Microeconomics of Competitiveness:

Clusters in Developing Economies

Submission of Assignment
Student
: Mas Wigrantoro Roes Setiyadi
NPM
: 8605210299
Program
: S3 Ilmu Manajemen Pasca FEUI
Date of Submission
: December 6th, 2005

Case: Building a Cluster, Electronics and Information Technology in Costa Rica

ASSIGNMENTS:

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.

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.

2. 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

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

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.

3. 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.

4. 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.
5. 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.

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.