A firm invests abroad either to exploit a foreign market (as have several companies that invested in Ireland to gain better access to the European Union) or to secure better access to certain inputs, especially cheap labor. This second motive is typical of FDI in small and poor countries, and certainly influenced Intel's decision to invest in a microprocessor plant in Costa Rica in 1997.

Case Study: Intel in Costa Rica

But why Costa Rica? After analyzing Intel's decision process, concluded that Costa Rica was chosen because it offered important location-specific advantages. Among these, the most important ones were the already existing tax exemptions for any firms satisfying certain conditions under the free zone scheme, the high educational level of the labor force, a stable political scenario, and a relatively corruption-free environment.

During the process to select the location, the company carefully looked at six countries in addition to Costa Rica: Indonesia, Thailand, Brazil, Argentina, Chile, and Mexico. Mexico seemed to have a better location in terms of transport costs to the North American market and the Pacific Basin, and it is also a much larger country. The relatively small size of Costa Rica to receive an investment of the dimension of Intel's (US$300 million or equivalent to 2.1 percent of Costa Rican GDP), over two years with a total committed investment of about US$600 million, made Bob Perlman, one of Intel's vice presidents, declare that bringing his company to Costa Rica was like "putting a whale in a swimming pool"

The process of making Intel executives aware of the advantages that Costa Rica represented for the company was neither easy nor cheap in financial terms, though its cost-effectiveness soon became evident. Intel's decision process took more than one year, and involved four phases: pre-qualification, site research, contingent announcement and delivery, and start-up. Seven institutions were directly involved in the process on the side of the Costa Rican government, all under the direction of the Presidency and the Ministry of Foreign Trade, and with the coordination and support of CINDE (Coalición Costarricense de Iniciativas para el Desarrollo), a USAID-funded institution whose main responsibility is investment promotion