1. Why did President Figueres pursue a new economic strategy for Costa Rica?

The President Figueres pursue a new economic strategy for Costa Rica because he want to break the political cycle of shifts in economic strategy when the ruling political party changes and concentrate on what is truly important. The president Figueres and his team want to developing and moving the economy to the next level, in the context of a rapidly changing Latin American and global economy. 2. Why was a change necessary? The changes are needed to increase the national level of awareness of the singular opportunity that Costa Rica has. He think that Costa Rica need to have a common national vision and break the political cycle of shifts in economic strategy when the ruling political party changes and concentrate on what is truly important. The economy moves to the next level, in the context of a rapidly changing Latin American and global economy. 3. Why did electronics and information technology represent an opportunity for Costa Rica? In1996, the Costa Rican economy was showing the initial signs of a transition toward more sophisticated electronics exports. A number of companies had established more advanced manufacturing operations under the Zona Franca legislation, leading to the exports of medical equipment ($44 million), communications equipment ($36 2 million), and hair dryers ($45 million). Table A lists some of these companies and their activities in Costa Rica. Intel's investment of $300 million-$500 million would represent the largest foreign investment ever made in Costa Rica by a single company. The Intel ATP plant was expected to create 2,000 direct jobs in 1998 and 3,500 by 2000, of which 20% would be management and engineering positions. Four indirect jobs could potentially be created for each Intel position. Gross exports derived from the investment were expected to reach $1.5 billion in 1999 and $3 billion by 2000. Additionally, some software companies had been formed, mostly as a result of spinoffs from Zona Franca companies, universities, research centers, and other large

companies. The Chamber of Software Producers of Costa Rica estimated that there were 150 companies that developed customized software in 1996, all with fewer than 150 employees. It was estimated that the industry had aggregate sales of $55 million, which were expected to reach $100 million-$500 million by 2000. Table: Costa Rican Operations of Companies in Technology-intensive Activities Company Activity in Costa Rica _ Motorola Manufacturing of quartz crystals for cellular phones Conair Manufacturing of hair dryers Cutler Hammer Assembly of electrical breaker circuits DSC Assembly of electronic circuit boards for telephone central units Sylvania Manufacturing of light bulbs and illumination systems Sawtec Manufacturing of frequency filters for telecommunications devices Cibertec Manufacturing of telecommunications control equipment for telephone central units Espion Manufacturing of alarm systems Squared D Assembly of electrical breaker circuits Sensortronica Manufacturing of sensors for electronic weighting machines Comrec Manufacturing of fiber-optic cable connectors 3 Conducen Manufacturing of industrial electrical cable Trimpot Manufacturing of potentiometers Xeltron Design and manufacturing of optical bean classifiers Siemens Assembly of control panels for control equipment Source: Adapted from PROCOMER.

4. Why was Intel interested in a Latin American plant? Latin America plant completely the categories that Intel needed. Intel needs process focused on our view of the world, our geographic spread of revenue and risk. They were seeking a location outside of the Southeast Asian countries, where they had

focused most of their back-end assembly and testing work. If there was a macro issue that affected the whole region, they would have all our eggs in one basket. Therefore, they were looking for a site in Latin America or Eastern Europe, which were the two spheres that met their generic criteria. They dismissed the Eastern European alternative because they did not believe that any of the countries were completely disassociated with the old Soviet-style model. Than the focus became Latin America. 5. Why did Intel choose Costa Rica? While Costa Rica had been very bureaucratic in its procedures, Costa Rica was corruption free. Costa Rica was a small country, in a global economy, small is beautiful, because we can move faster and make changes more easily. During Intel's process, it identified a number of issues regarding Costa Rica as a location: education, energy, transportation, and tax structure. Intel needed a constant supply of high-quality electricity for its plant, and its international average electricity cost was $0.05 per kilowatt-hour. The Costa Rican Electricity Institute could easily supply the quantities of energy that an ATP plant required, but frequency fluctuations and voltage changes were typical.

6. Given Intels decision, what should the Costa Rican government do next? - Formulated policies that would increase the regions competitiveness vis-a-vis the rest of the world. 4 - Applied the diamond analysis to the region as a whole, and to every country individually - Adopted the concept of clusters - Increase the investment in Scientific and Technological Research.

Intels Value Added over the years, Intels value-added has been estimated in the range of Us$90-500 million per year, based on three different types of calculations: (1) as a percentage

of the value of Intels total exports; (2) as the difference between the value of Intels exports and imports; and (3) as the amount Intel pays employees and local suppliers. As a percentage of exports, Intels annual value added is estimated at 18 to 20%, or about Us$260 million in 2005 and nearly Us$500 million at its high point in 1999. other calculations yield an Intel surplus of Us$200 million, the difference between Us$1.5 billion in exports and Us$1.3 billion in imports.

the Us$200 million difference could be inferred as real expenses incurred in Costa rica, or Intels national income effect. even in 2000, when exports dropped, this effect was estimated at the same level. on the low side, based on employee and supplier payments, the Intel value-added has been estimated at Us$90-200 million per year. Direct employment. Intel Costa rica now employs 2,900 direct workers, but between 1999 and 2004, it maintained an average of about 2,000. A rough estimate is that Intel paid Us$44 million in gross payroll in 2005, including base salary, social security contributions and workers compensation insurance. these jobs are 50% better paid than traditional apparel or agro-industrial, and offer recent technical graduates a private-sector job alternative. Before the advent of Intel and the development of the electronics cluster in Costa rica, electrical and electronic engineers and technicians essentially had one career option: to work for ICe, the state-owned power and telecommunications provider. Backward linkages and local purchases. Intel estimates it generates another 2,000 indirect jobs through its purchases from domestic suppliers. While locally acquired direct materials are only 2% of the total value Intel exports, when a broader range of goods and services is considered, supplier purchases are estimated at 10 to 12% of exports. Intels local purchases for goods and services vary by year in the range of Us$50-150 million. Belen community. Intel is located in Belen County, Heredia, one of the most developed counties in Costa rica, and seat of one of the countrys wealthiest municipalities, Belen. Belen County alone generates 25% of the countrys exports.

About 50% of the countys hefty budget comes from patents and real estate taxes In 1999 Intel voluntarily began paying patent fees to the county government, despite the corporations exempt status under the free zone regime. Intels choice of locating in Belen has transformed the county into the epicenter of Costa ricas infrastructure corridor. In addition to Intel, Belen County hosts 87 corporate operations including well-known multinationals Kraft Foods, Kimberly Clark, and Firestone and forms part of three important cross-county clusters in electronics, medical devices and call centers.