Posted on Thu, Oct. 20, 2005
Cisco plans to make $1 billion bet in India

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By John Boudreau

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Mercury News

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Cisco Systems is joining the ever-growing club of big tech companies stepping up their courtship of India.

In a move that reflects the growing importance of India as an emerging market for technology, Cisco announced Wednesday that it will invest $1.1 billion in the South Asian country, its largest research and development investment outside the United States.

During the next three years, Cisco will spend $750 million on R&D there and $150 million on offices and services to sell its communications gear across the nation of 1.2 billion people. It will create a $100 million fund to invest in Indian start-ups, and spend another $100 million on customer support.

The San Jose company will triple its staff in India, from about 1,400 today to more than 4,000 within three years to develop products for the Indian market.

``India is a marquee market for us,'' said Dan Scheinman, senior vice president for corporate development at Cisco. ``Over the last couple of years, we've averaged 50 percent growth a year in India. We think we can grow 30 percent a year for the next three years.''

Cisco's India ramp-up follows in the steps of other large tech companies, including Oracle, Intel, Microsoft and SAP, all of whom have significant operations in India. The wealth of cheaper, but high- quality, engineering talent, coupled with a growing middle class and business opportunities, is luring tech companies to India.

Cisco Chief Executive John Chambers announced the investment during a three-day trip to India. The San Jose network equipment company -- whose routers, switches and other gear power the Internet -- first opened an office in India in 1995.

Cisco's Indian operations are headquartered in a trendy section of Bangalore, the tech hub in southern India that is rich in engineering talent.

Eventually, Cisco hopes its Indian team can customize products for the Indian market.

``The hope is we can have innovation and whole product lines there,'' Scheinman said. ``When you have the magic of engineers near customers, good things happen. You want your engineers near your customers. Customers are a source for a lot of innovations.''

The eastern expansion reflects the growing confidence valley companies have in the engineers they can hire in India, as well as expanding market opportunities, said Ash Lilani, head of global markets for Silicon Valley Bank, which has an office in Bangalore.

India, one of the world's fastest growing economies, reported an annual 8.1 percent growth rate in the most recent quarter. Overall, its economy is expected to grow at least 7 percent for the year ending March 31.

``People have awakened to the potential of the huge domestic market'' in India, Lilani said. ``You will see more and more corporations and venture funds trying to exploit that local economy.''

Oracle has a staff of 7,000 engineers and other professionals in India; German software maker SAP invested $1 billion in India in 2004 alone and has nearly 2,000 employees in India, most doing research and development. Intel employs about 2,800 tech workers in Bangalore.

Like China, companies now see India as a place to not just build products, but to sell them, as well.

In Bangalore, upscale malls are rising up from crowded, dusty streets. A new crop of subdivisions, designed for the newly prosperous, are popping up on the landscape. Every day, hundreds of new cars are added to the already jammed roads.

Every year, some 55 million Indians -- a number close to the population of Great Britain -- buy cell phones, Scheinman said. Broadband growth, while much slower than soaring mobile phone sales, is expected to explode in future years as hundreds of millions of Indians go online, he added.

``Nobody can afford to ignore this market,'' B.V. Naidu, director of government-run Software Technology Parks of India, said in a recent interview in Bangalore. ``Silicon Valley needs India as much as India needs Silicon Valley.''

While the cost of hiring engineers in the tight Indian job market is increasing as foreign and local companies compete fiercely for talent, the benefits of operating there remain, said Sam Wilson, an analyst with JMP Securities.

``A lot of what Cisco is doing is strategic,'' Wilson said. ``It doesn't work to make a U.S. product and send it to India and say, `Buy this.' You've got to build products for the local market. That's why you need engineers there. That's why you need a sales force there.''

Wilson said Cisco's big expansion in India is a bit late. ``It's classic Cisco does this now, instead of doing this five years ago. I'm like, `Duh.' ''

Contact John Boudreau at [EMAIL PROTECTED] or (408) 278-3496.

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