Appendix 2 The Decision to Invest: A Synopsis of Attracting High
Technology Investment Intels Costa Rican Plant Case Study
This appendix is a synopsis of Attracting High Technology
Investment: Intels Costa Rican Plant by Debora Spar, a paper
published in 1998 by the Foreign Investment Advisory Service (FIAS)
of the International Finance Corporation/World Bank Group. Many of
the lessons concluded in the FIAS case study remain highly relevant
in todays practice of investment promotion. As the basis for an
ongoing case history, it provides critical context for MIGAs
discussion of the Intel investments impacts over time. Information
about Costa Rica and Intel con-tained in this synopsis is
historical, and therefore may not be representative of the current
situation. (The original paper in its entirety may be ordered at
http://publi-cations.worldbank.org/ecommerce.)
Background
the 1996 announcement by Intel, the world's leader in the
semiconductor industry, that it would construct a new Us$300
million semiconductor assembly and test plant (Atp) in Costa rica
aroused considerable interest in the foreign investor community.
Intels annual revenues were over Us$20 billion at that time,
repre-senting three times the entire gross national product (gnp)
of Costa rica, whose population was only 3.5 million. the
construction budget for the facility dwarfed by a factor of six
times the total annual foreign direct investment in Costa rica. the
plants exports were expected to double the nations exports by the
year 2000.
After introducing the worlds first silicon microprocessor chip
in 1971, Intel pos-sessed an 85% share of the global microprocessor
market by 1996. Intel was also three times more profitable than the
semiconductor industry average, as measured by return on capital.
the heart of Intels strategy relied on using its technological
leadership to continually improve the performance of its
microprocessors, and as market leader, to extract the highest
profit margins from new technology advances before the product
would eventually become commoditized and subject to price
competition. Intels founder, gordon moore, coined the now-famous
moores law, which stated that the processing power of computer
chips can (and should) double every 18 months. Intel set the pace
in the industry by introducing more powerful chips, reaping profits
in the early months after releasing the innovation in the
marketplace, and moving in rapid succession to continually improve
its products. In recent years, Intel also encouraged demand for
new, more powerful chips among other companies, such as microsoft.
this basic cycle of product and technology leadership resulted in a
constant need to innovate, and to ramp-up ever-increasing
production capacity as quickly as possible.
locating Intels semiconductor Atps globally was not driven by
the need to be close to local markets. transportation costs were
low a minute percentage of final costs for the lightweight but
high-value technology product. Instead, investment abroad was
driven by the desire to build large amounts of incremental assembly
and test capacity as quickly and as cost effectively as possible.
to reduce the facility portfolio risk, Intel produced at several
different plants worldwide so that no more than 30% of its revenues
from any product category would come from any one facility or
geographical region.
