable to large and small businesses alike that are interested in doing business in Cuba.
Airbnb has expanded to a number of Latin American and European countries. Just last year, not long after President Barack Obama announced new opportunities for U.S. exports to Cuba, Airbnb entered this market. What is interesting about this particular company is that it depends on internet connection and money wire transfer, two things that are still being developed in Cuba. Although their business is expanding and getting more attention, Airbnb is participating in one activity that the Cubans were already performing for a long period–renting rooms in their casas particulares.
In the 1990’s, the Cuban government allowed households to boost their income by renting rooms out to tourists. Many families used this opportunity to start a small business and use different methods and channels to advertise and find people interested in their accommodations. One of those methods was to “hire” an agent, a middle man who was responsible for finding customers and booking rooms.
Airbnb took several steps to enter the Cuban market and continue to provide a service that has already existed in some form or another.
Research Your Market
Airbnb learned that the Cuban market was already well-established in this kind of sharing economy. Furthermore, Airbnb took into account that the Cuban government plays a central role in the economy. With this information, the company designed an entry strategy that would fit into the Cuban business and economic structures. When President Obama eased the embargo in the services sector, Airbnb contacted the Cuban government and started putting in practice a plan to begin their activity. (For access to research reports on Cuba, click here and sign up for our free monthly newsletter at www.griit.org.)
Make Proper Contact on the Ground
First, Airbnb contacted middlemen that were responsible for renting the rooms and showed them that they could have much more visibility advertising the casas particulares at the international level. The middlemen should have internet access in order to receive the request and make the deal allocating the guests in the houses they already did business with. Airbnb advertises the room and pays the homeowner by wire transfer. In cases where it was this type of transaction was impossible due to the condition of Cuban financial services, payments are made in cash.
Airbnb’s approach enabled the company to do business in a country where only five percent of the population has internet access. Airbnb also stated that they were not trying to change the way that Cubans conduct business, especially in this particular area. Rather, they reinforced the idea that they would only offer another tool to boost house owners’ business and advertise their product to a wider public.
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In the first two months, Airbnb already had 2,000 rooms in their listing, and the growth projections are even greater. Although we didn’t had access to their financial report, Airbnb directors affirmed that they expect a substantial growth for the next years, and were extremely satisfied with the path things were taking in Cuba. Although there are still some problems caused by the lack of communication infrastructure in the country, the company said their intention is to continue investing in Cuba and working side by side with their Cubans counterparts.
Lessons for Your Business
This case study shows us that even in adverse conditions, the company could enter the market and actually grow. Although the internet connection is quite limited and the banking system is still infant, Airbnb was able to get in the market and establish itself as an important player by working alongside Cuban business owners.
Entering in a new market, especially overseas, can be very challenging. However, if we want to achieve success, we have to respect and understand the dynamics of that market, and try to adapt our business model to that particular reality. Airbnb put a lot of effort into establishing a connection with the local business community and government in order to access the Cuban market, even before the Cuban economy has opened up fully to U.S. businesses.
Luiz Guilherme Osório is currently a University of California Los Angeles Extension student in the International Trade and Commerce Certificate Program with a focus on import/export operations. He earned a Bachelor’s degree in Communications at the Universidade Federal do Rio de Janeiro (UFRJ) and also studied in the Law School of Universidade Federal de Juiz de Fora (UFJF) in Brazil.
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