Benchmark de ventajas comparativas de los principales competidores de Costa Rica en la atracción de IED. Don Robinson, Ex VP de Operaciones, Boston Scientific.

1. Costa Rica
Staying Competitive
Congreso de Zonas Francas Azofras Costa Rica
10 de Julio 2014
Hotel Intercontinental
Don Robinson

2. Agenda
• Global View of Medical Device, Multi-National Corporation (MNC) Locations, Observations,
& Trends
• What has history taught us and future changing Global dynamics
• How do MNC’s look at the decision to move off-shore?
• Who are Costa Rica’s competitive country rivals, observations, trends/ cost factors
• The decision process to move Off-Shore
• Model of Cost vs Country
• How to compete in the future to attract MNC’s

3. Brazil
Abbott
Baxter
St. Jude
Singapore
Baxter, Flextronics
Creganna / TacTX/ Abbott
Heraeus, Medtronic, S&N
Indonesia
Heraeus
Caribbean/Central America Cluster
Asia manufacturing cluster
Mexico
Baxter, Bard,
Cordis, Heraeus,
Plexus, S&N,
Medtronic
Puerto Rico
BSC, Baxter
Cordis, Heraeus
Medtronic, St. Jude
Biomet, S&N, Stryker
Vietnam
Asahi-Intech Terumo
Malaysia
Bard,Flextronics
Plexus, S&N, St. Jude
China
Baxter, J&J, DuPuy, Medtronic
Orbus-Neich, Flextronics, Heraeus
Plexus, S&N, Stryker, Terumo, Coxon
Costa Rica
BSC, Abbott
Baxter, Bard
Covidien, St. Jude
Stryker, Volcano
Ireland/UK
Cluster
India
Baxter
Flextronics
Heraeus
S&N
Terumo
Sales offices; no
manufacturing
China new
MicroPort
MicroTech
LePue
Biosensors
Ireland
BSC
Abbott
Bard
Baxter
Covidien
Creganna
Flextronics
DuPuy
Stryker
Zimmer
Philippines
Baxter
Heraeus
Terumo
Thailand
Baxter, St. Jude
S&N
Two major low cost “clusters” serve the Medical Device Industry
Ireland and Puerto Rico also achieve reduced cost status through favorable tax incentives.
Outsourcing – a business model for several decades…in all industries

4. 4
Medical Device MNC’s Expanding Business Footprint….
but Cautious about adding Manufacturing Infrastructure Off Shore
4
• United States
• Puerto Rico
• Costa Rica
• Brazil (late 2020)
• Sweden
• Malaysia (late 2010)
• Adding Mfg. capabilities in
Malaysia, Puerto Rico
• United States
• Puerto Rico
• Ireland
• Switzerland
• Germany
• Netherlands
• France
• China
• Singapore (2011)
• Expanding in EM region w/
International H.Q. and CRM
Mfg. capability
• United States
• Puerto Rico
• Ireland
• Switzerland
• Germany
• Growing Med. Device Bus.
• No new facilities
• United States
• Puerto Rico
• Mexico
• Ireland
• Belgium
• Netherlands
• Italy
• Israel
• China
• No new Med. Dev. Mfg.
capacity being added
• United States
• Puerto Rico
• Malaysia
• No new mfg. capacity being
added
• Japan
• United States
• Puerto Rico
• Great Britain
• China
• India
• Vietnam
• Philippines
No new mfg. capacity being
added, however strong mfg.
in EM region
• United States
• Puerto Rico
• Ireland
• Switzerland
• Germany
• Rapidly Growing Med.
Device
• No new facilities
• Mindray – China
• Microport – China
• OrbusNeich – Hong Kong
• Volcano – U.S. (IVUS)
• Rapidly growing firms,
expanding pipelines,
competitive threats both in
region and future globally
Other
CORDIS • United States
• No new mfg. capacity being
added
+

5. High Level Observations of those Serving the Med Device Industry
United States, Japan and Europe
• Continue to be the Global Design Centers and source of fundamental IP
Costa Rica and Malaysia
• Provide low cost, favorable tax policy, reasonable infrastructure and have low IP risk
Puerto Rico and Ireland
• Offer tax incentives and medium cost structure.
• Ireland maintaining pro-business support and tax policies/ P.R. uncertain tax policies of concern
Mexico
• Declining low cost attractiveness due to lack of govt. support, crime, instability / reforms underway but slow
Asia/ S.E. Asia
• Singapore offers progressive government policies, strong technical resources, favorable grant/tax policy and a medium
cost structure
• Vietnam, Thailand, Philippines offer low wages but variable business climates (policies, taxes, inflation rate, talent).
• Some MNC’s testing waters but infrastructure and educational base are weak…but improving
• Population and GDP growth make China & India attractive growth opportunities for MNCs….aggressive mfg. expansion
still questionable due to poor infrastructure (India), instability of govt. policies, IP risks, etc.

6. Perspective of Early Off Shore Activity
Singapore
• Earliest low cost destination in 1970’s / strong government support/ tax/ grants/ low wages/ Malaysia support
• Rising cost required altering strategy / focus on high tech, R&D, strong professional engagement / strong regional influence
w/ low cost industrial park complexes
Ireland
• Next low cost destination in 1970’s and 1980’s with strong government support/ tax/ grants / low wages/Singapore model
• Again, rising costs and internal financial difficulties forced change in strategy away from grants towards R&D investment
model/ maintained strong stable government support
Costa Rica
• Low cost, favorable tax structure, minimal government support programs / stable government
• Strong educational system, growing technical base of companies / Desire to grow and stay competitive
Mexico
• Pure low cost play with minimal government support/ infrastructure issues, crime, corruption continuing over decades
Puerto Rico
• Low cost & favorable tax policies initially / rising costs and changing government policies concerning to industry
Malaysia
• Low to Moderate cost but strong professional base with government some support / Continuing to grow in influence

7. What did history teach us?
Attractive Cost structure deteriorates over time
•Inflation and govt. tax policies normalizing Off Shore competitiveness
Government Support a strong influencer
• Long term stability of financial support and financial structure critical to long term investment decisions
by MNC’s
Well educated work force vital to attracting large players
• Competencies, Work Ethic, Training, Quality Focused, infrastructure of support industries vital + capable
of working with U.S. operations
Multinationals looking for more than just low cost
• Want strong off shore operations to support growth, innovation, and professional equality to U.S.
operations
•Being close to growing markets also a key factor/ but must be balanced against cost, risk, time to market
dynamics

8. Also remember Global Dynamics are Changing Quickly?
Regulatory normalization
•Emerging countries are advancing their regulatory infrastructure rapidly with a trend
towards normalization and more rigor
Tax Normalization
• Strong public outcry of unfair business practices putting pressure on countries to establish
globally consistent business practices
Growing educated middle class and work forces
• Driving inflation and demand rapidly / local sourcing
•Cost/ Quality will always remain a driving forcse for demand and competitiveness
Communications/ openness of conditions
• No secrets….openness about product pricing, cost structures, tax structures, etc. driving
desire to be like the others
•Drives doing business easily on a global basis for all MNC’s
Off-Shoring will Continue
• Corporate financial pressure will continue to drive MNC’s towards regions with strong
capabilities to support growth and financial objectives.

9. MNC Perspectives

10. Looking from a company perspective
- Drivers for a Typical Manufacturing Investment
Quality & Compliance Excellence
• Manufacture high Quality & Affordable products
• Quality is, and will always be a ‘Competitive Advantage’
Technical Excellence
• Manufacture of high tech Class II & III Products
• Produced from Well Engineered Processes
• Strong Engineering drives lower cost in any environment
• Strong IT & business systems to seamlessly connect with company systems
Strong Employee Capabilities
• Competencies, Work Ethic, Training, Quality Focused
• Professionals ability to communicate with base operations/ globally

11. MNC’s Growth Requires Staying Competitive
New Products “Speed to Market”
• Manufacturing ….. Marketing……R&D Partnership
Cost Competitive
• Engineering to reduce Scrap/Waste & Improve Labor Efficiency
• Optimal Plant Network Configuration/ leverage technologies
Boston
Scientific
Johnson &
Johnson
Cook
Medtronic
St. Jude
Bard
Less Invasive Medicine

12. Competition for MNC’s Outsourcing

13. Low Cost Country Contenders
Mexico
Sao Paulo, Brazil
Czech Republic
Indonesia
Singapore
Malaysia
Vietnam
Thailand
South Africa
Morocco
Tunis, Tunisia
Buenos Aires, Argentina
Bogota, Columbia
Costa Rica
Dominican Republic
Portugal
Nicaragua
Santiago, Chile
Botswana
Philippines
Shanghai, China
Guangdong, China
Hungary
India
Viable Countries with Low Cost structures …… but, variable

14. So, Who are Costa Rica’s Competitors?
China
•Low, but rising costs, poor government support & govt. bureaucracy , inconsistent and
bureaucratic policies, strong professional base, difficult communications
India
• Well educated, low cost, but very poor infrastructure, lack of govt. support, inconsistent and
changing policies
Mexico
• Low cost but poor infrastructure, crime, poor education
Vietnam/ Thailand
• Emerging, but with infrastructure issues, copying China policies/ significant lag to develop
Malaysia
• Strong education, government support, and large technical base/ reasonable cost structure
Ireland
• Strong technical base, cost much higher, strong infrastructure, stable govt. pro-business
policies
Puerto Rico
• Strong technical base, cost much higher, poor infrastructure, policy changes of concern

15. What Direction are they heading?
China/ India:
• Previously, China WAS low cost for Fortune 500 companies, but the low cost advantage
is now disappearing due to changes in China society and economics
• Little new manufacturing activity (particularly for medical devices) noted in India or
China up to this point in time
Latin and South America; Africa, Caribbean
• Most other truly low cost future options entail significant risk in severely under-
developed countries
South Asia (Vietnam, Malaysia, Philippines, Singapore)
• Particularly strong areas for future high tech and Med. Device support industries
Costa Rica
• Strong competitor, growing capability, but needs improved infrastructure
Ireland
• Strong competitor with pro-govt. policies, inflation moderated, but still needs some
infrastructure improvements

16. Let’s look at the biggest competitor - China
Most Fortune 500 Companies are already in China…..is China the right
strategy going forward for MNC’s
Probably not!
• Financial incentives not economically comparable w/ Ireland and Costa Rica
• Uncertainty about future government regulatory and financial policies of concern
• Costs are rising quickly/ double digit wage inflation, single digits in other locations
• Competitive advantage compromised due to IP theft and lack of IP enforcement
• Perception of ‘Made in China’ associated with substandard quality, potentially a
competitive disadvantage in some export markets
• Not all products can benefit from low labor rates (ie low volume + low labor content
+ high material cost)
• Tech transfer costs for low volume products are unattractive due to negative NPVs
• Regulatory hurdles are high and long driving poor NPV’s
• Communications complex and difficult

17. India is low cost, but……..
Still not considered viable for manufacturing!
• Democracy, highly educated work force, but highly complex business practices
• Government complexity, poor infrastructure, and inconsistent policies
• Financial incentives are not economically comparable with Ireland and Costa Rica
• Cost low, but similar to China, double digit wage inflation is forecasted
• Uncertainty about future government regulatory and financial policies of concern
• Communications complex and difficult

18. Ireland remains a strong location for doing business
Extremely strong base of manufacturing for high tech firms!
• Democracy, pro- business practices, ease of doing business with government
• Reasonable infrastructure, and very consistent policies
• Costs are relatively high, but strong engineering and high volume operations
moderate costs, plus …..
• government financial policies make it quite attractive.
• Wage inflation is forecasted to be low because of countries financial difficulties
• Highly educated work force
• Communications very easy

19. Vietnam & Thailand
Extremely strong base of manufacturing for high tech firms!
Favorable Conditions
• Low labor rates
• Some Management Resources
• Some experienced Engineers
• Good work ethic / quality
Unfavorable Conditions
• Poor infrastructure
• Low unemployment
• Copying China regulatory and business
practices
• Some/ Minimal financial incentives
• Gov’t instability and corruption
• Language barriers

20. Malaysia
Favorable Conditions
l Strong technology base of MNC’s and
support companies
l English speaking professionals
l Adaptable to western practices
l Highly productive/creative
l Some financial incentives for large
corporations
l Decent infrastructure
l Pro-business government
Unfavorable Conditions
l Distance from U.S.
l Inflation
l Over saturated w/ High Tech
l Some employee movement

21. Philippines
Favorable Conditions
l English-speaking labor
l Adaptable to western practices
l Highly productive/creative
l Some financial incentives/ minimal
l Decent infrastructure
l New FEDEX hub @ Subic
Unfavorable Conditions
l Gov’t corruption prevalent
l Severe Traffic Problems in Manila
l Minimal support industries

22. Costa Rica - Summary
Favorable Conditions
l Excellent English / professionals
l ~ U.S. time zones
l Educated/motivated work force
l Good work ethic / quality attitude
l Good financial incentives
l Under-employment – low wages
l Working to become an Outsourcing
leader in the region
l Adequate infrastructure in cities
Unfavorable Conditions
l Adjacent to Honduras & Panama (drugs)
l Poverty in rural areas
l Inadequate infrastructure out of cities

23. Let’s look at the decision process
and
Quantify Competiveness

24. Country Selection Criteria – It’s not just about cost!
Business Environment (Politics, Competitors, Corruption)
Labor Climate (Availability, Skills, Literacy, Unions, Wages)
Local Suppliers/Services (EtO Sterilization, Aux. Services)
Logistics (Airports, Roads, Customs)
Site-Specifics (Special Zones, Building/Land Costs, local taxes)
Taxes and Incentives (Grants, Taxes, Transfer pricing)
Duties / Tariffs (Cost, relations with govt. agencies)
Utilities (Quality, availability, disposal costs)
Start-up Issues (Time differences, transport. costs, perception)
Long Term (Modeling of costs, direction of country policies)
It’s Not Just about Cost! There are Many Factors to be Considered

25. Nation
· Political Stability
· Corruption
· Critical National Problems
· Socio-economic Issues
· Tax Structure - Corporate &
Local taxes
· IP Protection
Labor Climate
· Availability of IL & DL
· General Literacy
· Unionism or sympathy
· Wage & Salary rates
Local Services
· Primary supplier availability
· Secondary suppliers
· EtO Sterilization
· Competition
Logistics
· Airports – Seaports
· Distance from Natick (miles)
· Time difference from Natick
· Access / Egress issues
Site Specifics / Infrastructure
· Tax advantages
· Free Trade Zones
· Colleges/Universities
· Environmental Risks
International Relations
· Relations with BRIC nations
· Relations with USA
· Trade agreements favorable
to USA business
Language
· Native language
· Likelihood of English
Utilities
· Reliability
Perception of “Made In …”
· In USA
· By others
Long Range Low Cost Assessment - Soft Issues
There is no simple formula or quantitative answer to how MNC’s make decision
Very complex financial laws require strong legal/financial support

26. 2
Cost vs. Skill Availability in Emerging Markets vs U.S.
LaborCost
Low
Low
Skill Availability for High Tech Mfg.
High
High Ireland
India
Costa Rica
Singapore
Shanghai
South China
U.S. Low Cost
Costa Rica remains cost competitive and
is strengthening it’s reputation to support high tech MNC’s
Key Observations:
• Costa Rica is building strong, capable
work force/ must maintain low cost &
financial incentives
• Singapore & Ireland are expensive,
however have highly qualified
professionals & strong govt. incentives
• Shanghai’s costs rapidly inflating, lower
in engineering experience, but strong
market opportunity driver
• S. China is low cost but lack adequate
engineering capabilities for some high
tech companies
• India is the lowest cost country for
candidate countries but poor mfg. base
Candidate Country + Trend
U.S. High Cost
Malaysia
Vietnam/T
hailand
Mexico
Puerto Rico

27. Financial Modeling to Compare Countries
(using a cost perspective, modeling a zero based, financial investment in a generic, high tech
manufacturing facility)
Products
• Phase-in over 5 years
•Locally-sourced raw materials
• Compare Offshore to Domestic
Facility
• Sq. Ft. Requirements
• Capital Requirements
• All operating costs
Labor
• Total structure
• Headcount & DL/IL Ratios
• LOH Rates
Plant Size: ~300,000 Sq. Ft.
Total Headcount: 2,500
D/L Headcount: 1,800
Capital Investment: $60 to $80M
Theoretical Plant / Head Count Model Used to Compare Countries
Generic Products being produced in a large scale manufacturing plant

28. Country Min. Wage Rate/hr (Intl Currency 2009 U.S.$)
Malaysia 4.00
Costa Rica 3.00
Thailand 2.00
Philippines 2.00
China N/A (1.30 to 3.50)
Mexico 1.00
Indonesia 1.00
Vietnam 1.00
India N/A (0.30 – 1.00)
Singapore N/A
U.S. 7.25
Ireland 11.10 ref. Min.Wage.org
Country Labor Rates
2013
Costa Rica has reasonable labor rates which must remain competitive

29. Country LOH Rate
Costa Rica 9.15
Malaysia 6.91
Thailand 6.63
Indonesia 6.25
Philippines 5.85
India 4.78
China 4.76
Mexico 10.49
Singapore 14.72
U.S. 31.13
Ireland
Modeled Overhead Cost by Country
w/ Full Mfg. Volume Cost Structure Using 2011 dollars
Costa Rica has reasonable modeled overhead rates which must remain competitive
But Note: Overall financial incentives may offer more significant value to MNC’s

30. Product
A
Product
B
Product
C
Product
D
Product
E
Product
F
South China $ 3.34 $ 8.57 $ 10.03 $ 23.86 $ 2.51 $ 17.36
Costa Rica $ 4.21 $ 9.66 $ 11.86 $ 26.58 $ 3.21 $ 18.10
Philippines $ 3.56 $ 8.86 $ 10.49 $ 24.53 $ 2.67 $ 17.54
Thailand &
Vietnam
$ 3.72 $ 9.04 $ 10.84 $ 25.03 $ 2.79 $ 17.60
India $3.55 $8.01 $9.89 $21.15 $2.30 $15.22
USA $ 8.45 $ 14.83 $ 22.58 $ 39.87 $ 6.98 $ 20.73
Product Cost
Candidate Countries At Full Mfg. Volume
There are plenty of low cost country options for MNC’s to consider.
Costa Rica is cost competitive and must maintain it’s pro-business financial policies
Low labor/high matl.High labor/low matl.

31. So what is the key for countries to stay ahead of the curve?
The good news is….. Off-Shoring will Continue.
Financial incentives will always play a key role in decision making. But, the Key to
Competiveness is:
•Fight to maintain favorable govt. economic policies into the future providing stable long
term view for companies
•Minimizing cost and government bureaucracy / Ease of doing business
•Investing in a strong, educated work force…..
•Maintain integrity of legal systems to protect IP
•Stay close to and work with MNC’s, build relationships to understand their objectives
and provide recommendations

32. Costa Rica
Becoming The Best Pro-Business
partner In The Industry!