Costa Rica is positioning itself to play a key role in the US semiconductor value chain, as it leverages funding from Washington to develop its workforce and help the US regionalise the critically important industry across the Americas and reduce its reliance on east Asia.

In July 2023, the central American country became the first of six partner countries to be announced as a beneficiary of the US’s $500m international technology security and innovation (ITSI) fund, a chapter of the 2022 Chips and Science Act that is being distributed as $100m annual instalments over five years beginning in fiscal year 2023. Mexico and Panama will also receive ITSI support. The remaining three countries partnering with the US are in Asia: the Philippines, Vietnam and Indonesia.

Most of the attention on the Chips Act so far has been on the billions of dollars offered to companies like Intel, TSMC and Samsung to build new semiconductor fabrication plants in the US. The smaller ITSI fund, meanwhile, aims to enhance capabilities in semiconductor assembly, testing and packaging (ATP) in allied countries to support the new US fabs due to come online in the coming years.

“The ITSI fund augments the Chips Act domestically and is a recognition that we need partners to be able to shift different parts of the semiconductor supply chain to the western hemisphere,” says Virginia Kent, the US Economic Bureau’s senior coordinator for the ITSI fund.  

ATP operations tend to be more labour intensive, have lower margins and involve less complex processes than other parts of the semiconductor supply chain. More than half of global ATP capacity was located in mainland China (30%) and Taiwan (28%) in 2022, according to a report from Boston Consulting Group (BCG).

Costa Rica’s government is now seeking to strengthen its local semiconductor ecosystem and replicate the success it has had in attracting foreign direct investment (FDI) in medical devices — the largest contributor to its exports by value in 2023. But as a relatively small country, it will have to overcome bottlenecks such as infrastructure and compete with well-established, larger countries to attract further ATP investment.

Intel’s heritage

Since US chipmaker Intel invested in its first microprocessor assembly and testing facility in Heredia, Costa Rica in 1996, the country’s semiconductor industry has grown to more than a dozen companies. Costa Rica is home to subsidiaries of several major multinationals in the industry, including electronics specialists Qorvo, Samtec and National Instruments, as well as Teradyne, a provider of testing and automation equipment for a variety of manufacturing operations.

“Costa Rica has a proven track record as a nation able to develop a highly skilled talent pool that constantly takes on more and more sophisticated processes,” says Marianela Urgellés Batalla, the general manager of FDI consultancy Cinde, who previously spent more than 25 years working at Intel. 

But it has not all been plain sailing. In 2014, Intel decided to move its Costa Rican ATP operations to south-east Asia as it consolidated its global operations. However, amid pandemic-era chip shortages and supply chain bottlenecks in 2020, Intel reopened its Costa Rican assembly and testing operations, investing $350m in the process.

Timothy Scott Hall, Intel’s government affairs director in Costa Rica, tells fDi that after the operations were closed in 2014, they decided to transform the empty factories into offices, but “leave all the facilities ready” in case there was a future need for them to house ATP operations. This enabled Intel in 2020 to turn these offices back into a manufacturing floor in 14 weeks, says Mr Hall, which he claims was an internal company record in terms of time and much quicker than a greenfield investment, which would have taken two to three years.

“We [Costa Rica] were the right option as we already had 18 years of experience in manufacturing,” he says. “We had the talent, facilities and the incentives.”

The chipmaker has since doubled down. Just one month after the US declared Costa Rica as an ITSI partner in July 2023, Intel pledged to invest a further $1.2bn over a two-year period to scale up its assembly and test operations. While Mr Hall stresses that the Chips Act funding was not a contributing factor, he says “we need to rebalance the semiconductor supply in some way” and notes Costa Rica is currently Intel’s only location outside of Asia with ATP activities. 

Strategic roadmap

Due to its abundant hydropower, proximity to the US market and political neutrality, including its lack of an army, Costa Rica is in a good position to strengthen its semiconductor ecosystem. As part of these efforts, the government published a national roadmap in March 2024 that rests on four pillars: workforce development, incentives, attracting FDI and improving regulations. 

“We’re not focusing on foundries and big targets like TSMC,” explains Danny Agüero Herrera, a senior FDI specialist in semiconductors at Procomer, Costa Rica’s trade and investment promotion agency. 

Instead of trying to convince companies to build a fab, Mr Agüero Herrera says they are pitching Costa Rica as a location for back-end processes, research and development, distribution, design and ATP operations. 

The US has encouraged its partner countries to map existing skills and areas with potential in the semiconductor ecosystem. In July 2024, the ITSI programme opened the process for organisations in Costa Rica to apply for grants worth a total of $2m for ATP facility workforce development and improvements to regulations to encourage additional private sector ATP capabilities.

Workforce development

In February 2024, Arizona State University (ASU) was awarded $13.8m to work with Costa Rica and the five other partner countries to assess their semiconductor capabilities and develop local curricula to train students for the industry. 

Alongside its involvement in an OECD assessment of how Costa Rica can develop its semiconductor value chain, ASU has developed a partnership programme with universities in Costa Rica to develop ATP curricula, which are expected to begin in the next academic semester starting in September 2024.

“Costa Rica has a good baseline to attract more ATP investment,” says Jeff Goss, executive director of global outreach and extended education at ASU, who highlights the country’s expertise in microelectronics and medical devices. 

But in a highly coveted supply chain, Costa Rica will have to compete with other low-cost locations. Some 25 out of the 36 ATP facilities announced since 2020 will be in mainland China and Taiwan, according to BCG, which expects this to persist due to lower construction costs and skilled labour costs. 

Nonetheless, in the need to reshape the global semiconductor supply chain, there is an expectation that Costa Rica and its other ITSI peers are set to benefit. “Over the longer term, with sustained policy support and foreign investment, we expect a shift of ATP capacity toward other regions, including Latin America, Europe and less-established parts of south-east Asia,” the BCG report concludes.

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This article first appeared in the August/September 2024 print edition of fDi Intelligence.