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Cisco’s Globalization Strategy – One year on

I’ve recently looked back at Cisco’s globalization strategy, something they put into place about a year ago.   It’s similar to a strategy I outlined for a client about 18 months ago, so I was curious how Cisco has done.

Very generically, the premise behind the strategy is that Western countries, and the US in particular, are mature, slow growth markets.  Cisco believes that most of it’s future growth will come from both BRIC countries and other emerging economies.   To that end, they plan to open ‘clone headquarters’ (my terminology) in a variety of emerging places, replicating all sales, marketing, R&D, production and HR locally.   The idea is to better serve the local markets with products specifically designed and tailored for local conditions.

The first of these to be opened was the Bangalore center.   A lot of people might say that this is just a huge cost cutting move, but I think it’s much more than that since, as Wim Elvink – Cisco’s Chief Globalization Officer puts it, labor rate arbitrage is just a temporary thing.  Instead, he outlines the following key facts:

  • 70% of the worlds population is within 5 hours flying of Bangalore
  • Most of the future growth is in Asia
  • Skilled labor needed by Cisco is more readily available in India
  • Lack of legacy infrastructure means huge opportunities for Cisco

Cisco has already moved 20% of VPs to Bangalore and a lot of executive staff, so they are putting their dollars behind this strategy. I get the sense that it’s far too early to tell whether this is a success or not, although it has probably helped keep Cisco’s financials fairly healthy throughout the current financial crisis.

When I outlined a similar strategy for a client, it wasn’t nearly as radical.  Instead, the idea was that merging economies, particularly Brazil and China, were deep into open source.  That pervasive usage represents a huge opportunity to build out sophisticated new solutions that can be trialled in these countries and eventually brought back to the US.  Skill set, labor availability (Brazil alone graduates 20,000 computer science students a year) and a willingness of local governments to fund and use open source based solutions all made this an interesting strategy.

Of course, there is a tremendous downside for Western countries if all the innovation shifts to emerging economies.  But this is largely mitigated by the fact that most solution/product development is a lot of low-level integration grunt work.  The highly creative work of innovating completely new ways of doing things still remains, even at Cisco, in the Western world.  And, fundamentally, that’s really where the big money is.

Disclaimer: I am currently working on a project with Cisco, although it has nothing to do with this.