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Asia/South Asia
The year of taking India seriously
Khozem Merchant from Mumbai

          For the better part of a decade, Cisco's India unit has been developing the means to serve the group's large customers around the world. Now, with strong domestic demand driving a resurgent Indian economy, the US technology products company has set its sights on the subcontinent itself.
It is one of many global companies that are starting to treat India as a market rather than a resource.
Cisco's revamped local operation was on full display when John Chambers, the company president and chief executive, arrived recently in an India that is vastly different from the country he had last visited four years ago.
Today, more than a year into a strategic refocus, India has emerged as one of Cisco's top three global markets, with "numbers that now impact [on] the share price", says Ranganath Salgame, president of Cisco's India affiliate.
Cisco's resurgence in India represents a quick payback on a bold bet. Underlying the gamble was a strategic rethink that revealed "something big was happening in India", he says.
For several years, Cisco and other global manufacturers of products that form the bedrock of telecommunications networking infrastructure viewed India as a low-cost engineering resource to be developed to benefit global markets.
In contrast to China's domestic buoyancy during the past decade, the Indian market was scarcely able to add any value of its own, let alone swell the coffers of large global corporations. Developing new products for price-sensitive Indians, moreover, was seen as too costly and lacking any guarantee of success.
The consumption-led rise of the Indian economy has now turned this view on its head. Consider the fact that the country's mobile phone network is acquiring 3.0m new users a month. Driven by rising personal incomes, the trend has triggered multiple benefits for the telecoms companies that support India's wireless boom.
"This is the year that technology multinationals are finally taking the 'Indian opportunity' seriously and are aiming to build billiondollar businesses here," says Ramesh Venkataraman, who leads the telecoms and technology practice at the Mumbai offices of McKinsey, the consultancy.
Dell, the computer maker, is targeting a top-three position in India's personal computers market. Nokia's decision to open its first mobile hand-set manufacturing factory in India reflects a similar ambition. And Intel, the chipmaker, says it will develop computing products for the Indian market to tap the next wave of personal computer users.
Having originally turned to India for lower-cost engineering skills, Cisco and other global technology product manufacturers are now signalling their determination to target the domestic opportunity.
Two-thirds of India's $22bn (12.5bn) information technology industry may be export-bound, but the domestic market for personal computers, networking products and advanced technologies such as internet protocol (IP) telephony has been rising for the past three years.
Cisco's makeover of its domestic strategy began two years ago with the arrival of Mr Salgame, an Indian specialist in technology marketing with start-up experience in the US. This was good preparation for India, where his brief, in effect, was to relaunch Cisco.
The first task was to get the measure of the market. Cisco managers took a three-month roadshow to meet customers, big and small businesses, think-tanks and government officials. From this exercise four factors emerged that convinced Mr Salgame to argue for a multimillion-dollar investment from the Cisco board in San Jose, California.
First, deregulation was beginning to expose large local businesses to competition. The only way for such companies to compete was to leap-frog years of inaction by investing in technology -- technology that, say, allows a car producer in India to communicate easily with a partner in the UK.
A second factor was India's warming relations with Pakistan. The detente has encouraged the Indian military to divert resources towards modernising its telecoms backbone, creating a vast opportunity for companies such as Cisco.
A drive towards e-government was a third trigger, with initiatives such as putting tax returns and property titles online. Finally, small businesses, the heart of the economy, were becoming alive to the opportunity to supply big corporations such as WalMart, but lacked the technology to join their global supply chains.
"With all these new technology users emerging at the same time, we saw something big coming -- Cisco needed to do something not for the next five, but 10 years," says Mr Salgame.
One year into the new strategy, Cisco says it is better off and remains ahead of the pack. It is dealing with a generation of technology users that scarcely existed 18 months ago. In the year to June 2005, revenues climbed by 46 per cent to Rs24.56bn (311.6m) -- three times greater than sales in 2002, according to industry sources.
Cisco did many things. It overhauled its marketing operation. With 1,400 employees in India -- almost all in product development and only the barest infrastructure for sales, the company had to start from scratch. It also rebuilt its part of its logistics infrastructure, investing $50m -- part of an unspecified sum allocated to the strategy -- on a parts centre in Bangalore. This slashed the delivery time of parts (which previously arrived from Singapore) from four days to hours -- anywhere in India.
Further, India was given a new status as a front-line market for product launches. This meant the India unit could access products acquired by its parent immediately, rather than wait, as before, for months, which had undermined its competitive position when bidding for domestic contracts.
Last year, for instance, Cisco acquired Linksys, a wireless technology company. Cisco India used its new access to Linksys when it bid for, and won, a Rs5.0bn contract from VSNL to install broadband in eight Indian cities. The deal was the biggest of its kind in India in 2004.
Finally, the company set up a leasing division, which a year later is financing one-third of its sales and could end up accounting for more as small businesses begin to adopt more sophisticated technology.
This could also be the company's biggest challenge. Although Cisco has boosted its sales force, India's small businesses remain costly and difficult to reach. One response has been to launch seminars, where Cisco managers evangelise about IP telephony to an audience of bosses of small companies. This is often the start of a three-month effort to convince a small business with, say, 50 to 100 employees to invest $500,000 in networking equipment. Ultimately, such "tech teach-ins" support efforts by Cisco "resellers" -- 1,500-odd intermediaries who deal in person with distant small-town customers.
"This channel building works but a more enduring effect of the greater focus has been to develop economies of scale and reduce entry-level prices for IP telephony -- that's good for small business," says Girish Trivedi, telecommunications analyst at Gartner. This is a big plus for Cisco, whose main weakness in India remains the view that its prices are high.
Although Cisco has strengthened its traditional dominance in routers and switching equipment in India, the company admits its new-found ability to reach small businesses has been the decisive lesson of the past year's experiment. "This is the only way we will build market share and for us the most important factor is gaining market share," says Mr Salgame.
Exclusive to FE under syndication arrangement


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