Microsoft Makes It A Double

Manufacturer adds capacity in Puerto Rico with expansion for new products.

Redmond, Wash.-based Microsoft Corp. is investing $65 million to expand its presence in Humacao, Puerto Rico. The company's current plant (which Microsoft has occupied since 1990) employs 84 workers and produces CDs for Microsoft end users. The new facility, which will create 48 jobs and more than double the capacity of the old plant with 100,000 square feet of manufacturing space, is allowing Puerto Rico to position itself as a "growth center" for Microsoft of the Americas through manufacturing and exporting CDs and now DVDs.

Rodolfo Acevedo, general manager for Microsoft Operations Puerto Rico LLP, says Microsoft is upping capacity to move into the DVD market.

"In the new building we will be doing both CDs, which we are doing at the current site, and we are adding new equipment for DVD production."

Acevedo notes part of the decision for Microsoft to move to Puerto Rico in 1990 was based on the incentives the island was offering to companies like Microsoft at the time. Essentially, Puerto Rico caters to high-tech manufacturers, among others.

Also, the West Indies island is a U.S. Commonwealth, and outsourcing becomes less intimidating in terms of logistics and security. And the tax and business incentives don't hurt Microsoft either.

According to the Puerto Rico Industrial Development Co. (PRIDCO), eligible manufacturing industries can deduct 15% of annual production payroll (up to $100,000), receive a 200% tax deduction on training expenses and a 200% tax deduction for R&D expenses.

As for high-tech goods, Puerto Rico offers tax credit for withheld royalty payments to eligible companies. Companies can request a credit of the amount exceeding $100 million of annual taxes retained for the payment or rights, rents, royalties or licenses related to the production of the goods.

Indeed, "the government here offers a whole variety of incentives to operations on the island," Acevedo says. "There is one for pioneering industries, which Microsoft does qualify for with the new DVD technology that we are manufacturing."

Other benefits, according to Acevedo, include infrastructure in terms of the government helping Microsoft with renting buildings and land to set up operations in a more fast-track mode than if Microsoft were to start doing all the work on its own. Also, the government helps companies expedite all of the paperwork through the different agencies in order to get the fast-track installation.

"Microsoft made the decision of expanding operations in Puerto Rico sometime in February 2005, and right now our goal is to have the building operational by July 2006 -- and that includes going from an empty lot and building the whole 100,000-square-foot building from scratch. And going through that process there is a lot of permitting and lot of paperwork that normally would take a lot of time if Microsoft did it on their own without the sponsorship of the government."

Another bonus is the committed workforce.

"Of the 84 employees we have, 60% have more than 12 years of service in the company. Turnover is minimal. That reflects the commitment the company has toward the employees and vice versa," Acevedo says.

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