Costa Rica: A near-shore alternative
Intro by John MacWilliams, Bishop & Associates Inc.

Much has been said about the emergence of China as a global manufacturing location.

Over the past five to seven years, manufacturing in China has accelerated at a high double-digit pace─including the establishment of many connector company plants.

Mexico is also important to the electronics industry, preceding China as a preferred near-shore alternative. While we’ve seen some manufacturing shift to China in the last few years, in many instances due to various problems in China, that manufacturing is being shifted back to Mexico. My new Nokia 3G cell phone, for instance, was made in Mexico, not China.

In the future, we very likely will be seeing manufacturing in countries previously left out of the technology boom. We thought it would be interesting to look at another near-shore manufacturing alternative, Costa Rica.

Reasons:

• Costa Rica is a near-shore alternative to export manufacturing to the United States at a competitive cost.

• Its Central Time Zone location is U.S. communications-centric.

• CAFTA (the Central American Free Trade Agreement has been approved and will enter soon into force).

• U.S. companies can enjoy bi-directional duty-free status, from raw materials through finished product.

• San Jose, Costa Rica is a four-hour flight from Atlanta, and two and a half hours from Miami, served by U.S. carriers such as Continental, Delta, and US Air.

• Educated and skilled labor force.

• The country has very attractive tourist locations and allows foreign ownership of property.

• Democratic country with a tradition of strong ties to the U.S.

• Costa Rica has one of the highest political stability ratings of any developing country.

• Costa Rica is peaceful, with a life expectancy exceeding even that of the U.S.

Minimal energy consumption, greater performance, abundant memory, and graphic handling ability make Intel’s Penryn unique. It is also eco-friendly; lead-free, and starting in 2008, it will be halogen-free. Costa Rican talent was involved in the design and manufacturing of the new processor. Plus Intel´s plant in Costa Rica will assemble and test 99 percent of all microprocessors that will be shipped from Costa Rica to the world.

Costa Rica: People who make the difference

Intel Corporation recently launched the fastest and most efficient processor in the world, based on new 45 nanometer technology.

The design and manufacturing process of the Penryn was partly done by a group of 60 Costa Rican engineers, along with other two engineering teams based out of the U.S. and Israel.

Additionally, the test and assembly of Penryn-related processors is done in Costa Rica. They are known as the Quad Core Intel ® Xeon processor and Dual Core Intel® Xeon processor. Intel Costa Rica handles up to 99 percent of all the server processors made by Intel Corporation.

Currently, exclusive manufacturing of 18 different product families are carried out here.

Other electronic companies with plants in Costa Rica include: L3 Communications, Samsung, Triquint, Bourns, Panasonic, Panduit, and many others. Metal stamping, precision machining, molding, and other support technologies are available from a number of contractor companies.

Costa Rica provides a wide range of human resource capabilities for the electronics industry, from operators to engineers. Its well-known strategy of strengthening education, computer literacy, and information technology helps accelerate the country’s growth and people’s income levels.

Among developing countries, Costa Rica ranks fourth in literacy rate, behind Romania, Argentina, and Chile, and ahead of the Philippines, Mexico, and China.

A little country with a lot of potential in the
middle of the Americas
 

Costa Rica is nestled between Nicaragua and Panama in Central America. It is approximately the size of West Virginia, and has a population of 4.3 million people.

It is a middle-income ($5K per capita GDP) developing country with a strong democratic tradition. Tourism is extensive, and, while Costa Rica is Spanish-speaking, English is widely spoken. It borders both the Pacific Ocean and the Caribbean.

In 2006, Costa Rica ranked highest in political stability and absence of violence among all Central and South American countries, ahead of Chile, Puerto Rico, and Uruguay. Mexico ranked 11th. (Source World Bank 2007)

Electronics is one of the country’s chief exports.

Costa Rica has again swept up awards in FDi's Central American Countries of the Future Awards 2006-2007, ranking first in five out of the seven categories. It ranked No. 1 for economic potential, business friendliness, human resources, quality of life, and development and investment strategy; and second for transport (behind Panama). The country is now the world's fifth largest exporter of high-tech goods and services, according to the United Nations.

Also, the World Economic Forum ranked Costa Rica as the 37th country with the highest levels of innovation and business complexity in it Global Competitiveness Index for 2007. This index evaluates 131 countries in the world and analyzes three areas: basic requirements, efficiency drivers, and innovation and business complexity. In the general ranking, Costa Rica took the 63 position. 

Key advantages of operating in Costa Rica
 

·          Educated, productive workforce starting at US $2.30/hr fully loaded.

·          Comprehensive package of incentives for foreign investment under the free trade zone regime.

·          100 percent tax and duty exemption, both for import and export.

·          No restriction on profit repatriation, transfer or foreign currency management.

·          Free trade agreements with U.S., Canada, Chile, the Caribbean, Mexico, Panama, Dominican Republic, and Central America.

·          Export-oriented infrastructure.

·          Unequaled political, social, and economic stability in the region.

·          Ports on both Atlantic and Pacific oceans.

·          Professional and free assistance in establishing new facilities in Costa Rica from the Costa Rican Investment Promotion Agency (CINDE).

·          Many foreign companies are flourishing here. Other names: Siemens, Square D, GTE/Sylvania, Boston Scientific, Procter & Gamble, LL Bean, Merck, DHL, Unilever, and Arcelor Mittal.
 

Costa Rica’s Electronic Cluster

Corporate Real Estate
There are numerous options related to the places where a company can establish its operations in Costa Rica.

There is also a good distribution of the basic public services and the road network. Import and export facilities are relatively close and a few minutes away from production sites.

The companies can choose either to establish within one of the free trade zones to benefit from the country’s fiscal incentives program, or to establish as a ‘stand alone’ facility (in the national customs territory). In the latter case, if it meets minimum investment requirements, the company can also apply for free zone status and therefore receive incentives as well.

The Free Trade Zone Parks
The free trade zone parks have land and buildings administered by private companies which offer customs, health, security, maintenance, day-care centers, garbage collection, and other services that ease the operation, at the same time allowing the companies to be surrounded by similar companies, suppliers, and others to offer other services required.

The main free trade zone parks are located close to the main airport (the Juan Santamaria International Airport), at an average distance of 4.3 miles. New free trade zones locations are giving place to the possibility of establishing in other areas of the country, such as Limón (at the Caribbean shore), San Carlos (northern area), and Liberia (close to the international airport of Liberia, in the North Pacific).

For more information on working in Costa Rica, visit www.cinde.org.

John MacWilliams Principal Consultant and Analyst, Bishop & Associates Inc. John MacWiIliams has 45 years in the electronics industry, including AMP, TRW/IRC, Diceon, his own consultancy, and Bishop & Associates Inc. His broad experiences include all phases of sales and marketing, venture development, U.S. competitiveness programs, technology transfer, and, of course, his writings for ConnectorSupplier.com. He is also TWG chair of iNEMI’s Connector Roadmap 2000, 2004, and 2007, and recent technology program reviews for the government. MacWilliams studied engineering and business at Lehigh University, graduating in 1960 with a Bachelor of Science degree in business management.