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Video of Intel CEO contradicts government line on departure

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April 23rd, 2014 (InsideCostaRica.com) A video obtained by Spanish-language digital newspaper, CRHoy.com in which Intel CEO, Brian Krzanich, says that Intel’s decision to close its manufacturing operations in the country came after the company “spent several years trying to work with the Costa Rican government” to reduce the cost of its Costa Rican operations, would seem to contradict the government’s official line that Intel’s decision was completely internal and not related to conditions in the country.

 

In the video, Krzanich said the decision to shutter its Costa Rican operations “were not necessarily targeted towards headcount reduction,” as has been the case with some other closures and restructurings at the company, but instead was based “around the cost [of the Costa Rican] operation.”

 

Krzanich added that Intel “has spent several years trying to work with the Costa Rican government to try to reduce the overall cost of that operation, but we just aren’t able to get it there.”

 

“And so we made a very difficult decision […] if you’ve ever closed a factory it’s a very hard thing to do; I hate doing it; there is a big investment in the people capability that we’ve had there, and that decision was more about the long term operational cost of that operation, not targetting [reduction of Intel’s employee headcount],” Krzanich said in the video.

 

The video surfaces after government officials have spent the last two weeks trying to convince a worried public that Intel’s decision to leave the country was a completely internal decision and part of a larger restructuring underway at Intel worldwide.

 

Foreign Trade Minister, Anabel Gonzalez, insisted after Intel’s April 9th announcement that Intel’s decision was for internal reasons and not due to a deteriorating business climate.  “The country has been making great strides in services, innovation and technology,” she said at the time.

 

In an interview published yesterday by Bloomberg, Olivier Castro, who has been selected by President-elect Luis Guillermo Solis to head Costa Rica’s Central Bank said, “What happened with Intel and Bank of America is not the result of something the country did wrong.”  Castro also went on to dismiss Citigroup’s slashing of its 2015 growth forecast for Costa Rica as a result of Intel’s departure.

 

While Krzanich does not elaborate in the video on the nature of Intel’s discussions with the Costa Rican government, nor does he elaborate on the nature of the high costs associated with the operation, other business leaders have complained in recent years over what they feel is declining competitiveness in the country, including high electricity costs and other issues.

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  • Ben

    Really Intresting sounds like more Layoffs to come in CR. Why does the PLN says they didn´t know this was going to happen? Clearly Intel is looking for better country to do business. What did Intel ask from PLN goverment i wonder no more taxes or no more benfits for staff. I wonder what the asked PLN.

    • DaveP

      From what that says to me is the remaining 1500 will be out of a job soon too…

      • Tico Frank

        Did you even watch the video at all? He clearly states that the closures were not about head count or reducing staff, it was about operational costs that were too high and he specifically states that it was only the manufacturing side that had the high operational costs.

        • Ben

          Whats your point? Intel is looking for a 1 dollar a day in labour cost. Thats the new US model cheap labour in Asia. Apple does it Intel is doing it and many other US companies do this type of cheap labour type of slavery. We understand why they are leaving CR CHEAP LABOUR aka Operational Cost.

          • McDemon

            If that were true Ben, they would be closing down their service sector components as well. It was clearly stated, at an internal meeting, that this would not be the case. Intel closed down not because of labor portion of costs (which by the way have not risen significantly since they entered the market as opposed to Caja costs) but rather the bureaucratic costs of doing business here. Rises in electricity costs of several hundred percent over the last decade are INSANE in a country that touts 94% renewable energy sources(80% is generate by hydro, the CHEAPEST form of energy production).. My average bill in 6 years has increased almost 300% with very little change in habits. It is hilarious that the new central bank president gave an interview to Bloomberg yesterday saying exactly the opposite of what insiders in Intel are saying. I’d like to make an introduction: Face of the CR government meet Egg. Egg, meet the face of the CR government. The new administration better make some big changes very quickly or it will be a very long next few decades in the making for Costa Rica.

          • Ben

            Your right CR has egg on its face both goverment PLN and PAC but Intel is looking for cheap Labour thats a fact and Cheap Countries to work in. I guess thats the world we live in now mega profits. Don´t expect much from new goverment they could have a major revolt if they do anything to crazy. I hope they cut half of goverment staff but they will not. Is Costa Rica done is there any future in CR? That the true question. Do you really trust Intel now or any US company that is in CR working?

          • Ben
          • Andrew

            That attempt by the central bank head to spin the Moodys news in a positive way was among the lamest I’ve ever seen–even by Costa Rican standards. What he should have said was: “I have a new cushy job with the new government. My wife is out right now shopping for a new Benz. I plan to stick my head in the sand and snort up as many turtle eggs as possible before shit really hits the fan–excuse me.”

  • Derryl Hermanutz

    Vietnam probably has lower electricity costs than we do, which is a big factor for a manufacturer. I don’t know if Vietnam has a social security system and caja taxes like CR, but that’s probably another component of Vietnam’s lower costs. Wages may be a bit lower in Vietnam too. Aside from the electricity costs, CR’s other higher costs go directly to raising the standard of living of the workers. If workers are not earning a living wage, then other taxpayers just have to subsidize them. So there’s no benefit in trying to “compete” by driving your country’s working class into tax-subsidized poverty. Corporate globalization is a double edged sword. It makes goods cheap for people who still have incomes to buy goods. But it ravages worker incomes by forcing nations into a downward spiral of corporate subsidies to attract and keep mobile global capital that has no loyalty to any nation.

    • Ben

      There the word Globalization. Poor stay poor and Rich get Richer. As for energy cost i looked it up Asia has about the same as Central America.

      • Derryl Hermanutz

        Thanks for the info, Ben.

    • McDemon

      As the Intel employees were making 15-30% than average pay for their work, salaries were not the cost that caused the departure. If that were the case, they could have shaved the salaries down to average and save a ton of money. The reality is that corruption, graft, inefficiency, multi-layered convoluted bureaucracies, import taxes, immigration costs and delays all add significant costs to operating a business in Costa Rica. People can cry all they want about Vietnam having less of this or less of that or that it is unfair blah blah blah….At the end of the day it is the leaders of Costa Rica that are causing the exodus and it is only they, by taking their greedy little hands out of the proverbial cookie jar, who can stem the tide.

  • http://alligatorsnroadkill.blogspot.com/ John Dungan

    Considering how difficult it can be conducting any kind of business day-to-day in CR, this is certainly no surprise. Beyond the hidden costs of labor are all the bureaucratic hurdles that make life so damn difficult for a business person. I’m frankly surprised they lasted as long as they did, given what I know about that place.

  • stfree

    Actually, it’s a case of BOTH scenarios having truth in them. It all depends on who’s doing the telling.

    A CEO will never publicly admit that their product line has lagged and now must be reworked – but that IS the case with Intel. They have neglected the rapid growth that the mobile devices chip market represents and need to catch up to remain globally competitive. The operation here is dedicated to manufacture chips for PCs, which are waning. The CR government is right in saying the the manufacturing consolidation to Vietnam responds to that need.

    It is also correct that Intel has been unsuccessfully lobbying for reduced costs for it’s manufacturing operations. The price of electricity here is a significant part of that cost structure as the process of chip manufacture consumes large amounts. But equally important was the high cost of lower level manufacturing personnel and the total Costa Rican benefit package (CAJA, Aguinaldo, Cesantia etc) and work week/hours scheduling. Vietnam is early in their human resources cost curve, so they have not imposed equivalents for their workers. The social/work ethic is also considerably different. They probably will change too but it’ll be some years down the road.

    When that happens, the “Intels” of the world will move again in a never-ending cycle.

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