THE BLOG
04/14/2016 08:56 pm ET Updated Apr 15, 2017

Frugal Innovation Scores Another Victory in Cuba: Lessons From an Embargo-Busting Small Tractor Company

In early 2016, tiny Alabama-based Cleber, LLC managed to conquer two Goliaths with one stone. It became the first American company to receive authorization from both the US and Cuba to set up a manufacturing operation on the island's Mariel Special Development Zone. Like David in the biblical story, Cleber used simple technology to accomplish what no one else had managed to before: slay two sets of monster bureaucracies with one blow. The embargo-busting, low-tech stone is its 'Oggun' tractor, an updated version of the 1940's Allis-Chalmers Model G.

The co-founders, Cuban-born Saul Berenthal and Alabaman Horace Clemmons, are former IBM engineers and retired entrepreneurs, who found unlikely success in Cuba in great part due to their intuitive grasp of 'frugal innovation' principles. Like other frugal innovators worldwide, they created a low-cost, high-quality good by re-imagining processes and repurposing resources to meet the needs of a market with enormous financial constraints.

The adaptation of frugal innovation principles to the needs and challenges of developing nations like Cuba has been described by Navi Radjou, Jaideep Prabhu and Simone Ahuja in their work on Jugaad Innovation. 'Jugaad', a colloquial Hindi word, roughly translates as an innovative fix or an improvised solution born from ingenuity and cleverness. The term bears a surprising similarity to the colloquial Cuban term 'resolver' - improvising and making do through inventiveness. No wonder, then, that the Cuban experience is home to a wealth of local frugal innovation examples.

Cleber's entrance into the Cuban market provides another example of how the six guiding principles of jugaad/frugal innovation can be used to create value in Cuban markets.

1. Seek Opportunity in Adversity. Frugal entrepreneurs perceive harsh constraints as an invitation to innovate.

The small-hold farmers and cooperative members who farm 70% of Cuba's arable land deal with frequent input shortages (from fertilizers, to seeds, to fuel, to parts), obsolete technology, and major inefficiencies in transportation and distribution. The situation is further aggravated by two factors - the final consumer's wallet is limited to the $25/month salary of average Cuban workers, and pressure on market prices and on quality specifications from a growing tourist sector.

The end result is low productivity, higher costs, variable quality and a wasteful drag on foreign reserves as Cuba resorts to importing approximately 80% of its food requirements, much of it, cash in advance.

Cleber realized that this overwhelming set of related problems was a Cuban national priority and a dynamic that had to be resolved before US tourists landed en masse on Cuban soil. Only 'out of the box' thinking could uncover a solution.

2. Keep it simple. The "resolver" mindset requires that frugal entrepreneurs focus on developing "good enough" offerings that are accessible and easy to use.

Since all of the patents for the Allis-Chalmers Model G tractor had expired, the partners were able to simply copy the basic design, upgrade it with newer technology (e.g. from manual lift to hydraulic lift) and cobble together a vehicle from easily acquired off-the-shelf components.
The end result is perfect for small plots, simple to operate and maintain, and relatively cheap when compared to other tractors. Fossil fuel models will eventually give way to all electrical models charged by solar panels. Granted, the vehicle will sell for about $8,000 to $10,000, a steep price for a small farmer in Cuba, but Berenthal and Commons are placing their bets on remittances helping to defray costs.

3. They do more with less. Frugal innovators compensate for a lack of resources by finding ways to leverage social networks and the intimate knowledge of their communities to create and deliver value.

Berenthal and Clemmons noted that many U.S. companies arrive in Cuba asking: "What can we sell you?" They, on the other hand, found a way to deliver superior value to the Cuban market by instead, asking what customers need. "A lot of our plan just came from listening to what the Cuban people want and what the Cuban government wants...we suggest that prospective Cuba entrepreneurs always include in any proposal economic, social, and cultural justifications".

Potential partners would also be well served to "learn, understand and respect the Cuban culture; adopt a style that shows mutual respect; study, understand and follow established protocols; expect hard business negotiations; and, be patient and persevere." In other words, fostering knowledge networks is as important as having the right product or service.

Since the Oggun is an open-source manufacturing model (OSMM) that uses a modular design and common components across a broad range of agricultural and light construction equipment, the basic design serves as a platform from which modules can be created with interchangeable components. This provides for varied and economical equipment that can be made available to small-scale farmers that can easily be adapted to suit their needs. It also makes it easy and inexpensive to service and maintain, as parts and components are available in a wide variety of international markets and from different suppliers.

But the current configuration of the Oggun is only the beginning. Once the Mariel facility is running smoothly, Cleber plans to invite Cuban inventors and entrepreneurs to submit their Oggun-based product ideas and plans for possible adoption. For a percent of the business, Cleber will also produce the product for these entrepreneurs with great precision and cost efficiency if that is how the inventors prefer to market it.

The Oggun takes advantage of Cuba's extraordinary DIY self-sufficiency and it will soon, take advantage of its inventiveness and creativity.

4. Think and act flexibly. To innovate in a constraint-based environment, frugal entrepreneurs must quickly respond to changes in their environment with entirely new value propositions.

Cleber's rollout strategy also demonstrates adaptability. It balances available investment capital, responsiveness to increasing market demand, and adjustment to the vagaries of US-Cuba normalization negotiations by building capacity to serve the market even before the Mariel Zone is fully operative.

Initially, the Oggun vehicles will be assembled in Alabama and exported to Cuba. Once the Mariel plant is ready in 2017, U.S. manufactured parts will be exported to Cuba and vehicles assembled in there. The next phase of the project calls for Cuban manufactured components to be assembled on site for national markets. They expect to build 100 tractors a year to start with. Over time, the partners expect to ramp up to a thousand vehicles a year for both local and export markets.

And the Oggun is not only a tractor. It is also an excavator and a skidsteer loader with wide variety of applications in the construction sector. Solving the agricultural, construction and housing bottlenecks is an essential component of the country's economic growth and social welfare strategy, especially as the country ramps up for a growing US tourist sector. The Oggun will provide a bottom-up solution.

5. They include the margin. Frugal innovators search for ways to include marginal segments of society, not just out a sense of empathy, but because it makes business sense for them.

The fact that Cleber is already receiving inquiries and solicitations from Latin America, Africa and Asia bodes well for the company's future export success in 'base of the pyramid markets' where jugaad innovation is key. 'Base of the pyramid' (BoP) is a term given to the 4.5 billion people in the world who live on $5 per day or less. Increasingly, private-sector companies and investors, often in partnership with local communities, are developing profitable business models that provide creative low-cost/low price solutions to the many day-to-day challenges faced by individual in this global US $15 trillion economy.

The combination of Cuban 'resolver' in a jugaad innovation lab, together with an adaptive Cleber platform and a large BoP export market could turn this modest business experiment into a global success not only helping Cuba by generating foreign income and tax revenues, but by also benefiting the world with great products at affordable prices for these largely underserved and marginalized markets.

6. They follow their hearts. Frugal innovators take risks, trust their intuition, are passionate about what they do, and believe they pursue a good cause in the process.

While the Oggun is a perfect example of jugaad innovation, neither the Cleber owners nor the Cuban government had any knowledge of these six principles. The business partners found each other because of their shared passion for solving some of Cuba's mind-boggling problems through instinct, intuition and creativity. Think of what could happen if both sides were to study and apply these principles in order to leverage the potential of jugaad/resolver innovation for Cuba and for global 'base of the pyramid' and low income markets. Cuban jugaad innovation might actually become a revolutionary movement, not only in, but outside of Cuba as well.

Julia Sagebien, Associate Professor, Dalhousie University

Ric Herrero is the Executive Director of #CubaNow