Cisco: Now's the time to get into Asia [Chambers interview and LU/ASND reference]
Updated Monday, 21 September 1998. Next update Monday, 5 October 1998.
Return to the Communications Week International WWW page
From CommunicationsWeek International. CWI is part of Emap Media, a subsidiary of Emap Business Communications, one of the United
Kingdom's leading publishers.
totaltele.com
CWI News Listing for Issue 211, Monday, 21
September 1998
Face to Face
By Nick Ingelbrecht
Like most organizations in the Internet age, communications equipment vendors are
having to re-think their marketing strategies. John Chambers, president of San Jose,
California-based Cisco Systems Inc., has hit on a version of The State Visit.
When his midnight flight touched down at Changi airport last week, the Singapore
government rolled out the red carpet ahead of his meeting with the island state's Prime
Minister Goh Chok Tong the following morning.
A day later, Chambers jetted off to meet Malaysia's embattled Prime Minster, Mahathir
Mohamad, for breakfast. Then on to Hong Kong for a rendezvous with chief executive
Tung Chee Hwa, before rounding out his Asian tour with a meeting with Chinese
president, Jiang Zemin.
Not bad for a week's work, sandwiched in between scores of meetings with business
leaders and Cisco's major regional customers.
Chambers doesn't call this activity "marketing" but "education," and it is all part of Cisco's
so-called "high-touch" strategy to use its Internet prowess as a springboard, letting it
spread a broader message about the pivotal importance of networking the economy.
"It is not just a productivity tool for the next decade, it probably will determine the growth
or survival of companies and maybe even countries in the economic sense, much like the
industrial revolution," said Chambers.
The message is not exactly new, but how and where it is being delivered is. Cisco
reckons to have anticipated Asia's economic downturn fully 18 months ago, well before
the crisis broke in July last year, and to have refocused its marketing efforts on Europe
and America accordingly.
Before the crash, Asia contributed 17% of Cisco's total revenues and this has since
halved to about 8%. Now, just as many communications equipment vendors are stepping
back from Asia's crumbling economies, Cisco has switched track and is driving in hard.
During the past 12 months, it has quietly increased its staff numbers in Asia - excluding
Japan - from 175 to 425, and will recruit up to 200 more in the coming year, "assuming
the market is as tough as people expect it to be" said Chambers. "Our rising stars in the
company have come over to establish what we call the high-touch model for Asia, which
[means] we will continue to deliver most of our products through our traditional channels.
But we are going to touch the customers more and educate them on the value of doing
business with Cisco, the product capability, network integration, applications, and what
others are doing."
Cisco has a long way to go to catch up with the established telecoms equipment vendors,
such as Lucent Technologies Inc. and Alcatel, which boast casts of thousands employed
in their long-standing Asian operations and - unlike Cisco - have entrenched brand
identities.
But Chambers believes that now is the time to get into the Asia market, rather than out.
"In normal times it is very difficult to gain market share. You plug away for one or two or
three percentage points. When you catch market transition, that is when you gain market
share. When routing and hubbing came together with LAN switching, we moved from
being a non-player to a 60% share of enterprise accounts. We did the same thing in the
SNA market, where we ended up with 80% of the market.
"The current market transition is data, voice, video integration on one single network as
well as economic change, and that is when we gain market share. Different from our
counterparts, [we have the] advantage of having such a strong financial position and are
expanding in Asia during a period of economic challenges."
Chambers predicted it will take Asia two to five years to rebound from its economic
problems, by which time the competitive landscape will have changed dramatically. Hard
on the heels of the Northern Telecom Ltd./Bay Networks Inc. merger, analysts are
predicting the gloves will come off at Lucent Technologies next month, when the company
is unshackled from its 1996 divestiture moratorium on using its share capital - rather than
cash - to fund acquisitions. Lucent is believed to have set its sights on Ascend
Communications Inc., having turned down earlier overtures from Cisco for a partnership.
And the fact that a Lucent partnership failed to be cemented still concerns Chambers: "I
wish they would partner. I tried awful hard - I still think that was the best solution. Now
they are in a position where their only [strategy] left is to acquire," said Chambers. "I am
not optimistic on the future of those combinations. Having said that, we are assuming they
are going to work and they will be our toughest competitor," he added.
Cisco itself is no stranger to acquiring others, but tends to buy small, high-tech companies
that are culturally, technically and geographically close to its San Jose-based business,
says Chambers. Try and buy a company that differs too much and there will be trouble.
As evidence, he cites analysis of Web traffic coming to Cisco's job vacancy pages, and
claims there was a 70% increase in enquiries originating from Bay Network's domain
following the 31 August completion of the Northern Telecom Ltd./Bay merger.
These statistics are of more than passing significance for Chambers, who argues that the
success of any acquisition lies in retaining the people who built the business in the first
place.
"Almost all the acquisitions in the data communications industry have failed. The only
acquisition in the industry which has worked outside Cisco is Ascend [and Cascade]. But
their revenue grew last year by [only] 5%. How many of the top management of Cascade
are left? Zero."
In summary Chambers added that the real battle for space between telecommunications
and datacommunications equipment vendors has yet to be fought, but believes the market
opportunities are greater for Cisco than for competitors among the voice network
manufacturers.
"Right now it is [a question of] marketing and positioning, because our products are just
beginning to overlap. Our key competitors of the future - if they execute right - are
[companies such as] Nortel, Alcatel, Siemens. You are coming to one single network.
They have to come into our space - we have to come into theirs. I am looking at it as a
$200 billion market that I am playing in today, they look at it as a $50 billion dollar
market with great margins, and we will see how that turns out," he said.
Return to the CommunicationsWeek International WWW page
Return to the CWI News Listing of issue 211
Links to CWI back issues
1996 back issues
1997 back issues
1998 back issues
Contacts
For a single complimentary issue of a CWI , please e-mail Kevin McGeehan, Group Sales
Director, kevinMc@media.emap.co.uk with your surface address and the requested issue date
or number.
For editorial comment, contact the Editor. Please e-mail Andrew Gliniecki at
andrewg@cwi.emap.com.
To advertise in CWI, contact Gary Lucas, Worldwide Sales Manager,
Garyl@cwi.emap.com.
To sponsor CWI On-line, please contact Steve Pattenden, Associate Publisher of the Total
Telecom Web site, stevep@total.emap.com.
Our London telephone number is: +44 171 505 8649
Our London fax number is: +44 171 505 8655
All copyright 1998 Emap Business Publications. All reproduction, in part or in whole via
any medium, including electronic, printed and broadcast, is strictly forbidden without
express written consent from Malcolm Laws, Publishing Director,
malcolml@media.emap.co.uk.
|
