Cisco's New Acquisition and Globalization/Outsourcing Strategies

WSJ:  Cisco Changes Tack In Takeover Game
 
Cisco is now buying companies and giving them much more autonomy.  For example, Cisco bought email security start-up IronPort, but let it operate as a stand-alone unit, with its own managers, brand name, engineers and salespeople.
 
Cisco’s strategy shift is particularly striking because the company, the country’s third-largest tech firm by market capitalization, is viewed as a bellwether for the industry. Chief executive John Chambers wants the networking giant to move beyond its core business — making switches and routers that direct computer and telecom traffic over corporate networks. Cisco is entering entirely new markets, such as online video and Web conferencing.
 
That means adding new pages to Cisco’s much-admired acquisition playbook, which has been the subject of Harvard Business School studies. "We can’t buy a company and tell it to do as we see fit if we don’t have a true understanding of the marketplace," says Ned Hooper, Cisco’s head of business development, who is leading the new acquisition and integration strategy.
 
In the past five years, Cisco spent about $2.5 billion on 44 companies in its core business, Cisco has spent more than four times as much — $11 billion — on a handful of new-style acquisitions that it calls "platform" deals. Instead of its typical two months to integrate companies, In the past, Cisco-acquired companies typically lost their brand names. This started to change in 2003 with the LinkSys acquisition and continued with Scientific Atlanta, IronPort and WebEx. 
 
For more details  ………………………………..
 
Our take:  Through these new acquisitions, Cisco has changed from a networking equipment company to an Internet software (IronPort, Web Ex) and consumer products (e.g Scientific Atlanta) company.  They evidently see higher profit margins and more growth in these areas than in the price war plagued, consolidated and dysfunctional telecom markets in developed countries.  This is good business sense, in our opinion.

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Most companies globalize by outsourcing services and manufacturing to Asia for products designed for use in the West. Cisco’s "chief globalization officer," Wim Elfrink, says that’s all wrong. His company is working to tap India’s innovation talent. "We are going to create prototype services for this part of the world like connected real estate, the use of mobility, like using web screens for illiterate people … And over time we will probably export (them) back to the West." said Elfrink, who himself decamped for Bangalore last year.

 
Our take:  I have never heard of a company having a "chief globalization officer."  Cisco having one indicates a very focused effort to participate in the economic growth of developing countries.  Here is a very revealing quote from Mr Elfrink, “We have to start creating products and services for this side of the world and then perhaps if they’re relevant export them back to the more mature world.”
 
The reason that Cisco aquired WiMAX gear maker Navini was to tap into this emerging market growth.  Now the enticing question is how can products developed for emerging countries be re-engineered and exported back to the U.S. or to Europe?

 

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