Annexure-V- Cover Page for Academic Tasks

Course Code:

MGN 514
Course Title: International environment and
Management

Course Instructor: Ravinderjeet singh sir

Academic Task No.:

Academic Task Title: Costa Rica

Date of Allotment: 25/08/2016

Date of submission: 27/09/2016

Students Roll no: A16

Registration number: 11611745
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Introduction
Costa Rica is a Central American country with the total population of more than 4
million people. Costa Rica geographical location is such that it is bordered with
North Pacific Ocean on one side and the Caribbean Sea on the other which
accounts for fertile soil and its diversity.
Costa Rica falls under upper middle income country as it poses the characteristics
of both developing and developed countries with a per capita GDP of $12,500.
This country highly depends upon agricultural commodities ie: coffee, bananas,
sugar and pineapples for its export earnings. Country has a literacy rate of around
96% and even income distribution. Political stability of the country is also very
good from long history hence making it a better growing country.
Costa Rica is open to international trade and factor-mobility policy which plays a
key role for any country to grow. For a country to pursue and achieve its economic
objective these two factors are need to be taken care of because these two factors
involve movement of capital, technology and people into the country. These
policies are very dynamic in nature and naturally they change with time as
countries domestic and foreign condition evolve. In Costa Rica these policies have
evolved continuously and significantly over the time. Costa Rica has evolved
through four historical periods, each period is characterized by some set of policies
for international trade and factor mobility during that period.
Although Costa Rica is an agricultural country and is largely depend on
agriculture, this Central American country has succeeded in diversifying its
economy into different sectors as well ie: Tourism, Technology, Oil and refinery
industry also there is a petrochemical plant in nearby Moin. Also Intel occupies
major manufacturing and distribution center, hence Costa Rica is able to
incorporate industrial growth over the span of time into the nation.

Four Eras
The Four Eras can be broadly classified as:

1800s-1960
1960-1982
1983-Early 1990s
Early 1990s-Present

1800s-1960:
Before 1960 people of Costa Rica were solely dependent on agriculture. They were
involved into liberal trade. Liberal Trade is a policy in which government has
minimum interference in trade and management. Some of the factors which
convinced Costa Rica leaders to adopt diversified production and being
economically self-dependent. These factors arose because of both external and
internal circumstances:
Trade disruption because of the two world wars
Major drop in coffee and banana prices relative to price of manufactured
products, when Africa as a major commodity producer entered the world
market
Therefore Costa Rica turned into policies centered on the idea of becoming import
substitution

1960-1982:
Between 1960 to 1982 this Central American nation feel the need to protect their
economy so they started to Import substitution (policy which encourages local
production of goods) means they started developing domestic industries for
manufacturing of goods rather than importing. In early 1960s phase Costa Rica
leaders said that if they limit the import by putting heavy tax then they would

provide Costa Rica and also the foreign investors with an incentives to produce
more domestically for Costa Rica consumers.
But eventually they realized the fact that Costa Rica market is too small for
investments requiring large-scale production. Therefor to deal with this problem,
Costa Rica joined with four other countries that were- EI Salvador, Guatemala,
Honduras and Nicaragua and formed the CACM (Central American Common
Market) which allows free trade between all four member countries. Under this any
member country which is involved in production will have to serve five country
market rather than a one-country market.
Results of introducing CACM were mixed:
Dependency on agriculture decreased form 25.2% of GDP to 18% of GDP
Costa Rica found new markets both locally and export for coffee and cotton
seeds.
Many economist and potential investors however began to worry policies
designed to protect local production is in danger ie: price controls, import
prohibition and subsidies.

1983-EARLY 1990s:
In this phase government started removing import barriers to ensure internationally
competitive companies and industries should enter more into the nation. Costa
Rica started following strategies:

Adoption of less protection regime

Promoting liberalization of imports
Encourage export promotion
Started providing incentives to attract foreign capital and expertise

Costa Rica therefore formed CINDE, a private organization which was funded by
the government and grants from the US government. The main purpose of CINDE
was to provide economic development to the country and one of its major role was
to attract foreign direct investment. Costa Rica also established an export
processing zone (EPZ) which allows companies operating within the nation, to
import all the equipments and raw material tax free.

However again this time CINDE officials were started to worry about two potential
problems:
That Costa Rica is not able to make itself cost competent in the type of
product it is exporting from the EPZ, because other countries like Mexico
were getting benefit from even lower U.S. tariffs
Also Costa Ricas highly skilled and educated workforce were not able to
get the maximum advantage by the type of industries which was attracted to
the EPZ.
Hence CINDE officials decided to work with the government of Costa Rica to
identify and attract the investors who match up better scale.

EARLY 1990- PRESENT:

In the early 1990 Costa Rica shifted to identifying and targeting industries
approach to compete globally. The policy adopted by Costa Rica during this phase
can also be called as strategic trade policy. Costa Rica decide to target industries
where it sees the high growth potential for example: Manufacturing of Medical
instruments and Appliances, IT and Software industries which could pay more
wages and salaries to their employees than those industries that had already
invested in the EPZ. Costa Rica also started attracting lots of tourism traffic and
the nation started focusing towards the highly educated and English speaking
workforce, hence to make it work they started building better education system and
technical centers which will enable the availability of engineers and technical
workforce. These factors played significant role in attracting foreign investments.
Also political and social stability of the country and a high level of economic
freedom together played a major role in building a more better nation, which
attracted more foreign investments, making Costa Rica to compete on the
international market level.
Hence if we see the dynamics of Costa Rica or the phases through which country
has gone through. It is clear that nation has grown from agricultural based to the
industrialization ie: IT/Software and electronic industries etc.

What CINDE Recommended?

CINDE also hired the Foreign Investment Advisory Service (FIAS) of the
International Finance Corporation (an arm of World Bank), to study the feasibility
to attract more companies to Costa Rica. It was also declared by FIAS that
attracting right number of the companies at the right time is well within the reach
of Costa Rica.
FIAS also suggested to Costa Rica the areas where country needs to target
industries to gain maximum advantage. For example:
Targeting power technologies sector- which fits Costa Rica as nation was
having labor force which was well educated in terms of its cost.
Also FIAS recommended Costa Rica that officials targeted industries will be
beneficial for nations growth as it supported the IT, Electronic and computer
industries. FIAS also noticed the areas where Costa Rica needed to improve
for example: protection of intellectual property rights and also English
understanding among technicians and the engineers.
Therefore Costa Rica revised and enhanced the training given to the midlevel
technicians, also they introduced some of the foreign language training for the
personnel which were brought in by the foreign investors.

Costa Ricas Progress Report

We can see that after implementing strategic trade policy and setting out attractive
investment schemes Costa Rica industries accounted significant growth in
electronics and software. Costa Rica was able to attract such high-level investors
which build up the brand value of the nation as reliability, Protek etc. One of the
largest investment done by Intel making it a computer-chip giant Nation. CINDE
officials involved top government officials and company leaders in any meetings
with the Intel executives making them easy to respond quickly and knowledgably
to any queries and questions put up by Intel executives.
Although Costa Rica still focuses on exports of banana and coffee as it is important
for nations economy, but about two-third of exports are through manufactured
goods involving high tech products which also consist medical devices, electronic
chips and equipments which is now the backbone of the countrys economy and
export earnings.

Conclusion
The following case shows how Costa Rica used its trade policies and factor
mobility which helped the nation significantly to achieve economic, social and
industrial growth. Costa Rica worked on the idea of what, how much and with
whom their country should export or import to acquire its economic growth.
Some of the key factors which helped Costa Rica to become a better economy
country are:
Factor mobility- movement of capital, technology and people into the nation.
Its Strategic trade policy (or industrial policy).
Formation of CINDE which aims to provide economic development and
attracting foreign direct investments.
Liberalization of imports and also promotion of exports.
Providing incentives for foreign investments.
Hence we can conclude that Costa Rica understood the Trade theory which helped
the government and policymakers to focus on making better trade policies and
building up the nations brand value.

References
International Business (environment and operations) by John D. Daniels.
www.pearsoned.co.in/daniels.