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Intel Factory Leads Costa Rica's High-Tech Boom
Latin CEO / September 2000

Larry Luxner

In the old days, Central America's economies were so dominated by United Fruit Company and other U.S.-based agribusiness interests that these impoverished countries came to be known as "banana republics."

Today, at least one nation -- Costa Rica -- is on its way to becoming a "microchip republic," thanks to the enormous investments of a single U.S. multinational: Intel Corp.

And no one seems to be complaining very loudly.

"Last year, Costa Rica's GDP grew by 8.3%, and we were 3.8% of that," boasts Danilo Arias, manager of corporate affairs at Intel here. "We are the most visible example of the country's success in attracting foreign investment."

At present, Intel accounts for 8% of Costa Rica's GDP and over a third of the country's $6.3 billion in exports. One single silicon chip is worth anywhere between $400 and $800, depending on its configuration, and Intel ships in 25-unit boxes. Last year, said Arias, the company exported over 20 million units worth $2.2 billion -- mainly to the United States and Western Europe.

Eventually, up to 25% of all Pentium chips and other Intel products for PCs worldwide will be assembled in Costa Rica.

That's quite a distinction for a small country known mainly for its volcanoes, rainforests, gourmet coffee and hand-pained oxcarts.

"We wanted to have an operation in Latin America for purposes of risk mitigation and geographical diversity," said Arias, a 40-year-old financial executive who worked for Costa Rica's investment promotion agency before being snatched up by Intel in December 1996. "After that decision was taken, Intel looked at the three obvious choices: Mexico, Brazil and Chile. Then Costa Rica also came onto the list, and after one year we decided that Costa Rica was the most suitable location."

Since then, the $29 billion conglomerate, based in Santa Clara, Calif., has hired 2,000 employees and poured $400 million into its 52-hectare factory complex just outside San Josť.

Costa Rica's ambassador to the United States, Jaime Daremblum, noted that even before Intel, there were smaller high-tech manufacturers in Costa Rica, but "of course, the installation of Intel has encouraged other companies to come."

Says Lynda Solar, executive director of the Costa Rican-American Chamber of Commerce: "We are no longer competitive with Honduras, Nicaragua, Guatemala or El Salvador for low-wage jobs. That's why we're trying to attract more high-tech companies like Intel to Costa Rica.

She adds that the Silicon Valley giant has hired a lot of qualified local engineers away from other companies -- forcing rival high-tech companies to raise their salaries accordingly.

Taking a tour of Intel's operations means going through a rigorous security check at the entrance, donning anti-static gowns, goggles and other protective gear, and passing all handbags and briefcases through an X-ray machine upon leaving to make sure nobody's trying to smuggle valuable microchips out of the factory. Even top Intel officials have to go through this procedure.

Perhaps because Arias was Intel's first employee in Costa Rica, it usually falls upon him to give visitors the official factory tour.

"Our core components and raw materials are manufactured in other Intel sites like Israel, Ireland, Arizona, New Mexico and Oregon," he explained. "We take that core microprocessor and add all the electronic circuitry that will give the component connectivity to a computer. Of the four steps -- fabrication, selection, assembly and testing -- we do the last two here."

Arias said that labor costs represent a relatively small portion of the total cost of microchips.

"If labor costs were such an important consideration, we would have chosen Mexico for the factory," he said. "But we noticed that in Costa Rica, there seemed to be a very high respect for the rule of law and for the way things should be done. I don't think Intel would ever have considered a [U.S.-Mexican] border operation."

Intel, most of whose employees speak English and are well-versed in computers and the Internet, plans to have up to 3,500 Costa Ricans on its payroll by 2001 -- making it by far the largest private employer in the country.

"Every employee receives stock options, computers for their families and three annual bonuses -- two hinged on company performance and one on the performance of the department that employee belongs to," said Arias.

But AmCham's Solar says Intel's regimented, corporate style turns some Costa Ricans off.

"Not everybody likes the Intel mentality," she said. "It's a 24-hour job, and they have a difficult work ethic. You're really married to the company when you work for Intel."

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