Cisco explores new global frontier

BANGALORE, India — When Cisco Systems Chief Executive John Chambers dispatched top lieutenant Wim Elfrink to India nearly two years ago, the executive vice president's mother-in-law drew the only logical conclusion.

"What did you do to deserve this?" she asked the 56-year-old executive, whose old office in San Jose put him mere paces from Chambers. Now he would be posted 9,000 miles from the corporate brain trust in the traffic-choked information-technology center of India long known as a low-end outsource shop for Silicon Valley.

Word among some Cisco employees was Elfrink was being groomed for "retirement." They obviously didn't read the memo on Globalization 2.0.

Cisco is moving onto a new frontier, said Sridhar Mitta, one of the first employees of Indian software-services giant Wipro and a dean of India's tech industry.

"They are not just talking about taking products from San Jose and changing them a little," Mitta said. "They are looking for new markets. I have not seen another company do this at this level."

Best known for making the routers and switches that are the backbone of the Internet, Cisco has branched into hundreds of other Internet-related products and services that it hopes to sell in the region, including online video conferencing and equipment that enables wireless Internet access.

Traditionally, big valley tech companies have treated their employees in this South Asian country as a Help Desk to the West. Now Cisco, with 66,000 employees around the world, is making a $1 billion bet that India, which cranks out thousands of engineering graduates a year, can be a cradle of innovation.

Elfrink brought along a platoon of corporatewide vice presidents, and he's recruiting other high-level managers from within the company to join Cisco East. Eventually, 20 percent of the company's top management will be based in India. The company calls the Bangalore campus its "second headquarters." The 5,000 employees there will expand to 10,000 in the next several years.

The move has unsettled some employees in San Jose and elsewhere who wonder if the shifting economic world order is a threat to their careers. But Cisco's leadership thinks future products and business models for fast-growing emerging economies can't be created in the 408 area code — or anywhere else in the West.

"We have to be here," Elfrink said one recent morning in the company's sparkling new Bangalore complex. "If we are not here, someone else will be. You have a billion people here, a billion people in China, 300 million people in Indonesia — all of whom will start consuming and enjoying life. If we don't understand these economies and cultures, how can we be a global company?"

Bangalore's new glass-walled airport, he added, puts Cisco executives within a five-hour flight from 70 percent of the world's population.

Bangalore campus

More than half of Cisco's nearly $40 billion in revenue last year came from North America. The United States, Europe and Japan represent 75 percent of its business. But if the company is to reach Chambers' aggressive growth targets of 12 to 17 percent a year, India and other parts of the world will be critical. Cisco's revenue from emerging markets reached $4.5 billion last year.

The road to the global economy is full of boulder-size potholes, however.

Getting to Cisco's blue-hued 1 million-square-foot campus requires negotiating uneven streets jammed with every two- and four-wheel vehicle known to humanity — as well as more than a few four-legged commuters.

Cisco's three-building complex is designed to be a sanctuary within a dense and noisy city. It already includes a cricket field, basketball court and state-of-the-art gym, and is expected to grow.

There even are plans for a parking garage, unusual in Bangalore but a reflection of the growing auto-driving middle class here. Those who don't drive can ride to work in the company's fleet of sleek Toyota Innovas, premium SUVs for the Indian market that soon will be equipped with Wi-Fi.

"This is the place to be," said Murugan Vasudevan, a Cisco manager of business operations in Bangalore who has worked for the company in San Jose and Austin, Texas. "Our growth area is here."

New business model

Cisco insists this is not about swapping out employees in the United States for less expensive ones in India, though engineers in India can cost a 10th of what they do in Silicon Valley. Rather, it's to reposition the company for the new world order, Elfrink said.

"Seventy percent of the people in India live off of a dollar a day, and 40 percent are illiterate," he said. "That means video has got to be pervasive. So connectivity — the network — gives opportunity to new business models."

Business models emerging here differ radically from those in the West. Profits often come from low-margin products and services spread over massive populations.

"In India, mobile-phone penetration is 22 percent — 220 million people. And India is adding 8 million new subscribers a month," said Sameer Padhye, Cisco's vice president of advanced services who relocated to Bangalore from Cupertino, Calif., a year ago.

Plenty of risks

While the potential rewards for Cisco are great, there are plenty of risks. The new markets may not be as big as Cisco anticipates, Mitta observed, or may take many years to develop.

Cisco also is making a big bet that Indian engineers can innovate beyond "me-too services," said Rafiq Dossani, a Stanford University research scholar who specializes in globalization.

"So far, Indian firms on their own or expatriate-run startups in India have not been too successful at innovation."

A challenge Elfrink and his senior staffers face is creating a corporate culture that blends the more independent work ethos of Silicon Valley with India's traditional hierarchical office structure.

While Elfrink is no longer a quick stroll away from Chambers' office, the company's cutting-edge TelePresence video-conference technology installed in his spacious home makes it easy for him to beam into San Jose meetings in spite of the 12-hour time difference.

One recent evening, Elfrink signed on shortly before 8:30 p.m. local time for an operational meeting with San Jose after having a chicken lasagna dinner with his family.

The Silicon Valley morning sunshine filled the Cisco conference room. "I'll go get a doughnut and we'll kick the session off," said a chipper Chambers.