Case : Intel : Undermining the Conflict Mineral

Name/zID : Ika Arifah/5047269

INTRODUCTION
In implementation process of its strong commitment to producing quality products in ethical
ways, Intel faced dilemma when realized that its primary component suppliers of their
international supply chain, involved in socio-cultural and ethical issues. This problem will not
only affect Intel business sustainability but also create negative impact to the people and the
environment of the country (Democratic Republic of Congo). Meanwhile, another Intel’s
stakeholders, its customer, also have increasing awareness about their contribution to conflict
mineral in Intel’s supply chain network by buying Intel’s products. This fact is related to
research related to the relationship of ethical behavior with company reputation and brand
awareness. Kotler and Lee (2005) concluded that first, ethical behavior reflected in CSR
program has a positive impact on company reputation and brand awareness. Second, being
recognized company with CSR practice, company will reduce its advertising cost. And last, CSR
also related with employees retention because 90 % of them expect to work with companies
which positive reputation. From this understanding, it is significant of considering having ethical
behavior through CSR program to create company’s competitive advantage (Jones, 1985).
This case analysis is divided into four stages. There are background, Intel’s main issues,
alternative solutions and conclusion. Background discusses Intel external forces based on
PESTEL analysis, internal forces by SWOT analysis, Intel’s perspective about competitive
advantage through CSR and Porter Five Forces. The part about Intel’s issues discusses possible
problems faced in Intel’s international supply chain and the main issue that should be
prioritized to overcome. The next part will discuss alternative solution in managing risk in Intel’s
supply chain. Furthermore, the conclusion part will give one recommendation to overcome
conflict mineral and achieve Intel’s competitive advantage goals.

BACKGROUND: Intel External and Internal Forces

The main external forces in Intel supply chain area is political instability caused by civil war
between the government and rebel groups, ethnic rivalries fueled by economic interest, and
invasion from another country that might affect. The polycentric government created the
ambiguity in mine’s ownership and created the potential conflict among society. Meanwhile,
Intel keeps importing resource component from DRC because economically, DRC has the largest
resource of 3TG minerals as the component of Intel microprocessor (Espana et.al, 2015). In the
perspective of technology, despite being the largest resources of component, artisanal mining
of 3TG processed traditionally and relied heavily on human labor. Meanwhile, in legal
perspective, lack of law enforcement about the ownership of resources, illegal exploitation of
natural resources, and corruption practices threatened the sustainability of Intel’s supply chain.
The detail explanation about external forces of Intel is available in Appendix Table 1.
In SWOT perspective, Intel's greatest strength is its quality of product as the result of a large
investment in research and development. Intel weakness lies on its late response to slowing
demand for PC in 2000 and increasing needs of product diversification. Besides, its long
partnership with Microsoft makes Intel more focused on producing microprocessors for
Windows system than comparing extensive business process for other products. It leads Intel to
still unsuccessful develop competitive microprocessors for mobile device (Reuters, 2012).
Opportunity for Intel is developing microprocessors in bullish mobile computing sector and
business diversification in segments that Intel is very capable with likes Data Center and
Internet of Things (IoT). The threat comes from complexity in managing its international supply
chain which also depends on the stability of country where suppliers operate their business
(Intel, 2015). Dynamic competition between microprocessors company, growing mobile
computing and slow down of PC sales also becoming threats for Intel. Detail explanation about
Intel’s SWOT analysis will be explained in Appendix Table 2.

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 Case : Intel : Undermining the Conflict Mineral
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According to Porter Five Forces, Intel has moderate competitive rivalry because of a moderate
number of competitors. Meanwhile, Intel has the biggest market share in worldwide PC
microprocessor market (79.3%) (International Data Corporation, 2017). It contributed from its
high-quality differences indicated by its product’s performance, innovation, availability and
energy efficiency. This level of competition is also supported by the characteristic of Intel’s
industry that needs high cost and long period to entry because each company should spend
many years for innovation before entering the market. The threats of new entry are also
coming from high-specialist knowledge required to compete in this industry. Strong knowledge
and intellectual property protection create high-cost technology transfer (i.e., licensing) gives
high barrier to entry for another company to this market. Meanwhile, there is a high buyer
power with a high number of customer especially from Intel’s emerging market and its product
diversification in Data Center and Internet on Things which elevated Intel’s revenue about 32%
in Q2 2014 (Forbes, 2014). The customer has high switching cost because of Intel’s uniqueness
of expertise of creating the high-quality product and competitive price. Meanwhile, Intel also
has high supplier power with the concentrated supplier in Sub-Saharan African countries which
has the richest resource for Intel’s component. Appendix Table 2 will clearly explain about
Intel’s competition landscape. According to Porter (1998), competitive advantage is company’s
ability to create greater value for customers/clients in its product/service than their
competitors. The company can achieve it by cost advantage (production with lesser cost) or
differentiation advantage (create unique characteristic in product that beyond what competitor
has). Intel’s differentiation strategy is reflected by its supply chain responsibility. Intel is being
pioneered in setting up conflict-free standardization in its component assembling. It shows that
Intel is not only concern with resource-based perspective that gaining competitive advantage
through its VRIO resources and capabilities only, but also understanding about market
awareness about conflict mineral in semiconductor supply chain (market-based approach)
(Peteraf & Bergen, 2003). It will detail explained in Appendix Table 5. By finding ways to apply
technology and expertise to give benefit for society and environment, Intel will create risks
mitigation, cost reduction, brand value protection and even able to identify its market
opportunities (Intel, 2015). Illustration about competitive advantage is explained in Appendix
Table 3.
INTEL MAIN ISSUE
As stated in the case, Intel faced several problems especially in its international supply chain in
DRC. The first problem, there were many supra-state programs and non-government
organization involved in solving conflict mineral and humanitarian conflict at DRC for seven
years (2003-2010) by UN Organization Mission in DRC (MONUC), not effectively solved the
problems (UNECA, 2015). The second problem is unstable political and socio-cultural external
environment of Intel business, especially at DRC, which socio-culturally, DRC has high country
risk because of the history of ethnic conflict, civil war and polycentric government. This brings
the institutional risk for Intel, gives uncertainty in its decision making because it is hard to
predict risk and benefit analysis that affects the sustainability of its supply chain. Renewed
conflicts still happened since then because the main problem is not solved yet, that is a lack of
transparency and traceability of Intel’s supply chain which brings resources from artisanal
mining owned by rebel, armed groups, or other states who involved in conflict mineral. This
lack awareness of ethical issues has unintentionally fueled financial support for continuous
conflict mineral at DRC.
SOLUTIONS
The alternative solutions offered for Intel are based on based on different degree of strategic
commitment, advantage and disadvantage analysis to solve the conflict mineral in DRC.
According to Phillip (1982), strategic commitment is company decision that has long term
impact and difficult to reverse. The first alternative solution is maintained status quo by keeps
importing components from DRC suppliers because DRC has the richest resource of 3G & T and
it is hard to trace resource from which artisanal mining where conflict mineral exists. The

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second alternative are Intel placing more Intel staff to identification the problems in its supply
chain, doing assessment, and monitoring process in Intel’s international supply chain with all
risk taken by Intel. The third alternative is depending one way initiative from international legal
enforcement of supra-state organization likes United Nation or United States as the biggest
importer of DRC resources to create economic-embargo than risk Intel business to stop conflict
mineral by itself. It is because DRC has high institutional risk and involvement of armed group in
conflict mineral which becomes a problem that Intel can’t solve. The fourth alternative with is
Intel working together by creating a public-private partnership with NGO, local government,
United Nations, other microprocessor company and even customer to effectively solve the
conflict mineral at DRC. Detail explanation about the degree of strategic commitment,
advantage and disadvantage from each alternative solution will be explained in Appendix Table
4.
CONCLUSION
One of the methods for deciding the best solution for company problems is by applying rational
decision-making method process (Krehbiel, 2012). The rational decision model is very useful to
deal with complex environment, especially Intel external environment. Nevertheless, this
model highly depends on huge information and deep research to problem (Herbert, 1978).
The process of rational decision-making process is first, defining the main problem. The main
problem is a lack of transparency and traceability of Intel’s supply chain which brings resources
from artisanal mining owned by rebel, armed groups, or other states who involved in conflict
mineral. The second process is considering the goals. That is created conflict-free mineral in
Intel supply chain by creating its transparency and traceability of resources. The third process is
developing four alternative solutions, and forth process is analyzing those alternatives with the
degree of strategic commitment, advantage and disadvantage analysis. The fifth process is
selecting the best solution from the perspective that solution should show the strongest
strategic commitment, shared or relatively low risk and give benefits to achieving Intel’s goal, in
business or social sustainability consideration. From this consideration, the best solution for
Intel main problem is creating Intel’s Public-Private Partnership (PPP) with NGO, local
government, United Nations, other microprocessor company and even customer to effectively
solve the conflict mineral at DRC.
The next process of rational decision-making process is implementing the decision by supply
chain risk management which consists of identification, assessment, controlling, and monitoring
of supply chain risks in Intel management by involving Intel’s stakeholder in DRC (Tang, 2011). It
will be detail explained in Appendix Table 6. Furthermore, to create the bigger impact of Intel
supply chain reform, Intel encouraging another semiconductor company to take the same step
and being a pioneer to report its accomplishment and promote it as one of standardization in
stock listed company according to SEC rules. This will directly become the way to create Intel’s
competitive advantage as an ethical and socially responsible company among its competitor
and customer. Intel recent ways to involving customer role to being aware of how to identify
non-conflict free or conflict free mineral’s product are by uploading the tutorial in Youtube
channel. Intel also created a real campaign and action in providing class and project to
customers in many countries about understanding the conflict mineral and how to deal with
that problem (Intel, 2017).
The last rational decision-making model is evaluating the result of decision in the certain period
by monitoring the result of supply chain risk management. Meanwhile, to get more insights
from its stakeholder, Intel could publish its report about the conflict-free mineral programme
and its Corporate Social Responsibility Report.

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REFERENCE LIST

Espana, Camila., Robinson, Ian., Bukhari., Hasan, & Hodge., Danna. 2015, Intel: Undermining
Conflict Mineral Industry (Case W94C11). WDI Publishing. University of Michigan: Michigan.

Forbes. 2014, Improving PC Demand; Growth In New Markets To Help Intel Retain Its Growth
Momentum In Q2'14 (Online), viewed 20 April 2017
<https://www.forbes.com/sites/greatspeculations/2014/07/14/improving-pc-demand-growth-
in-new-markets-to-help-intel-retain-its-growth-momentum-in-q214/#7565cdfd37ce>.

Herbert, Simon. 1984, Models Bounded on Rationality. MIT Press Ltd.

Arifah, Ika. 2017, Stage 1 Case Analysis Report: Intel Undermining Conflict Mineral Industry.
Submitted Assignment COMM5010 UNSW.

Intel Corporate Social Responsibility Report, 2015. Intel (Online), viewed 17 March 2017,
<http://www.intel.com/content/www/us/en/corporate-responsibility/conflict-free-
minerals.html.

Janukowicz, Jeff. 2017, Intel Looks to Break Through Storage Bottlenecks by Providing New Data
Tier. International Data Corporation (Online), viewed 20 April 2017
<http://www.idc.com/search/simple/perform_.do?query=intel&page=1&hitsPerPage=25&sort
By=RELEVANCY&lang=English&srchIn=ALLRESEARCH&src=&athrT=10&cmpT=10&pgT=10&_xpn
=false>.
Jones, M., Thomas. 1980, Corporate Social Responsibility Revisited, Redefined. California
Management Review, Vol. 22 No. 3, SPRING 1980, pp. 59-67.

Krehbiel, Michelle. 2012, Option A or Option B: The Steps of Decision Making Process. Lecture
Notes, University of Nebraska, Lincoln, (Online) viewed 20 April 2017
<http://extensionpublications.unl.edu/assets/pdf/hef606.pdf>.

Narver, C., John, Slater, F., Stanley & Tietje, Brian. 1998, Creating A Market Orientation. Journal
of Market-Focused Management, Vol.2, pp. 241-255.

Peteraf, A., Margaret & Bergen, E., Mark. 2003, Scanning Dynamic Competitive Landscapes: A
Market Based and Resource-Based Framewok. Strategic Management Journal, Vol 24, pp. 1027-
1041.

Reuters. 2012. Intel CEO to retire as chipmaker struggles with mobile, (Online)viewed on 20
April 2017,
<http://www.reuters.com/article/us-intel-ceo-idUSBRE8AI0JV20121120>.

Porter, Michael E., 1998. On Competition. Harvard Business Publishing: Boston, MA.

Tang, Ou., & Nurmaya, Musa. 2011, Identifying Risk Issues and Research Advancements in
Supply Chain Risk Management. International Journal Production Economics (2011) pp. 25-34
(Online), viewed 17 March 2017
<http://ac.els-cdn.com.wwwproxy1.library.unsw.edu.au/S0925527310002215/1-s2.0-
S0925527310002215-main.pdf?_tid=a2b1a572-0af5-11e7-97a1-
00000aacb362&acdnat=1489743757_d91c0f1124092905e52484e0f734b495>

Torres, Max. 1998, Ethical Decision Making Model. Research Paper University of Navarra IESE.
Barcelona: Spain.

United Nations Economic Commission for Africa. 2015, Conflicts in Democratic Republic of
Congo (Online), viewed 17 March 2017
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 Case : Intel : Undermining the Conflict Mineral
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APPENDIX
TABLE OF CONTENTS
Table 1 Intel External Forces………………………………………………………….. 5
Table 2 Intel Internal Forces………………………………………………………….. 5
Table 3 Intel Porter Five Forces…………………………………………………….. 5
Table 4 Intel Competitive Advantage Landscape…………………………… 8
Table 5 Alternative Solution for Conflict Mineral………………………….. 9
Table 6 Supply Chain Risk Management for Intel………………………….. 10

Table 1 Intel’s External Forces (PESTEL)

Point Analysed Issues

Politic Polycentric government and civil war create high uncertainty in
law and security
Economic DRC as the richest resource for Intel’s component.
Socio-cultural Multi tribe, poor society with high number of human’s right
abuse because of wars and resource exploitation.
Technology Low technology especially in artisanal mining.
Environment Lack of environment protecting laws leads to excessive mining
and environment degradation
Legal Group-law implemented because of divided of power and
ownership in its region, especially at mines.
Lack of law enforcement in environment, violence crime, and
corruption.
Source: Stage 1 Analysis COMM5010 (Arifah, 2017)

Table 2 Intel Internal Forces (SWOT Analysis)

Point Analysed Details

Strength Quality of product as the result of a large investment in research
and development
Leader in silicon technology in semiconductor manufacturing.
Silicon has ultimate physical and technological properties compared
to the other semiconductor materials which less economic in
processing and has small percentage of leakage. It enables faster
data transfer in longer distance comparing to traditional electronics.
Its leadership in silicon technology makes Intel recognized as the
fastest microprocessor with reliable thermal resistance and enable
Intel to have very profitable partnership with PC and laptop brand
such as Microsoft and Dell.
Weakness Late response to slowing demand for PC in 2000 and increasing
needs of product diversification.
Intel tends to more focused on producing microprocessors for
Windows system than comparing extensive business process for
other products.
Less research in product diversification leads to unsuccessful
develop competitive microprocessors for mobile device.
Opportunity Developing microprocessors in bullish mobile computing sector.
Business diversification in segment that Intel very capable with likes
Data Center (Cloud) * and Internet of Things (IoT)** which have
increased demand in global market.
Create differentiation advantage as competitive advantage, by
creating supply chain sustainability in its international supply chain

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through Intel understanding with market awareness about conflict

mineral in global semiconductor industry.
Threats Complexity in managing international supply chain which also
depends on stability of country where suppliers operate their
business. Intel highly depends on 56 percent suppliers that located
outside its headquarter, spreading at Asia Pacific, Europe, Middle
East and Africa.
Dynamic competition between microprocessors company, growing
mobile computing and slow down of PC sales
Source: www.intel.com.au

*Data Center: technology facility consist of networked computers and storage that businesses
or organizations used for organize, process, store and disseminate large amounts of data
(Global Standard Initiatives, 2003).
** Internet of Things (IoT): inter-networking product that built-in with electronics, sensors and
network connectivity which enable customers to collect and exchange data from smart devices,
buildings and other items (Global Standard Initiatives, 2003).
Table 3 Intel’s Five Porter’s Forces Analysis

Forces Metrics Details

Moderate Low to moderate number of In PC client operating and
competitive rivalry competitors in different revenue segment, its rivals
segmentation. At least one are AMD and IBM. In graphic
competitor in six operating segment. processor and system-on-a-
chip unit manufacturer is
Nvidia.In the DEG
microprocessor segment, the
biggest rival are Samsung and
MCHP. In the DEG chipset,
motherboard and other
segment, AMD is its rival. In
the data center segment,
Intel's primary competitors
are EMC Corporation andLSI
Logic.In computer storage
and data management
companyare NetApp, PMC-
Sierra and MIPS .
High quality differences. High performance, energy
efficiency, innovation,
availability.
High customer loyalty high brand recognition, listed
as #14 Best 100 Global
Brands 2016, #46 Fortune
World Most Admired
Company 2017.
Moderate threats of High cost and need long period to Semiconductor company
new entry entry usually spent many years for
R & D to create innovative
products
High-specialist knowledge Industry is knowledge-based
which depend on the high-
quality researcher, high
skilled employees in
technology and innovation,
and high number of

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inventions.
Strong technology/IP protection High number of shared
technologies, bought patents
between first-mover and
second-mover in industry
resulted conflict that need
rules for IP protection to
avoid potential conflict.
Low barrier to entry High speed of innovation and
product differentiation from
another potential entrants,
such as Apple and Google.
High supplier power concentrated minerals component 3TG richest resource are
3TG in conflict areas. found in Sub Saharan Africa
countries.
High switching cost The characteristic of
component resource is non-
renewable resource.
Therefore it is valuable, rare,
needs high cost to imitate
and transfer.
Low threat of High uniqueness of product It gives high risk for long-time
substitution High switching cost customers likes PC or laptop
manufacturers to switch
from Intel to other
processors, because it
requires significant costs in
design change, and potential
decline in sales.
Weak bargaining High switching costs. Customers difficult to move
power of customer Low product substitution. from Intel to other
microprocessor
manufacturers. The low
product substitution also
prevents customers from
moving from Intel. For
example, most
manufacturers of PC and
laptops, do not have their
own microprocessor
fabrication.
Sources: Intel (2017)

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Table 4 Competitive Advantage Landscape

Period Type of Competitive Details

Advantage
Short-term Cost minimisation Cost minimisation focused on zero
competitive defect production, regarding Intel
advantage store location placement according
to its proximity to target market.
Differentiation transform Intel from a PC specialised
company to a company that powers
the iCloud and millions of smart and
connected computing devices.
Innovation Tick-Tock Model in manufacturing
process that advance manufacturing
technology by creating high
performance, great efficiency of
micro architecture. The product for
this innovation is the fastest and
high thermal resistance
microprocessors in Intel Core series.
Operational Effectiveness Applying Total Cost Ownership in
determining operational cost as the
reliable tool to assess comparative
costs in operation areas which
create potential savings when
provisioning IT infrastructure.
Sustainable Strategic positioning Transform the company from ‘High
competitive Quality Technology Products’ to a
advantage ‘Leader in Technology
Breakthroughs’.
Fit Intel commitment to create supply
chain responsibility shows how Intel
accommodating the its supply chain
strategy that fit with overall
company objectives, create good
product with ethical way.
Value chain When Intel recognised as the best
brand in semiconductor or
microprocessor market, Intel
became the standard of the entire
industry. As a result, customers
prefer to choose product with “Intel
Inside” label in products.
Furthermore, Intel became
unsubstitutable in the value chain
and even can extract profits from its
competitors.
Source: Porter, M. E (1996)and Intel (2017)

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 Case : Intel : Undermining the Conflict Mineral
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Table 5 Alternative Solutions for Conflict Mineral

No Solutions Strategic Advantage Disadvantage

Commitment
1 Maintained status quo by Weak strategic DRC has the The high risk of
keeps importing components commitment richest resource business
from DRC suppliers. of 3G & T and it sustainability
is hard to trace still remained.
resource from Intel act as
which artisanal socially
mining where irresponsible
conflict mineral company with
exists. take no action to
solve the
problem. It
could damaging
company image
in the future.
2 Intel placing more Intel staff Strong strategic Intel will have Low safety for
to identification the problems commitment comprehensive Intel staff or
in its supply chain, doing research and Intel business
assessment, and monitoring findings about because the
process in Intel’s international the problem and conflict mineral
supply chain possible solution problem is
for its supply complex.
chain. Besides, Intel
needs third
party
observation and
prior knowledge
about the
problem to
avoid the biased
information.
3 Rely on one way initiative Weak strategic Intel avoid high Based on
from international legal commitment risk in being research, supra-
enforcement of supra-state directly involved state role
organisation likes United in conflict couldn’t
Nation or United States as the mineral. effectively solve
biggest importer of resources Protecting Intel conflict mineral
to create economic-embargo and its suppliers because the
to DRC mutual business company didn’t
interest . cut the supply of
funds for the
conflicted
agents in DRC
through
business
activities.
4 Creating a public-private Strong strategic Intel saves, Need high
partnership with NGO, local commitment effort, times and investment of

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government, United Nations, money by obtain time and effort

other microprocessor prior knowledge to doing the
company and even customer and facts about monitoring
to effectively solve the conflict mineral process of
conflict mineral at DRC from NGO and program.
United Nation.
Intel share risk
of failure in
implementing
the program.
Intel gain more
support in
implementing
the program in
state-level and
micro-level
(business).

Table 6 Supply Chain Risk Management

Process Details
Identify Gathering information about Intel's supply chain risk in the DRC
from NGOs.
Assessment Audit intel’s smelter as the suspected place with lack of
transparency and traceability of resources.
Controlling - Created a system "bagged and tagged" which able to prove the
involvement of black market controlled by armed groups.
- Having partnership with USAID to give aid for Congo’s mines to
meet the conflict-free mineral standard.
Monitoring Created Public-Private Alliance to led regulation backed by
lawmakers in countries where their company involved in the
production that uses components from regional conflict minerals.
Source: Stage 1 Analysis COMM5010 (Arifah, 2017)

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