NEC, the Japanese electronics giant, has announced the biggest foreign investment in Scotland with plans to spend pounds 530m on a factory making a new generation of semiconductors.

About 430 staff will be employed at the plant, which will be sited alongside NEC's existing operation at Livingston, near Edinburgh. Scotland won the plant against fierce competition from California, Spain and Mexico.

The factory is thought to be the second-biggest Japanese investment to be made in the UK, after the pounds 850m Toyota car plant near Derby.

Hajime Sasaki, NEC's executive vice-president, said that Scotland's low labour costs, proximity to the European market and the UK government's offer of a broad financial package were the deciding factors.

State aid includes tax incentives and a grant, but Ian Lang, Secretary of State for Scotland, refused to outline the package in advance of routine publication in a few months. The size of the grant is said to be less than pounds 10m.

No research and development will be done at the factory, which will concentrate on assembly. NEC's current Scottish operation, opened in 1982 and employing 900 people, includes a design centre, and Dr Sasaki said its technological facilities might be expanded.

Scotland's 'Silicon Glen' already produces 11 per cent of Europe's semiconductors, 35 per cent of Europe's personal computers, and more than 50 per cent of its automated teller machines.

The plant will be capable of producing about 5 million 16-megabit dynamic random access memory chips (D-rams). The company's plan is for the plant eventually to concentrate on producing next-generation, 64-megabit D-ram chips. On Tuesday, Toshiba announced a pounds 645m investment in a new chip plant, and Korean companies have also stepped up investment in D- ram operations. NEC will begin building its plant this year, with production starting in 1996.

NEC lost its position as the world's biggest semiconductor chip maker to Intel of the US last year. In 1993, NEC had 7.3 per cent of the world market for semiconductors, according to the Dataquest Japan research firm.

NEC already makes 15 per cent of its semiconductors abroad, the highest percentage among Japanese producers. The Scottish plant would raise that to about 20 per cent.

Livingston's workers recently won one of Japan's most prestigious industrial awards - the first time it had gone to any NEC plant outside Japan, and only the second time it had been given to a foreign factory. The plant's lead time, from receiving raw material to producing finished goods, was said to be twice as fast as at any of the competitor plants in the NEC group in Japan.

Dr Sasaki said: 'One of the keys to our successful operation here has been the performance of our workforce. They have reached quality and productivity levels that have surpassed our sister companies in NEC. Scottish people work very hard and are very flexible.'

Mr Lang, whose announcement coincided with the start of the Scottish National Party conference, said he believed NEC's decision would encourage other global concerns to consider locating in Scotland.