Case Study Analyzing an Intel Solution

The case study attempt to analyze the Intel’s decision to move to small country in Central America, which is Costa Rica. The issue that emerge is the impact on the Costa Rican economy of Intel’s decision to move into that country in 1997. It is noticed that Costa Rica is a small country with a bottleneck in the realm of infrastructure, whose elimination required a good deal of political and financial effort. Shortcomings were noted in power generation and distribution, and telecommunication infrastructure.

Besides that the small size of the domestic market was also considered as a weakness. Intel’s decision to invest in microprocessor plant in Costa Rica in 1997 giving some effect to the country’s economy.

IMPACT

Generally, Intel is the world’s largest and highest valued semiconductor chip manufacturer based on revenue. Their decision going to a very small country indeed when compared with other potential locations for their nature has impact the host country’s economy at both the micro-and macroeconomic levels.

In addition, the decision also impact the development of the host country.

Positive impact of Intel’s decision

The impact of FDI in the host economy can be divided into four main area which is:

1.  The direct effects caused by the investment and subsequent operation of the company, including the impact on workers and local suppliers of inputs
2.  Macroeconomic effects, such as the impact on exports and imports, on GDP, on unemployment, on wages, and on prices of other inputs
3. iii. Fiscal effects related to extra fiscal income generated by the multinational firm, its suppliers and employees
4.  The impact on the productivity of the whole economy or at least the most related to the foreign investment, through externalities generated to other firms, including ‘forward’ and ‘backward’ linkages, technological spillovers, and employee training -that is not firm-specific

The case study focused on the fourth effects.

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An important potential effect of FDI on host countries has to do with the impact on aggregate productivity, which happen through the externalities generated to other firms. The externalities can be divided into three groups:  knowledge and technological spillovers;  backward and forward linkages, which make available to domestic firms new or higher quality inputs that were not available before; and training externalities. Intel’s decision to invest in the microprocessor plant in Costa Rica give an impact by changing the environment so that it becomes profitable to invest in some activity which is not profitable before their arrival. The input which is previously not obtained in the host country become available, and the existing input were improved.

The most significant impact of Intel’s decision to Costa Rica is the country foreign direct investment. The ‘Intel effect’ have help Costa Rica to weather the economic downturn in the region much better than other countries in Latin America. Besides that, the country’s gross domestic product also become better or have improved because of Intel’s decision. According to the Central Bank of Costa Rica, in 1999 , Costa Rica’s GDP grew 8.4%, but excluding Intel’s contribution, the country GDP will grown only 3%. This definitely shows that more than 60% of the country GDP growth in that particular year attributed to Intel. Next, the number of trade also increased after Intel’s arrival. Import growth is mainly because of Intel’s import of plant equipment and high-value intermediate materials, while export growth is because of the high level of free zone activity.

The negative impact of Intel’s decision

It is undeniable that the arrival of Intel to Costa Rica help the country’s growth in so many aspect, nevertheless, there’s still few negative impacts of Intel’s to the country. First of all, Costa Rica’s GDP share Intel’s downturn, where this would not be good to the country. If Intel’s activity decreased, it will directly affect the country’s GDP. The Central Bank of Costa Rica states that, in 2000, when the Intel’s activity dropped significantly, the country’s GDP growth was held to just 1.4% and without Intel the GDP would be 3%.

SOLUTION / ACTION TAKEN

In the case study ‘Intel: A Case Study of Foreign Direct Investment in Central America’ have stated that Costa Rica is a small country if compared to Intel’s nature. However, Intel’s choose to do the investment in Costa Rica instead of the other six countries which they’ve considered to invest as well. In order to continue sustain and grow their investment in the chosen country, Intel’s Costa Rica trying to find ways to stabilize and position themselves better in Intel international. To achieve this, the management of Intel making sure that the investment is more sustainable in long period of time and also the operations grows deeper roots. As a result, Intel Costa Rica focus and working on the activity which will give return in a much higher value and complexity, this is to help reduced the cost of its operation in labor.

OPINION TO SOLVE THE ISSUE

The Intel arrival at Costa Rica come with issue like an impact to the country’s economy, which is direct and indirect impact. It is already discussed before the advantages of this arrival for the host country. These are few opinions on how to solve the issue that emerged. First of all, Intel is known to be a high capacity company with a high reputation, their employees must be educated in order to perform their task to the fullest and guarantee the company reputation. Establishing their company branch in Costa Rica will include of recruiting local labor force to work for them. To ensure the employees to be educated enough, Intel can suggest to Costa Rica’s government to build more education institutions so many graduates can be produced. Besides that, government can also create a policy that compulsory education to their people.