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Beyond outsourcing, India as an innovator

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Cisco Systems, the San Jose, Calif.-based router maker, has made a billion dollar bet on India. With that one giant poker chip, the company has shifted the focus from India as outsourcer to India as an innovator. It is also a realization that India is a big market, perhaps not as big as China, but equally lucrative in the long run. The company plans to triple its staffing, start a $100 million venture fund and at the same time fund a $10 million rural broadband project. Rest of the money is going towards a R&D center.

Dan Scheinman, Cisco’s senior vice president of Corporate Development, says that in past two years Cisco’s India sales have grown 50% per annum, and are likely to grow 30% annually for next three years. “We see India as a source of technology, and innovation,” Scheinman says, “And we will use India as a base for developing technologies in routing, network management and software that will keep us globally competitive.”

As a market, India was smaller than many U.S. enterprises a number of years ago. But today, the nation has made incredible investments in building world-class communications networks. As an indication of that, in the fourth quarter of our 2005 fiscal year, Cisco saw a 75 percent year-over-year bookings growth in India. (Cisco website)

But that’s only part of the reason why Cisco is getting serious about India now, after nearly eight years of low key presence. Scheinman points out that Cisco started in India and China from different ends of the spectrum. While in China it started with a $300 million venture fund, it has only now going to make VC investments in India. (Indiagames is one of its first investments in the country.) My sources say that there is some serious start-up activity in India around chips, especially in the area of DSPs and Network-related chips.

Cisco goes after markets that have three characteristics: customers who are leading edge technology adopters, talent that is willing to adopt and massive infrastructure build outs. India has all three. India is one of the fastest growing telecom nations, and is fiercely contested. From Chinese vendors like Huawei and UTStarcom to European giants like Siemens, Ericsson and Nokia, everyone wants a piece of the action. Cisco, is simply taking a more long term view of the market.

Cisco is not the first one to come to that conclusion – Qualcomm, LG Electronics, and Samsung have been taking Indian markets more seriously than their peers. Intel, Texas Instruments, and Advanced Micro Devices have been pushing hard, as has Nokia. There is word that even Apple has been scouting the market more seriously. Folks like Oak Investment Partners have set-up a venture fund focused on retail opportunities in India.Tim Draper, flush with his Skype-billions is headed to the spice bazaar as well. (Perhaps it has something to do with this?)

Related link: India Page @ Broadband Wiki

10 Responses to “Beyond outsourcing, India as an innovator”

  1. This investment mean more jobs in India. But how do you relate ‘inventions’ to help build the core of India??

    Will cheap broadband instrument will be suffice for village??

    CISCO may not have direct answers nor we should expect same from their business plan, but Indian govt. should judiciously use this opportunity to make roots firm.

  2. One further thought… I don’t have any numbers but my gut tells me there is a bigger middle class right now in China than there is in India. So this large middle class is fueling growth and change in China right now. The Indian middle class will follow, but its growth will be several years behind China.

  3. To me, India is the king-maker as to who–US or China– will have the most influence in Asia and, subsequently, perhaps the world. There has been a noticeable thaw in relations between China and India as China seeks to build some sort of Asian solidarity with India. It is a nice try, but it won’t work. India has scored a number of diplomatic goals with the US and I think each is looking to the other for partnership.

  4. Preston and Charlie, I think it is clear that India and China are not the same. My trip last year, and subsequent chats with folks who visited in recent days have me convinced that there is a need for a more symbiotic and co-dependent relationship between India and US. China’s economic model is completely growth oriented, while Indian economy is a consumer based one, and a lot of activity inside the country is what presents the real opportunities. I think they are slowly developing the middle class, and while population and corrupt politicans remain a singular problem, a whole new generation is growin up without paying any heed to the socialist sins of the past.

  5. Seems like the tip of “Iceberg India” is showing to the Titanic crew, what a shock. Yet more astounding is how this country has been discounted as a player or potential partner for so long. A more important regional democracy of this size, stability and markets would be hard to find.

  6. Jacob Varghese

    Why would a communist country with a slightly larger population offer more opportunities than the world’s largest democracy which also has the world’s largest middle class?

  7. I appreciate your post and the opportunity in India, but I have to disagree with you on this point:

    “India is a big market, perhaps not as big as China, but equally lucrative in the long run.”

    While I do think there are huge opportunities in India I can’t imagine them rivaling the opportunities in China in long-term profits.

  8. Charlie Sierra

    While this is laudable and a local confidence booster, the fact is that what India (and China) need to develop is a large solid middle class. So in large part this is all quite dependent on the pols, which ironically favors China.

    I for one hope that India has seen the error of its recent pasts, which seeded the economic boom in China, and decides to be steadfastly pro-growth and anti-protectionist.

    All things being equal, India should really best China in the race towards mature economies. But thats why they play the game.

    Go WhiteSox.

  9. hey om,

    John is speaking today (thursday) at the Taj in Bombay. I was at the hotel in the afternoon and ran into the top guy at Cisco India – Rangu. Things are going very well for them in india and everyone is talking about broadband in india.