Intel Strategic Decision For Location of at Plant

 

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........ 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 w here the knowledge component you selected is connected and the t he 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 p rovider 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 technolog y 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 d eveloped 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 PEST LE 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 co mpany to tap greater opportunities and p possibilities ossibilities which were not available in other regions. The PESTLE analysis is given below for the ove overall rall considerations that Intel had for its future global expansion. PESTLE Analysis Political

The political aspects of most of the countries under und er 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. compan y. 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 cond conditions itions 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 inc ome groups, favorable economic conditions with improving conditions. Moreover, the labor costs were considerably considerabl y low in these countries, which was the main driving factor for Intel to consider co nsider them. The markets were d dynamic ynamic and the customer base for Intel was also increasing in these countries. However, Howeve r, as they were mostly developing countries, they also had high h igh unemployment rates and sometimes a mismatch in human resources and the requirements of companies compani es varied greatly. The infrastructure was another important aspect of the economy. econom y. 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 h ad 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 c onsider for Intel in order to move forward in its growth plans. The main requirement from the countries co untries 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 no nott 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 tha t 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 an y 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 compa ny are good in measuring the present viability of the location whereas technology oriented companies like l ike Intel need to make sure that tha t 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 mo re 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, aut horities, 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 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 Th is 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 p ilferage 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 w weighting eighting methods that could be used to understand unde rstand 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 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 directl y 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 magni tude 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 b efore making a decision. Such issues can be troublesome in the long term and have hav e the potential to cause hu huge ge 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, compan y, 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 p roduction 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. econom y. 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 econ omy or other geographic or demographic reasons. Therefore, it is important to thoroughly study the trends o f a country’s economy and to make decisions accordingly. This is important because the countries coun tries 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. cond itions. It is an important consideration as larger differences in exchange rates and greater fluctuations may ma y upset company’s allocated budgets for such sites. It

is of greater importance for companies working globally glob ally 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, technolo gy, 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 coun try 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, stud y, the choice would be b e 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 compa ny’s management to adjust with the mayor ma yor 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 c ity 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 a ware 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 workplace/home/life 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 o rder to select the location of residence for my m y 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 dail y 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 p resented 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 b y Intel in identifying the right

location for their production plant can be b e related to this example as the requirements for each of the family member are varying from each other othe r 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.

Economic The economic conditions of the markets where Intel considered entering were characterized

These developing inhad Asia, including India, Vietnam andcountries Thailand, political leaders that were willing to take the initiative of facilitating the international company. As Intel was a company that would wou ld 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

mainly high growth rates, increasing middle income by 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

fulfill any added requirements that it may have for successfully carrying out its manufacturing activities.

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.

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 da y business issues and required multinational companies to have close local ties in order to negotiate successful  business terms.

Legal Environmental There were concerns regarding IP protection Environmental issues were important to laws in some of the Asian countries like China. consider in making sure that the company This was the reason why the US had required complied with the international environmental companies to refrain from establishing  protection standards. One such instance related  production operations in China as it had to environmental concerns came in the Ho Chi

concerns over the implementation of their newly formed IP laws in the country. China

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.

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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.

Parameters   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

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 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