BUILDING A CLUSTER : Devaqi Arum Sari

ELECTRONICS AND INFORMATION Herlina Setovia

Laurentius
TECHNOLOGY IN COSTA RICA Marsha Nadianaputri
OVERVIEW OF COSTA RICA
Geography
Politics & Military
Health, Education & Housing
A COMPETITIVE COUNTRY
5th in the world in environmental performance
1st high technology exporter of Latin America
4th high technology exporter of Latin America
the best educational system in Latin America
ranks 1st in Latin America in innovation
GEOGRAPHY
51.000 km2
tropical climate
natural resources : hydro power
28% of national parks & biological
reserves
POLITIC & MILITARY
Jose Don Pepe Figueres Ferrer, the leader of the 1948 revolution
1948 Constitution Prohibited presidential reelection & abolished the national army
military spend 0.6% of GDP expenditure
government focused on health, education, and housing
HEALTH, EDUCATION, & HOUSING
public expenditure in health averaged 7% of GDP

public expenditure in education averaged 7% of GDP

the literacy rate was 95%

low-cost housing, resulting in 152.000 new home

drinking water and electrical power available to 93% of the population

ECONOMIC HISTORY
Generalities
Import Substitution Model
CACM
GENERALITIES
based on agriculture (especially coffee) since its independence in 1821

during early 1900, banana cultivation had become significant

the country start to export beef and sugar in the first half of 20th century
IMPORT SUBSTITUTION MODEL
prescribed by ECLAC in 1960

emphasized public and private investment in manufacturing and infrastructure

goals : overcome Costa Ricas dependence on imports and its exposure to price
fluctuation
IMPORT SUBSTITUTION MODEL - FINDINGS
recognized a constraint on the import substitution development model in the smaller
countries

local markets would be quickly saturated and scale efficiencies hard to achieve
CENTRAL AMERICA COMMON MARKET
established in 1960 by Guatemala, El- policies
Savador, Honduras, and Nicaragua intraregional free trade for 239 product group

high common external tariff

Costa Rica joined in 1963
integration industry convention (prevent
costly duplication)
CENTRAL AMERICA COMMON MARKET - RESULT
increase in regional trade Costa Rica
7% in 1960 to 26% in 1970 shift in economy composition

grow in manufacturing sector (13.8% to 18.6%)

improvement in transportation and
communication infrastructure
POST CENTRAL AMERICA COMMON MARKET
COLLAPSE RECOVERY
economy grow rapidly due to growth in exports

GDP dropped from 1979 to 1982

the value of national currency dropped

inflation reached 90% and unemployment reach 9% in 1982

to cover costs: cuts in gov. spending and workforce, increase taxes on sales, export
and personal income
POST CENTRAL AMERICA COMMON MARKET
COLLAPSE RECOVERY
in 1980s, the government shifted its economic plan to one focused on the promotion
of non-traditional exports to no-CACM countries

upgrades in the national airport, ports, and customs to facilitate international trade

in 1981 Costa Rica created Zonas Francas (export-processing zone)

custom duties were suspended and fiscal incentives were granted to firms
establishing manufacturing operations for export
 THE COSTA RICAN Generalities
Composition of the Economy

ECONOMY IN 1996 Zona Francas

GENERALITIES
The GDP was $9 billion (GDP per capita of $5,800)

The total exports $3.75 billion (leading goods exports: banana ($631 million) and
coffee ($385))

The most important service industry is tourism ( generated $ 664 million)

Unemployment stood at 6,2%

GENERALITIES
The San Jose airport in Costa Rica is the busiest airport in Central America (handling
1.7 million passenger and 113,000 tons of cargo)

The Costa Ricas port is the busiest for origin and destination in Central America
(handling 2,433 ships and 6.7 million ton)

The Costa Rica is the largest electricity generating capacity in Central America (73%
is hydroelectric)
GENERALITIES
The Costa Ricas density of telephone lines is the third highest in Latin America (16
lines per 100 inhabitants)

The cheapest telecommunication cost in Latin America

The best education system in Central America

The government invested 1.1% of GDP in science and technology

COMPOSITION OF THE ECONOMY
Product (in millions of current dollar) Detail Product
Banana 631 -
Coffee 385 -
Beef 44 -
Sugar 42 -
Fish product ($85 million)
Pineapples ($69 million)
Other agricultural &
561 (19 % of total export) Shrimp ($58 million)
Sea Products
Ornamental plants ($48 million)
Melons ($45 million)
Textile ($674 million)
Food processing ($278 million)
Chemicals ($141 million)
Manufacturing 1369 (45 % of total export)
Plastic & Rubber ($107 million)
Metal manufacturing ($72 million)
ZONA FRANCAS
Costa Rica applied export-processing zones to attract foreign investment, generate
employment and promote exports

More than 200 export processing zones in 1996 in about 50 countries

IMPACT OF ZONA FRANCAS
Foreign direct investment had grown from $162 million in 1990 to $427 million
1996

192 companies working in export-processing zones generating 25,500 job

Working condition in the export processing zones were equal or better than
prevailing outside

The total gross exports originating from free zones is $643 million in 1996
ZONA FRANCAS
There are two branches of the government that sought to establish link between the
firms operating in Zonas Francas and domestic companies:
PROCOMER (The government agency in charge of promoting Costa Rican export abroad and managing the export
processing zones

CINDE (A nonprofit organization responsible for promoting foreign direct investment in Costa Rica)
 THE FIGUERES The National Strategy

ECONOMIC STRATEGY Central American Allegiance

THE NATIONAL STRATEGY
A social investment program that would empower Costa Ricans to face the
challenges of globalization by securing health, housing, and modern education for the
entire population

An alliance with nature and the natural surroundings

Economic policies that would allow Costa Rica to complete globally

THE NATIONAL STRATEGY

Globalization is more than simply opening a country to foreign trade. We needed a

national strategy that moved beyond cheap labor and exploiting our natural
resources. We wanted to compete based on productivity, efficiency, and technology
CENTRAL AMERICA ALLEGIANCE
The alliance represented a new effort to pursue political, social, economic, and
environmentally sustainable development

Focus on regional cooperation to increase productivity, improve the business

environment, cooperate on marketing and investment promotion, and protect the
environment
 THE EMERGING ELECTRONICS AND Generalities
Intels Search for Manufacturing Site

INFORMATION TECHNOLOGY CLUSTER The Pursuit of Intel

Issues
GENERALITIES
By 1996, the Costa Rican start to move toward electronics exports

Under the Zona Francas legislation some manufacturing had established more
advanced manufacturing operations

Export of medical equipment ($44 million), communications equipment ($36 million),

and hair dryer ($45 million)

Some software companies had been formed, software exports were estimated to be
$20 million
THE PURSUIT OF INTEL
The Intel ATP plant was expected to create 2.000 direct jobs in 1998, of which 20%
would be management and engineering position

4 indirect jobs would potentially be created for each Intel position

Gross exports derived from the investment expected to reach $1.5 billion in 1999

President Figueres had taken a personal interest in Intels investment

Authorities made an extraordinary efforts to accommodate Intels needs, all policy

changes were to apply to any investors in the same category
ISSUES REGARDING COSTA RICA
AS BUSINESS LOCATION
Availability of the midlevel technicians that an ATP facility would required

Costa Rican industry had not been energy intensive

Costa Rican regulations that restricted the number of air carriers

Zona Franca regulation

NEXT STEPS Why Intel choose Costa Rica
Next Steps
WHY INTEL CHOOSE COSTA RICA
the general country characteristics provided a favorable basis to attract skilled
intensive FDI

the countrys growing emphasis and success in attracting high tech FDI

the existence of an aggressive, effective and knowledgeable foreign investment

promotion agency like CINDE

a Government that quickly understood the importance of an Intel investment in the

country
THE SUCCESS OF COSTA RICA
Costa Ricas recent string of successes in its transition towards a technology and
knowledge-driven economy is the result not of an explicit and collective decision, or
of a grand national vision that pointed in this direction, but rather it is the result of
several different policies and events

it is clear that Costa Ricas long term commitment to investing in education has been
the most important factor behind the recent developments

many of the now dominant recommendations for economic development are

validated
NEXT STEPS
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

increase the investment in Scientific and Technological Research