JANUARY 2, 2007
Info Tech
By Nandini Lakshman
Cisco's Grand India Ambitions
The networking-equipment maker is shifting 20% of top brass to India, in a bid to set up a global, developing-technology hub on the subcontinent
Wim Elfrink, Cisco's (CSCO) chief globalization officer, is at the vanguard of a new initiative. This January, Elfrink will relocate from his San Jose (Calif.) headquarters to Bangalore, India. In a major display of commitment to the Indian market, Cisco plans to have at least 20% of its top executives working in India in the next three to five years, according to Elfrink.
After 11 years of low-key presence Cisco is now investing $1.1 billion in India in a variety of initiatives. "This is the largest commitment outside of Silicon Valley, as India is important to our global strategy," said John Chambers, Cisco's chairman and chief executive officer, during a two-day India visit in December.
Why the huge ambitions? One reason lies in the size of India's market. While Internet penetration in India stands at a mere 4.5%, the online market there is one of the fastest growing in the world and the Indian cellular market is white hot. Cisco has to have a major presence, says Ashok Jhunjhunwala, professor of electrical engineering at Chennai's Indian Institute of Technology. "India has emerged as the largest telecom market today," he adds.
Needs Cheap Talent "Cisco sees a similar market developing in networking," says Alok Shende, a vice-president at research firm Frost & Sullivan. He puts the network market in India at over $1 billion. Besides, Cisco has a strong competitor in Juniper Network (JNPR) and Chinese company Huawei Technologies in India. In China, homegrown rivals like Huawei and Harbour Networks have been grabbing share from Cisco. "It cannot afford to lose India," says Jhunjhunwala.
The other issue is cost. Huawei can compete against Cisco on price because of its cheap talent pool. Facing those pressures, Cisco will find it hard to maintain its high margins unless it develops its own vast force of low-cost engineering talent.
That's why Cisco now wants to make India its global hub for developing technologies in routing, software, and network management. It is investing in a manufacturing facility in Chennai in south India, and has roped in global manufacturing partner Foxconn of Taiwan to help out. While Cisco will make specific voice-technology products initially for the Indian market, it will eventually use the facility as a global sourcing base to export high-tech products.
Ambitious Investments In October, 2005, it set up India's first lab for Internet Protocol next-generation networks in Chennai, for state-owned telecom company Bharat Sanchar Nigam, in a project aimed at furthering rural connectivity. With revenues of around $700 million in India, Cisco has a workforce of 2,000.
Cisco also wants to acquire the best Indian operations in its field to accelerate growth. As part of its ambitious investment plan, Cisco has set aside $100 million in a venture capital fund to buy out Indian companies. It has invested in a couple of outfits such as gaming destination Indiagames.com. (Cisco acquired Linksys, a home networking company, in 2003.)
The company has also invested money in Bharti Telesoft, which offers value-added services and solutions to wireless and fixed-line carriers. Telesoft is part of India's largest telecom player Bharti Airtel.
Tripling the Headcount Cisco is now believed to be eyeing startups in the area of network-related chips. Elfrink says Cisco will invest $25 million to $30 million in broadband and digital-media companies in the next few months. There's also a research and development center in the works in Bangalore to develop software. Says Shende, "India is an important element of Cisco's jigsaw puzzle."
To make all of this happen, Cisco is tripling its headcount in India to 6,000 in the next couple of years. The move comes at a time when India is facing a severe dearth of engineers and every big and small information-technology company is on a hiring spree. Speaking at a recent IT meeting in Hyderabad in south India, Kiran Karnik, president of the National Association of Software & Services Companies, an industrial trade body, said that people shortage was the "biggest challenge facing India's IT industry." According to him, even as India churns out 150,000 engineers every year, the demand is for 350,000.
Elfrink claims that, going by past experience, Cisco shouldn't have a problem. "While the market is certainly competitive, we believe that a great talent pool is there," he says. Indian knowledge workers put a premium on working for blue-chip IT companies. Cisco may also lure Indian expatriates wanting to return home.
Big Expectations Is it too much, too late for Cisco? Cisco does have a lot going for it at the moment. There are India's infrastructure needs which require over $300 billion of investments over the next five years if India is to sustain its 8%-plus economic growth. And sectors like telecom are booming. A recent paper from the Ministry of Communications & IT says that the telecom sector will attract $40 billion in investments by 2010. Moreover, with Indian corporations in all sectors expanding both in India and globally, they are adopting and upgrading IT technology like never before.
Cisco has said that it will zero in on some sectors such as telecom, IT services, government and defense, manufacturing, and small and medium-sized enterprises. Cisco officials reckon that IT expenditures by Indian companies on networks alone could reach $1.2 billion by 2012, up from around $550 million now. Little wonder Cisco is expecting 5% of its $28.5 billion in global revenues to come from India in the next couple of years.
In a way, Cisco experienced all of this in China nearly 15 years ago. Over the years it has invested $700 million in Chinese companies. Its most recent investment—$50 million—is in CCS, an offshoot of the Hong Kong-listed China Telecom. Since the late 1990s, Cisco profited from China's telecom growth, when its state-owned phone companies built nationwide networks. In India, Cisco faces European players such as Nokia (NOK), Ericsson (ERIC), Siemens (SI), U.S.-based rival UTStarcom (UTSI), and Chinese vendors such as Huawei. With so much competition, Cisco faces a tough road ahead as it joins the race.
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