An Interview with Intel Corporation: Investing in Costa Rica

The recent announcement of Intel’s plans to operate an assembly and testing facility in Costa Rica provides a topical example of electronics investment in Latin America and the opportunity to understand the criteria used by this type of firm in selecting a site. Recently, I had the opportunity to talk with Mike Edwards of Intel’s site selection and start-up team for Costa Rica. He provided some interesting insights into the investment decision process and the general site selection conditions Intel seeks to meet.

By way of introduction, the plant will be a state-of-the-art semiconductor assembly and testing facility valued at between US$300-500 million and will be located just northeast of San Jose, the capital city. It is expected to employ 2,000 individuals when fully operational. Actual operations will involve packaging microchips and testing them under various conditions. The finished chips will then be shipped directly to customers or to another Intel facility to be incorporated into circuit boards. The presence of the plant is expected to bring an additional US$500 million worth of associated investment, by approximately 40 firms, to engage in support and supply activities. Benefits to the Costa Rican economy are forecasted to be considerable, for instance, exports are expected to increase 100% by the year 2000 fueled by the 15% valued added process of the Intel plant.

FDI News: What factors does Intel consider when evaluating sites for activities like those that will take place in Costa Rica?

Mike Edwards, Intel: First and foremost, we look for good infrastructure: air-cargo lift capacity into and out of the area, surface transportation systems between our location and the airport, the water and water treatment systems and their capacity, the electrical power system, and stable telecommunications.

That is the first tier, the second tier involves evaluating the business operating environment. What are the permitting requirements? Are they able to do "fast-track" permitting? Since our manufacturing process often changes, do they have flexible procedures that govern reconfiguration or expansion of a plant? What type of investment programs are available for the capital intensive type of production that we typically bring to our host countries (i.e. the existence of export processing zones and their operating parameters).

Finally, a factor that is very important to us is the capability of the local educational institutions to develop, and maintain over time, a technical workforce in the numbers that this facility will require. Similarly, what is our ability to attract and maintain employees? Can we easily recruit employees with the technical ability we will need? A broader issue but also important: what level of support from the community is there for high tech businesses like ours? All of the above point toward one central question; do we believe we can be successful, over time, operating in this country?

FN: Beyond the general points mentioned above, were there any specific outstanding reasons why Intel chose Costa Rica?

Intel: We thought the workforce development capability was particularly strong. We also felt that the general investment environment was very stable, which is a big plus for a capital intensive project such as ours. The third thing that we were favorably impressed with was the general support for hi-tech manufacturing operations, in particular our project. The level of outreach, marketing and support that the government handed us was phenomenal. It made us feel very welcome from the early days of the project.

FN: Was there anything specific that CINDE, the investment promotion agency, did to assist Intel in coming to its decision?

Intel: They were very helpful in sharing information about each of the areas we wished to explore. As we progressed through the stages of putting the project together CINDE was instrumental in working with us and the appropriate government agencies to facilitate the process. In general terms, they helped us pull together a final project that we could take to our board of directors and get approved.

FN: Some mention has been made in the Press about Costa Rican government assistance in training some of the initial employees for the new plant; was Intel granted any other specific incentives to invest in Costa Rica?

Intel: No, we were not given any special or extraordinary investment incentives. We will basically operate under the existing free trade zone policies. Our primary concerns are always infrastructure, the operating environment, and labor. No matter how many economic incentives a country may offer, if you can’t operate the facility it won’t come into contention as a site.

FN: For a country of this size, were there any concerns that Intel would exhaust all the technical talent, or have to import labor in the short term?

Intel: We found, and it was one of the strong points in our mind, that Costa Rica had the technical workforce to staff the plant and could sustain that workforce over time. The educational system, from the universities down to the technical colleges, provide technician level training and it is from these institutions that most of our employees will be drawn. Over time, we would expect most of the people that work in the plant to be products of the Costa Rican education system, although for the start-up phase we will definitely have a core team of Intel people there to bring the plant into operation. After the initial stages, the start-up force of about 100 expatriate Intel employees will return to their normal assignments and we would expect the plant to be completely staffed locally. In other words, the local availability of technical personnel is not an issue.

FN: Were there any concerns whatsoever about making the investment in Costa Rica?

Intel: Taking into consideration that the airlift capabilities are so vital to our operations, we would like to see them improved. In other words, increased capacity to North American, Asian and European markets would definitely be beneficial to our operations, because those will be the markets that this facility will support.

FN: Is there any reason why Intel has not chosen to operate in Latin America before?

Intel: We evaluated Latin America before and will continue to do so. On any given project we look for the right location to meet those infrastructure requirements and operating requirements that I described earlier. In this particular case, Costa Rica was the best fit for this type of assembly and test operation, which will be an advanced technology assembly operation, undertaken using the absolute latest generation processor imaging and testing machinery of any of our locations.

FN: Some electronics companies have mentioned that for strategic reasons they consider themselves to be too concentrated in East Asia and may be considering other locations for further operations, especially Latin America. Was this a motivation for Intel?

Intel: No, not directly. We have very substantial assembly and test facilities in Malaysia and also in the Philippines. The third facility of this type is located in Chandler, Arizona. The Costa Rica plant will be the forth assembly and test operation. Because of the size and mobility of our products our main strategic concern is good air-lift facilities back to the markets we serve.

FN: Were there any motivations to serve the regional market by moving into Latin America?

Intel: Certainly the emergence of the Latin American market is a factor that we look at in terms of locating facilities in that area. Most important for us though, are the criteria that I listed earlier. This facility, assembly-test, will be only one of four that we have, and products of this facility can literally go to any one of the market areas we serve.

FN: Are you considering any further investments in Latin America?

Intel: Our immediate plans are to get this plant open and operational. Intel typically begins expanding existing facilities within a few years, eventually building them out to their capacity. As we near capacity for one location we begin to look for locations that fill similar or complementary needs.