Intel: Strategic Decisions in Locating a New Assembly and Test Plant (A)
Intel: Strategic Decisions in Locating a New Assembly and Test Plant (A)
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Intel: Strategic Decisions in Locating a New Assembly and Test Plant (A)
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Table of Contents
Requirement #1 – Explain WHY you chose that particular case/topic. ........................................................ 3
Requirement #2 – Answer the questions from Short list paragraph of the case. ........................................ 3
Q1: had his team made the right choices and captured the relevant data for the future considerations
– politically, environmentally, financially, technologically, operationally and in terms of unforeseen
industry changes? ..................................................................................................................................... 3
PESTLE Analysis ..................................................................................................................................... 3
Q2: Was their weighting of the criteria right? .......................................................................................... 5
Q3: What could come in the future that might impact those weighting decisions? ................................ 6
Natural disasters ................................................................................................................................... 6
Government ties with the target country ............................................................................................. 7
Changes in long term priorities of the target country .......................................................................... 7
Greater fluctuations in currency exchange rates.................................................................................. 7
Lack of IP laws implementation ............................................................................................................ 8
Q4: Where will the board choose? ........................................................................................................... 8
Requirement #3 – Describe a situation or example from your workplace/home/life where the knowledge
component you selected is connected and the potential impact it could have in the situation that you
describe. ........................................................................................................................................................ 9
Appendices.................................................................................................................................................. 10
Figure 1: PESTLE Analysis ........................................................................................................................ 10
Figure 2: Intel’s Site Criteria and Parameters ......................................................................................... 11
Intel: Strategic Decisions in Locating a New Assembly and Test Plant (A)
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Requirement #1 – Explain WHY you chose that particular case/topic.
Intel is the leading global manufacturer and provider of microprocessors. By focusing on this
case study, we can better understand the main aspects that are considered in making important
strategic decisions like global positioning of manufacturing facilities. Intel is a technology leader
which has the capability to define growth prospects for any country of partnership. In
understanding this case study, technological and strategic impact of a company’s long term
decision can be understood in a global perspective. It also helps us to understand the implications
of political ties on the business of large firms like Intel and how they impact their strategic
decisions. The kind of technological resources developed by Intel also require certain
infrastructure capabilities to be present at the site of selection of production facilities. Therefore,
it would be interesting to find out different infrastructure capacities of prospective locations for
the AT plant locations of Intel.
Requirement #2 – Answer the questions from Short list paragraph of the
case.
Q1: had his team made the right choices and captured the relevant data for
the future considerations – politically, environmentally, financially,
technologically, operationally and in terms of unforeseen industry changes?
In order to make a more informed decision it is important to carry out the PESTLE analysis for
the countries under observation. The company should have kept the options for its prospective
sites a bit more open so as to include South American countries and countries in other regions
that would enable the company to tap greater opportunities and possibilities which were not
available in other regions. The PESTLE analysis is given below for the overall considerations
that Intel had for its future global expansion.
PESTLE Analysis
Political
The political aspects of most of the countries under consideration were favorable for Intel. These
developing countries in Asia, including India, Vietnam and Thailand, had political leaders that
were willing to take the initiative of facilitating the international company. As Intel was a
Intel: Strategic Decisions in Locating a New Assembly and Test Plant (A)
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company that would drive other technology companies in to the target market, they were seen as
the stepping stone towards a more prosperous region. The local political leadership, which was
directly involved in making sure that Intel was well aware of the local conditions regarding the
establishment of the factory, was usually very keen to facilitate the company and to fulfill any
added requirements that it may have for successfully carrying out its manufacturing activities.
Economic
The economic conditions of the markets where Intel considered entering were characterized
mainly by high growth rates, increasing middle income groups, favorable economic conditions
with improving conditions. Moreover, the labor costs were considerably low in these countries,
which was the main driving factor for Intel to consider them. The markets were dynamic and the
customer base for Intel was also increasing in these countries. However, as they were mostly
developing countries, they also had high unemployment rates and sometimes a mismatch in
human resources and the requirements of companies varied greatly. The infrastructure was
another important aspect of the economy. Main infrastructure requirement for Intel was an
abundant supply of water to the production plant and uninterrupted power supply.
Intel was thought to greatly improve the economic conditions of any market where it chose to
start operations. This included creating thousands of new jobs in the market, bringing in other
high-end technology oriented companies in the region and other subsequent perks.
Socio-cultural
Some of the countries under consideration had strong entrepreneurial spirit which translated into
hardworking individuals willing to go the extra distance in learning new skills and fulfilling
allotted duties and tasks. Some countries were more welcoming to international companies while
others were more connected to the local firms. Most of the Asian countries had informal systems
in place in tackling day to day business issues and required multinational companies to have
close local ties in order to negotiate successful business terms.
Technological
Technology was the basic requirement to consider for Intel in order to move forward in its
growth plans. The main requirement from the countries was the provision of basic infrastructure
to facilitate the development of technologies that Intel was likely to incubate in the future
factories. Moreover, some countries required Intel to only bring the progressive technologies for
Intel: Strategic Decisions in Locating a New Assembly and Test Plant (A)
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development in their countries and not the earlier-generation technology which would not benefit
the location a greatly as next generation technology would.
Legal
There were concerns regarding IP protection laws in some of the Asian countries like China.
This was the reason why the US had required companies to refrain from establishing production
operations in China as it had concerns over the implementation of their newly formed IP laws in
the country. China and other countries being considered were, however, taking measures to
implement IP laws in order to provide protection guarantees to foreign investors in the country.
Environmental
Environmental issues were important to consider in making sure that the company complied with
the international environmental protection standards. One such instance related to environmental
concerns came in the Ho Chi Minh City o f Vietnam. The issue was regarding the correct
disposal of waste that would fall in the creek. The creek was meant to provide sufficient supply
of water for the company’s considerable demand of abundant daily water supply; however, there
was a present threat of the water getting polluted by the waste from the factory thus presenting
environmental concerns. Similarly, other countries also had environmental issues and these
required proper consideration from Intel before proceeding with any suggested location.
Q2: Was their weighting of the criteria right?
The weighting criterion for plant selection at Intel is given in figure 2. As Intel is an incubator
organization, there need to be more detailed weighting criteria than that used by the company. a
plant location selection not only involves the basic utilities requirements to be considered but
also other important aspects relating to the company’s long term goals in the region.
The existing parameters used by the company are good in measuring the present viability of the
location whereas technology oriented companies like Intel need to make sure that locations are
suitable for long term sustainability. The criteria related to power, water and sewer are important
in deciding the location; however, these are only basic requirements for the Intel plant to operate
successfully. Other aspects are equally or even more important than these parameters. Power can
be compensated with added backup generators if the need arises, water issues can be sorted out
through collaboration with local providers and authorities, and sewerage systems can be
Intel: Strategic Decisions in Locating a New Assembly and Test Plant (A)
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demanded from those governments that are really interested in Intel’s initiative of establishing a
production plant in their country.
Moreover, the weighting of the selected criteria is fine as far as the practicality of parameters is
concerned. The measuring parameters shown in figure 2 indicate the practical nature of the
parameters. The measurability of these criteria is high. The measurability could, however, be
improved by increasing the level concentration of each point in the measuring scale. For
example, there is only one level for measuring the quality of power .i.e. no voltage sags would
translate to 100% constant voltage through transmission lines. This could be improved by
introducing other factors in the measuring criteria as there is seldom a case of 100% voltage
transmission in most of the developing countries due to pilferage issues and the use of inefficient
transmission lines. Thus, by combining these factors with the existing weighting criteria, the
accuracy of data for such parameters could be greatly improved. Other weighting methods that
could be used to understand the viability of different locations are factor rating method,
locational breakeven analysis and multiple facility location method using center of gravity
approach.
In order to improve the parameters for site selection at Intel, other important weighting criteria to
be added to the existing parameters include growth prospects in the region, existing customer
base and their growth trends, existing supporting organizations and organizations that would
benefit from the existence of Intel and other infrastructure capabilities like logistics and labor
support.
Q3: What could come in the future that might impact those weighting
decisions?
There are many aspects to consider that might have huge impact on the operations of a company
in a certain country. These aspects directly impact the weighting decisions for the parameters
detailed in figure 2. Important areas of concern for the future are explained below.
Natural disasters
One important thing to consider when weighting different parameters for the viability of a
location is the trends relating to natural disasters in that country. There are many regions in Asia
that are prone to natural disasters like high magnitude earthquakes, frequent floods etc. it is
Intel: Strategic Decisions in Locating a New Assembly and Test Plant (A)
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important to establish firm understanding of a location’s climate trends and the frequency of
natural disasters needs to be precisely gauged before making a decision. Such issues can be
troublesome in the long term and have the potential to cause huge financial loses. Climate trends,
earthquake histories, flood stats are all important considerations before making the move into
any global market previously not examined.
Government ties with the target country
As Intel is a US based company, it is important to consider governmental ties with various
countries which may become the choice for establishing its production facility. As mentioned in
the case study, the US regulations had prohibited the construction of a semiconductor fab in
China due to the IP protection issues. This meant that similar prohibition may also be possible
with respect to other countries. Intel also needed to make sure that it located its production
facility in a location that was friendly to US companies.
Changes in long term priorities of the target country
Countries have different priorities at different times with regards to focus on aspects of economy.
Some countries change from being an agri-based economy to tech-based economy. Similarly,
some countries change their priorities from being tech-based to agri-based due to internal reasons
like matching the local skills with the economy or other geographic or demographic reasons.
Therefore, it is important to thoroughly study the trends of a country’s economy and to make
decisions accordingly. This is important because the countries that would be more inclined
towards industrial reforms would keep facilitating related companies, like Intel, with regards to
infrastructure needs as it would prove to be an investment in their long term betterment.
Greater fluctuations in currency exchange rates
Some countries have unstable exchange rates whereas others have stable exchange rates due to
certain market and economic conditions. It is an important consideration as larger differences in
exchange rates and greater fluctuations may upset company’s allocated budgets for such sites. It
is of greater importance for companies working globally as transactions between company’s
subsidiaries might occur in different currency whereas the local transactions and payments made
out for operational expenses may be in a different currency. The lesser frequent the fluctuations
in the exchange rates for the concerned currency, the better for budget allocations for Intel.
Intel: Strategic Decisions in Locating a New Assembly and Test Plant (A)
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Lack of IP laws implementation
Another important aspect that may have an impact on the weighting decisions is the lack of
implementation of IP laws by the local governments. As there would be other companies
working in close vicinity of Intel to make similar technology, it is vital for them to locate their
facilities in locations that give them better control over their intellectual property. Otherwise,
there would be a threat to the global company as a whole and any saving that the company makes
with regards to operational costs and other related progressions would become irrelevant.
Q4: Where will the board choose?
The board will have to make decision according to the data provided by Krzanich and his team.
The data provided along with the analysis of macroeconomic factors relating to the country and
the onsite visits made by them, the countries most favorable would be those that have the
capability to sustain long term growth and are able to provide continual support for the company.
After assessing the data presented in the case study, the choice would be the Ho Minh Chi City
in Vietnam. The reason behind this is the entrepreneurial spirit that the mayor of Ho Minh Chi
displayed and was very eager for the company to establish their operations in the City.
Moreover, it would be easier for the company’s management to adjust with the mayor and create
good understanding to reach a win-win situation for both the parties. This was because the mayor
was a Harvard graduate with the kind of attitude to which Intel could relate to. Thus it would be
much convenient to get things done.
Another important consideration is the supply of raw talent in the market which could be molded
according to the needs of Intel. With hard working Vietnamese possessing good work ethic and
the economy booming at 7% annual growth rate, the choice of this city of Vietnam would be
beneficial for the company. The infrastructure lags that existed could be overcome through deals
with the government on entry upon conditions of immediate initiation of related development
projects that would facilitate the company’s operations. Similarly, the issue identified regarding
the creek present at the site in Ho Minh Chi City could be sorted out through the mayor of the
city. Treatment plants for the wastes from organizations working in the technology park can be
established and arrangement for alternative sewer routes can be established for the pollutants.
These issues can be addressed effectively in this city because the mayor is willing to make it
work for the company and is ready to provide competitive working infrastructure for the
Intel: Strategic Decisions in Locating a New Assembly and Test Plant (A)
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company as he is well aware of the other markets present in Asia and the level of their
competitiveness.
Requirement #3 – Describe a situation or example from your
workplace/home/life where the knowledge component you selected is
connected and the potential impact it could have in the situation that
you describe.
The example that I present here is related to the strategic decision that was required in order to
select the location of residence for my family. When I started university, there were other
changes occurring in my family regarding Job shifts and schooling locations for my younger
siblings. At that moment, it was vital that such a location for the residence is selected that is
suitable for each member of the family and relates efficiently to save costs and time in the long
run. While deciding for a residential location, it was important to keep in view the impact of
supporting facilities like transportation, grocery stores, and relative time consumed in daily
commuting. Another important aspect was that the decision had to match the long term needs of
the family as changing residence is not a daily activity. Thus, the strategic positioning of
residence along with analysis of all important supporting factors carried out in order reach the
final decision. The case of Intel relates significantly with the example presented here as similar
location considerations were needed to be made which even took into consideration the
supporting external aspects of the residential areas. Moreover, the long term aspect was also
similar to Intel’s long term locating needs. the challenges seen by Intel in identifying the right
location for their production plant can be related to this example as the requirements for each of
the family member are varying from each other and the distances to their work, school etc are
also considerably variable. Therefore, it is crucial to find a relevant location for residency as
transportation costs to different locations differ and the facilities available that support the day to
day activities of the family members also differ. Similarly, different locations in the city have
different levels of services regarding availability of infrastructure, utilities and security
arrangements. These facilities have great impact on the final decision of location and it all comes
down to the priorities regarding services, infrastructure, transport facilities and distances.
Intel: Strategic Decisions in Locating a New Assembly and Test Plant (A)
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Appendices
Figure 1: PESTLE Analysis
Political
The political aspects of most of the countries
under consideration were favorable for Intel.
These developing countries in Asia, including
India, Vietnam and Thailand, had political
leaders that were willing to take the initiative
of facilitating the international company. As
Intel was a company that would drive other
technology companies in to the target market,
they were seen as the stepping stone towards a
more prosperous region.
The local political leadership, which was
directly involved in making sure that Intel was
well aware of the local conditions regarding
the establishment of the factory, was usually
very keen to facilitate the company and to
fulfill any added requirements that it may have
for successfully carrying out its manufacturing
activities.
Socio-cultural
Some of the countries under consideration had
strong entrepreneurial spirit which translated
into hardworking individuals willing to go the
extra distance in learning new skills and
fulfilling allotted duties and tasks. Some
countries were more welcoming to
international companies while others were
more connected to the local firms. Most of the
Asian countries had informal systems in place
in tackling day to day business issues and
required multinational companies to have close
local ties in order to negotiate successful
business terms.
Legal
There were concerns regarding IP protection
laws in some of the Asian countries like China.
This was the reason why the US had required
companies to refrain from establishing
production operations in China as it had
concerns over the implementation of their
newly formed IP laws in the country. China
Economic
The economic conditions of the markets where
Intel considered entering were characterized
mainly by high growth rates, increasing middle
income groups, favorable economic conditions
with improving conditions. Moreover, the
labor costs were considerably low in these
countries, which was the main driving factor
for Intel to consider them. The markets were
dynamic and the customer base for Intel was
also increasing in these countries.
As they were mostly developing countries,
they also had high unemployment rates and
sometimes a mismatch in human resources and
the requirements of companies varied greatly.
The infrastructure was another important
aspect of the economy. Main infrastructure
requirement for Intel was an abundant supply
of water to the production plant and
uninterrupted power supply.
Technological
Technology was the basic requirement to
consider for Intel in order to move forward in
its growth plans. The main requirement from
the countries was the provision of basic
infrastructure to facilitate the development of
technologies that Intel was likely to incubate in
the future factories. Moreover, some countries
required Intel to only bring the progressive
technologies for development in their countries
and not the earlier-generation technology
which would not benefit the location a greatly
as next generation technology would.
Environmental
Environmental issues were important to
consider in making sure that the company
complied with the international environmental
protection standards. One such instance related
to environmental concerns came in the Ho Chi
Minh City o f Vietnam. The issue was
regarding the correct disposal of waste that
Intel: Strategic Decisions in Locating a New Assembly and Test Plant (A)
and other countries being considered were,
however, taking measures to implement IP
laws in order to provide protection guarantees
to foreign investors in the country.
11
would fall in the creek. The creek was meant to
provide sufficient supply of water for the
company’s considerable demand of abundant
daily water supply; however, there was a
present threat of the water getting polluted by
the waste from the factory thus presenting
environmental concerns.
Figure 2: Intel’s Site Criteria and Parameters
Criteria
Power reliability
Power quality
Electricity rate price
Power infrastructure cost
Power infrastructure timing
Power availability capacity
Water infrastructure cost
Water infrastructure timing
Sewer infrastructure cost
Sewer infrastructure timing
1
MVA= Megavolt ampere
Parameter of Tolerance
No power voltage sags; 100% reliability
No voltage sags; 100% constant voltage
through transmission lines
Range: $.20 kwh (high); $.15 kwh (mid); $.10
kwh (low)
Zero cost for new substation and redundancy is
preferred
Ready for start of construction
40 MVA1 meets needs;80 MVA exceeds needs
Zero cost for water rights and waterlines to site
Ready for plant construction start
Zero cost for POWT (public operated treatment
works) and all waterlines to site
Ready for construction start