Intel's Site Selection Decision in Latin America - Assignment Example

However, as only one country needs to be chosen, Intel should consider the benefits and risks associated with manufacturing and operating in either of these countries.

• Main Considerations

            It should be noted that Intel’s main concern in opening a microprocessor manufacturing plant in Latin America is to strengthen its position in the global market. The rationale of choosing a Latin American country is to distribute risk as it already has a number of production plants in Asia. Also, the preference of a Latin American country is its proximity to the US where the microprocessors will be shipped. Most importantly, Intel is also aware of the more intense rivalry between players in the global market which significantly drives down the price of microprocessors. The company is very concerned with finding a possible way of reducing the cost of production in order to offer the final products at a more competitive rate.

            Intel also cites other considerations such as:

1. availability of technical personnel and engineers to staff the proposed plant;
2. labor unions and labor regulations;
3. transportation and infrastructure costs;
4. availability and reliability of electrical power supply; and
5. government’s taxation rate.

            Aside from these considerations which were directly mentioned by Intel, the case also developed the idea that the company prefers a country where it's expatriate employees who will be in operation and supervision of the manufacturing plant during the start-up stage will be comfortable in the selected site. Also, Intel also explicitly stated its preference for a deal that is done in a transparent and legal way. Intel strongly opposes “special deals” or “special incentives” as it will post problems for the company in the future.

• Alternatives

            As stated above, four countries which include Brazil, Chile, Costa Rica, and Mexico were short-listed as the preferred locations. The appendix summarized the result of the research and the on-site visit of the site selection team.  

            In terms of workforce availability, all the countries under consideration satisfy Intel’s requirements except Costa Rica which still needs further training. It should be noted, however, that labor cost in Chile is relatively higher. Costa Rica is the best choice in terms of labor unions and regulations as all the other countries mentioned are significantly unionized. Infrastructure and transportation are excellent and impressive in Chile, Brazil, and Mexico. Though Costa Rica’s land transportation is fine, regular flights which are imperative in Intel’s operations are lacking. Electricity is the cheapest in Mexico at $0.02. As Costa Rica is very much eager to capture huge foreign investments, the government provides various exemptions in terms of tax holidays and discounts. All the other countries are hesitant in giving investment incentives. Expatriates are seen to be better off in Costa Rica and Mexico. Operating in Brazil will require huge taxes while the distance from the US and Chile is a concern.

• Recommendation

            Based on the discussion above, this report recommends that Intel locate its microprocessor manufacturing plant in Costa Rica. This decision is based on the fact that the country has a stable political environment, a low level of corruption, attractive investment incentives, and a government that is willing to comply with Intel’s requirements. Though the country is seen to be lacking in the qualified workforce, transportation, and has a much higher rate than in Mexico, these factors were readily addressed by its officials who are more than willing to support Intel’s operation.

            Costa Rica is the most viable location for Intel as it will be accomplishing its fundamental goal of producing high-quality chips in a nation that is adjacent to the US at the lowest possible cost thus enhancing its products’ competitiveness in the global market. Though other countries boast their huge skilled labor force, the benefit to be gained by Intel is eroded due to high labor costs and a unionized workforce. The presence of a workforce in an operating company is irrefutably has added cost. As countries like Brazil and Mexico already have a pack of IT firms, the presence of Intel can drive up the demand for IT employees together with the wage rate. This will also be detrimental and is not in line with the company’s objective. In summary, choosing Costa Rica is just a part of accomplishing Intel’s main goal of driving down operating costs.