Intel's Site Selection Decision

As the range of functions that they performed became ever more diverse -- given their speed, consistency, accuracy, versatility and performance capability -- microprocessors became ever more useful and increasingly sought after in a plethora of industries besides electronics. This increasing demand not only spawned a host of semi-conductor manufacturing companies catering to different segments, but also forced the existing players to expand significantly to stay competitive. Intel quickly became a dominant player in the industry and continued to invest heavily in R&D geared towards the launch of the next generation microprocessors -- thus retaining it edge over competition. As microprocessors became increasingly faster and more complex, they fulfilled the prophecy that Intel’s co-founder Gordon Moore had postulated vis-à-vis that ‘the speed of a micro-processor will double while its price will halve every 18 months’.

While this law held well given the massive demand and development in the industry, to meet the ever increasing demand Intel calculated that it would need to set up a plant every 9 months! Doing this, as well as maintaining high levels of R&D spending, was very expensive, especially in the face of competition and replicability of the technology. Also to remain competitive, Intel could not pass on the costs to the customers. The only way it could continue to remain profitable while reducing costs was by diversifying into markets where it would cost lesser to manufacture than in the US. Accordingly, it got into markets such as Malaysia, Israel, Philippines, Ireland, and China where manufacturing costs were 30-50% lesser than in the US.

Following 2 decades of global expansion into low cost markets, when in 1996 Intel decided to set up another plant, it chose not to go back to any of the already established countries as having too much concentration in any one region had the potential to expose the company to Labor, Geo-Political and Economic risks.... [continues]

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