Running head: Intel

Intel and International Business

Joshua R. Norris

BUS-334-SB

California Baptist University

Intel

Executive Summary

Headquartered in Santa Clara, California, United States of America, Intel is a

multinational corporation that specializes in semiconductor chips and microprocessors. They

have onsite operations in countries all over the world and their two leading customers overseas

are China and Taiwan. This project will discuss the seven forces that affect international

business and how Intel’s business behavior is influenced by them.

The seven international environmental forces to be covered in this report are:

sociocultural; natural resources and environmental sustainability; political; trade; legal;

international monetary system and; financial forces. Because China is a major consumer of Intel

products and because Intel has such a high volume of facilities throughout China, China will be

the country most focused on in this report. This includes the legal and political issues that Intel

most likely faced when establishing each operating site in China and those issues that they likely

continue to manage in China on a regular basis.

In terms of ethics, Intel had a major debacle in 1994, when its latest Pentium processor of

the time was found to have a major computing flaw. Intel covered up this flaw for roughly six

months before owning up to it. This was an issue not only because they attempted to hide it, but

because even after the issue was made public, they did not take appropriate actions in order to

ensure that their customers were adequately cared for and their good name maintained. Because

competing companies were destined to launch their own Pentium class processors the year

following this incident, Intel could have easily put themselves out of business and certainly

minimized their advantage over their competition.

2

Intel

Additional potential ethical questions will be covered regarding the concept of investing

in United States’ industrial commons and adhering to promises of job creation within Arizona, in

exchange for government grants and subsidies for the establishment of a high-tech facility in

Chandler, Arizona. In the end, Intel took appropriate actions in order to not only handle its

mistakes, but they apparently learned from them too. Intel is now revered as one of the most

ethical companies in their industry, worldwide and they require that their vendors emulate and

adhere to Intel’s code of ethics as well.

Intel and International Business

Intel was the brain child of Robert Noyce and Gordon Moore (Intel Facts, 2014).

According to Intel’s interactive timeline, the two scientists left their employment with Fairchild

Semiconductor in 1968 and began a new company under the incorporation of NM Electronics.

Noyce and Moore would later purchase the rights to the name Intel from an old company that

went by Intelco (Intel Timeline, 2014). “By 1971, they had introduced the world’s first

microprocessor.” (Intel Timeline, 2014). Intel has since become one of the largest producers of

microprocessors and they operate right here on American soil; headquartered in Santa Clara,

California. Though roughly 55% of Intel’s employees reside right here in the United States

(US), Intel had “82,500 employees worldwide (2010 data)” (Intel Facts, 2014) in 2010.

The semiconductor mogul was selected for this project because they have been around

the block when it comes to working with businesses and governments overseas. Also, they had a

major ethics quandary in 1994 that could have ruined them as a company and could have

hindered them from becoming what it is today; the leading company in processor innovation

globally. One final touch to this company that made them a perfect selection is the fact that they

3

Intel

are currently and have been for the past many years, labeled as one of the most ethical

companies in their class. Ethisphere ranked them one of the world’s most ethical companies

(World’s Most Ethical Companies, 2014). After all, you don’t get to remain king of the

mountain without learning from your mistakes and having a trick or two up your sleeve. Right?

Let’s talk about the forces that exist within international business; how Intel is affected by those

international forces and the ethical element(s) that Intel must consider throughout their global

operations.

Seven International Environmental Forces

Throughout this course, we have learned about the seven forces that effect international

business. Those forces are: sociocultural; natural resources and environmental sustainability;

political; trade; legal; the international monetary system and; financial. Sociocultural forces are

everything from the culture of a demographic target and the culture of the base of operations for

a business. Culture has an effect on all functions of business, whether we are talking about

marketing, human resources or production; accounting and finance or preferred leadership

styles. If a company wishes to sell something to a culturally different nation than that of their

existing markets, they must learn what makes that culture uniquely different from others who

use their product(s) or service(s). If a company wishes to open up shop overseas and wishes to

have it managed efficiently, they need to station someone onsite who can relate to the nationals

who would become human assets to that facility; that way the employees are understood and

understand the direction given to them by said manager.

Natural resources and environmental sustainability are important to international business

because, well, the show must go on. This means that a strategic site of operation would need to

4

Intel

be one which has everything that operation needs currently and may need in the future.

Furthermore, it is important that those resources are going to be available and reliable in order to

not only begin operations, but to continue them as well. A good example in the text was

choosing a site which had the correct geographical location and a climate with the topology that

would allow for enough property to build on and access to the resources around it.

The political, legal and trade forces are perhaps one of the most important factors and to

me, form a triad of potential trouble. These three can be an international business’s best friend or

their worst nightmare. With international business, a manager must not only deal with the

political arena of its headquarters; it must too worry about political issues that arise overseas.

One political situation that I can think of might be an American company who is attempting to

operate a factory within the borders of a government which requires that the site of operations be

co-owned by a company who is national to their country. A major reason that the legal system is

crucial is because the laws that are practiced in the US are not always existent in other countries

overseas and certainly are not enforced in such cases. Though the US is well known for

attempting to practice extraterritoriality, there is nothing that it can guarantee to its multinational

corporations when US laws are broken on another nation’s soil. Lastly, the trade regulations,

which are both legally and politically driven, tend to be volatile and often unpredictable.

The trade regulations on US soil could be helpful to the exporting of goods, but the trade

regulations of the nation for which the product(s) is destined might be too strict to make it

profitable to continue to do business in trade with them. In an extreme case, the US might have

strict rules for what a company intends to export and the receiving nation might have equally

cumbersome regulations on such imports. Types of obstacles that are potentially faced by

5

Intel

international trade could be in the form of tariffs, which are levies or duty taxes and in the form

of nontariff barriers, such as quantitative (quotas), voluntary export restraints (VERs), and

orderly marketing arrangements. According to the text, there are also non-quantitative nontariff

barriers, which could be “classified under three major headings: (1) direct government

participation in trade, (2) customs and other administrative procedures, and (3) standards.” (Ball,

et at, 2013). The compounding barriers of exporting from one nation to another may cause a

business to change where they make a product or too whom they sell their product(s).

Perhaps most complex of the seven forces, the international monetary system is six on

our list. To help with the complexities of international monetary business, the International

Monetary Fund (IMF) provides “rules of the international monetary system “game.”” (Ball, et al,

2013). The floating exchange rate system was recently updated by the IMF to include eight

categories, such as exchange arrangement with no separate legal tender, which is when one

nation adopts the currency of another. According to the text, coordination of seven countries

(G7) and their central banking institutions are becoming “a key factor in the foreign exchange

(FX markets.” (Ball, et al, 2013). Occasionally including Russia as an eighth party (G8), their

combined efforts seem to have staved off potential global monetary disaster in 2008 and are

aiding with the current financial crisis that we are witnessing now.

The seventh international environmental force is the financial. Though closely related to

the international monetary system, the financial force is that of funding operations and

investments for overseas operations. When an international business is operating overseas, the

must deal with exchange rate forecasting in order to navigate monetary policies and fiscal

policies that are in effect from both shores (domestic and foreign). There are also currency

6

Intel

exchange controls, taxes, inflation and interest rates, and balance of payments that need to be

considered. The balance of payments, according to the text, is “a record of a country’s

transactions with the rest of the world.” (Ball, et al, 2013). This can tell an international business

manager whether or not their country’s currency is looking to strengthen or weaken in the eyes

of the international monetary market.

Intel and the Seven Forces

So how does Intel interact with these international environmental forces? To be honest,

their products do not seem to be as greatly affected by sociocultural matters in terms of their

products themselves; their products are basic necessity for other products, which are then geared

toward the sociocultural needs of others. Where it would affect them as a multinational

corporation is in human resources. Rick Newman of US News reported that Intel made $44

billion in 2011 and that 85 percent of it was from overseas. According to Newman, Taiwan and

China are the two major buyers of Intel processors (Newman, 2011), making sociocultural forces

a major thing for them in regards to establishing professional relations with the two oversea

nations. Intel has several onsite operations in China, making the human resources element of this

force a key factor. A visit to Intel’s website resulted in a list of the following facilities that they

have in China: Beijing, the capital of China, is home to one of Intel's labs, research centers, and

sales and marketing offices; Chengdu- This assembly testing facility, which has four factories

and two general-purpose buildings, assembles chipsets using Intel's most advanced packaging

technology; Dalian- Intel’s 300-millimeter wafer fabrication facility in the coastal Northeast

China city of Dalian is Intel’s first wafer fab in China; Shanghai- Intel's three major facilities in

Shanghai include manufacturing, labs, software development, and sales and marketing AND;

7

Intel

Shenzhen- Intel’s sales and marketing office in the Shenzhen Special Economic Zone provides

world-class support (Intel in China Locations, 2014). Intel’s decision to occupy these locations

in China was a good decision. Those areas are integral to China and are well known for having

the human capital that Intel would need for its high-tech, sophisticated products.

Because Intel has such a prominent presence on Chinese soil and because they sell so

much product to them, the political and legal forces of international business are also strong.

One thing that Intel would have needed to do before considering opening their first onsite

operation in China, is find proper legal counsel. This is because, according to Dan Harris of

Harris & Moure, PLLC, China requires there to be a resident company of China to go into the

operations as a joint venture (Harris, 2010). Without proper legal insight and an ironclad legal

contract, Intel could very well have invested in a muliti-million dollar operation in China and

end up not having control over a single task within that operation. Also, Intel would need to

know how much of their trade secrets would be protected under the Chinese legal system. There

is little detail available as to the legal support that Intel has in China, or the political influence,

but it seems that things must being going well enough to decide to open up multiple facilities.

Having onsite operations in China probably cuts down on the trade issues for Intel that

other international businesses have because they produce the majority of their products to be

sold there in the same country, China. Since China is one of the two leading consumers of Intel

products, it makes sense to have a presence there. The area that this might become an issue for

Intel is whether or not they need to import materials to China that are not readily available there

already. In which case, they would need to be well versed in the trade import regulations for

China as well as the export regulations of the origin nation from whence they came. According

8

Intel

to the US-China Business Council (USCBC), the exchange rate from US to China is leveling out

a bit from previous years, but the renminbi (China’s currency) is valued at a lower rate than the

US dollar (US-China Trade Agenda, 2013). What that means for Intel is that production is

significantly cheaper for them to produce there. Also, the USCBC indicated in their report that

China is growing as a domestic market for companies, like Intel, who have onsite operations

with the intention of selling to them locally. By keeping local operations, Intel is subject to any

financial forces that China imposes on local businesses, but because China is known for unfair

import regulatory tactics anyway, Intel is most likely better off with any taxations, inflation and

interest rates that they might see there.

Intel’s Ethical Debacle

In 1994, Intel experienced an ethical situation which brewed into a major public relations

nightmare for them. According to David Kirkpatrick of Fortune magazine, Intel’s Pentium

processor, had a flaw that, “in rare cases” (Kirkpatrick, 1994), caused mathematical errors.

Though Intel’s stance at the time was that only complex math problems of scientists could result

in such problems, Kirkpatrick pointed out that “the errors might conceivably affect business

people designing currency trades, insurance contracts, and even bridges.” (Kirkpatrick, 1994). In

his article, Kirkpatrick established that the public view of Intel’s handling of this debacle was

less than adequate. Though the Chief Executive Officer (CEO) of Intel, Andy Grove, eventually

established that Intel would replace the defective chips with properly reworked ones, Kirkpatrick

reported “That was too little too late, according to the loquacious denizens of the Internet.”

(Kirkpatrick, 1994).

9

Intel

Intel failed to act ethically when faced with two problems during this event: 1) they knew

about the flaw in their product for roughly six months before they were forced to face it when a

third party discovered it AND; 2) they did not take appropriate actions in order to amend to

problem that their flawed product had or could have caused their customers. According to an

article from North Carolina State University (NCSU), Intel knew about the bug problem six

months before the public found out about it, and they did nothing (Pentium FP Bugs, 2014). The

NCSU article had the following to add in regards to ethics:

“The company violated many of the code of ethics that engineers from all

branches adhere to. First and foremost any product offered to the public comes

with a guarantee to be free from design error. If such an error becomes apparent

by its users, the company that issued the product must take the proper steps to

insure the problem is fixed. Intel let the bottom line come between the company

and its ethics. Intel made a grave decision in part do to a lack of ethics by the

decision makers as well as the workers that discoverd the bug. It is not enough to

fix the problem on all new models. The company should have had leadership that

was bright enough to realize the ethical issues and make the right decisions.”

(Pentium FP Bugs, 2014).

Perhaps most important in this situation that Intel would later regret, was the fact that

competing businesses were beginning to launch Pentium class processors into the market that

very next year. According to Dan Ness regarding Intel’s competition, as quoted by Kirkpatrick,

“Now when any of these guys call PC makers it should be a lot easier to get a return phone call.”

(Kirkpatrick, 1994). Though Intel seems to be running well ahead of the pack these days, they

10

Intel

might have given a lot of room for competitive businesses to catch up and this kind of blunder

could have ruined the company at such a delicate time of operation. When a customer no longer

has faith in a product and its creator, they start looking for something better and more

dependable and it seems that after this dilemma, Intel picked up on that real quick.

Another ethical issue that faces Intel these days is whether or not they are responsible for

maintaining operations in the US; more specifically, its operations in Arizona. According to an

article in PC magazine, Intel recently completed a new high-tech facility in Chandler, Arizona,

only to decide not to use it at all (Poeter, 2014). “The chip giant received $3.3 million in state

tax credits from Arizona for creating about 1,000 new permanent jobs with Fab 42” said Poeter’s

article (Poeter, 2014). But instead, Intel made the decision to maintain its operations in their

existing Arizona facilities “as a simple matter of finding a more efficient means of getting to

14nm production at existing facilities.” (Poeter, 2014). This could have been a major ethical

problem for Intel, had Arizona officials felt that Intel reneged on their deal to provide more jobs.

Luckily, “Intel has in fact kept its end of that deal, adding more than 1,000 new workers to its

payroll in the state—they just work at other Intel manufacturing facilities in the area, according

to Mulloy.” (Poeter, 2014).

Now that Intel has this high-tech facility on US soil, it is likely that they will make use of

it for future advancements in their industry, which too aids in a quest for establishing industrial

commons for innovation in the US. According to the authors of Producing Prosperity

“Businesses need to recognize that manufacturing is not the disposable commodity they thought;

rather, it is a capability that brings competitive advantage. They should be investing in the local

commons because it is in their best interests to do so.” (Pisano & Shih, 2012). It will be

11

Intel

interesting to see what kind of industrial commons may begin to seed itself in Chandler,

Arizona, when vendors necessary for Intel’s upcoming innovations begin to set up shop next

door. After reading Pisano and Shih’s position on industrial commons and innovation in a field

such as Intel’s, it is safe to say that this facility was a step in the right direction for Intel.

Putting It All Together

Intel has a major global operation going on and they have the infrastructure in place to

maintain their thrown as king of the mountain. Their decision to be one of the most ethically

managed businesses is bold and refreshing. Just reading about their mission statement and

position on ethical operation will draw other business’s to do business with them and will create

trust between their consumers and the products that have Intel’s name on the packaging. Though

some businesses might see savings in cutting corners, Intel will have a better profit in the long

run when they are sitting atop a foundation of trust and loyalty. As far as their operations

overseas, they seem to have a good handle on location strategies for their onsite installations and

their targets for importing and exporting instead.

12

Intel

References

Ball, D. A., Geringer, J. M., McNett, J. M., & Minor, M. S. (2013). International business: the

challenge of global competition (13th ed.). New York: McGraw-Hill/Irwin.

Intel Timeline: A History of Innovation. (n.d.). Intel. Retrieved April 20, 2014, from

http://www.intel.com/content/www/us/en/history/historic-timeline.html

Kirkpatrick, D. (1994). Intel's Tainted Tylenol?. Fortune, 130(13), 23-24.

Pisano, G. P., & Shih, W. C. (2012). Producing prosperity: why America needs a manufacturing

renaissance. Boston, Mass.: Harvard Business Press.

World’s Most Ethical Companies – Honorees. (n.d.). Ethisphere. Retrieved April 21, 2014, from

http://ethisphere.com/worlds-most-ethical/wme-honorees/

Pentium FP Bugs. (n.d.). Pentium FP Bugs. Retrieved April 21, 2014, from

http://ethics.csc.ncsu.edu/risks/reliability/pentium/study.php

Harris, D. (2010, November 2). China Legal Issues For Business. The Ten Minute Version..

China Law Blog. Retrieved April 25, 2014, from

http://www.chinalawblog.com/2010/11/china_legal_issues_for_business_the_ten_

Newman, R. (2011, June 30). Why U.S. Companies Aren't So American Anymore - US News.

US News RSS. Retrieved April 21, 2014, from

http://money.usnews.com/money/blogs/flowchart/2011/06/30/why-us-companies-arent-

so-american-anymore

13

Intel

US-China Trade Agenda. (2013, May 30). Home. Retrieved April 25, 2014, from

https://www.uschina.org/reports/trade-agenda-may-30-2013#US%20Companies%20in

%20China:%20In%20it%20to%20Win...Market%20Share

Poeter, D. (2014, January 15). Intel Scraps Plans to Open Cutting-Edge Arizona Chip Plant.

PCMAG. Retrieved April 20, 2014, from

http://www.pcmag.com/article2/0,2817,2429600,00.asp

Intel Facts. (n.d.). Intel. Retrieved April 20, 2014, from

http://www.intel.com/content/www/us/en/company-overview/company-facts.html

Intel in China Locations. (n.d.). Intel. Retrieved April 25, 2014, from

http://www.intel.com/content/www/us/en/jobs/locations/china/sites.html

14