SIP Featured Article

Cisco (News - Alert) Systems Inc. is reportedly going to invest an additional $16 billion in China over the next three to five years through a series of major business initiatives which will significantly increase the network gear maker’s presence in the country.

In an announcement made yesterday during a news conference, Cisco CEO and Chairman John Chambers (News - Alert) announced that the company will be beefing up its investments in manufacturing, venture capital and education in the world’s most populous country.

"Today's announcements underscore both China's strategic importance to Cisco's global operations and the broad range of growth opportunities presented by the China market, particularly as an innovator in the next wave of the Internet's development in collaboration and Web 2.0 technologies,” Chambers said in a company issued statement. “Cisco has made significant investments in our China business since we established operations in the country in 1994 and this program will lay the foundation for the next chapter in Cisco's development in China."

Cisco has already made a significant investment in establishing manufacturing and R&D operations in China. During the past five years the San Jose, Calif.-based company has reportedly invested more than $7 billion in China-sourced components and services – products which now play a critical role in its supply chain. Altogether these manufacturing and R&D facilities employ more than 50,000 people. The company reports that it will now be expanding -- in fact doubling the size of -- these existing operations.

In addition Cisco making new investments in the areas of education, venture capital, and sales and service operations.

On the venture capital side, Cisco has reportedly signed a memorandum of understanding with China Development Bank (CDB) to launch a joint investment program that will provide capital and expertise for Chinese companies working on innovations in technology. This will include not only existing high growth Chinese businesses but also smaller tech firms developing new cutting edge technologies in the areas of information services and communications. It also includes tech firms which have a focus on "green" technology, education and healthcare, and other priority areas that underpin China's long-term sustainable growth. Cisco and CDB will establish a steering committee to oversee collaboration between the parties. Designated representatives of both companies will hold regular meetings to review and facilitate potential opportunities and existing collaboration projects. This area of investment could reach over $100 million over the next three to five years.

"Cisco has a long track record of driving IT market growth through investment in the innovation economy," Chambers said in a statement. "By collaborating with the CBD - the key policy bank driving China's market-led and balanced development initiatives - we believe we can make a meaningful impact to support high growth companies in China that are supporting sustainable long-term development."

Cisco has also signed a memorandum of understanding with Alibaba Group, China's largest B2B on-line portal, to jointly offer collaboration and business management solutions to SMBs throughout China. As per a previous agreement, Cisco has already agreed to invest $17.5 million in Alibaba.com Limited, a subsidiary of Alibaba Group, as part of its planned initial public offering on the Hong Kong Stock Exchange. This makes Cisco one of only eight cornerstone investors in the listing.

"Our collaboration with Alibaba Group will play an important role in helping extend our industry-leading SMB solutions effectively into the Chinese market," Chambers said. "By combining Cisco's technology leadership with Alibaba Group's community of eCommerce in China, we will help drive market transformation through innovation and bring benefits to SMBs as well as consumers in the Web 2.0 Era."

Cisco will also be incrementally increasing funding to its financial service arm in China, Cisco Systems Capital China, to provide more available financing to its customers in China during the next three to five years. The company launched its captive financing operations in China in June 2006 and has since funded $60 million in customer assets. The company will now increase that amount to up to $400 million over the next three years.

Cisco is also looking to tap into China’s education market to facilitate future growth. Specifically it will be expanding its Networking Academies program in cooperation with China's Ministry of Education to add 300 additional academies in vocational colleges during the next three years. These new educational facilities will be located mostly in the country’s central and western provinces. Currently, Cisco funds more than 200 Networking Academies in 70 cities throughout China, which to date have trained more than 90,000 students. Through the expansion of this program, Cisco hopes to train an additional 100,000 students by 2010. To help make this happen, it will donate more than $6 million worth of networking equipment to establish labs at the new academies.

As part of this sweeping initiative, Cisco will also establish its first global "green" technology center to address the increasing need for sustainable development, energy efficiency, reduction of electronic waste, and emission reductions inside and outside of China. This includes ongoing initiatives at the company’s existing R&D facilities which are developing integrated circuits with greatly improved power efficiency.

All of this comes amidst criticisms -- or perhaps conspiracy theories is the better term -- that Cisco is working closely with the Chinese government to develop network gear that will aid network operators in filtering the content which is available to China’s citizens via the Internet. The Chinese government has already established a well-documented pattern of blocking content which it finds objectionable -- and other Internet giants, such as Internet search companies Google (News - Alert) and Yahoo, have been embroiled in the moral and ethical debate surrounding the government’s information blocking practices. Some are asserting that Cisco is playing pawn in the government’s continued practices of blocking content. With 162 million people online, China has the second highest number of Web users in the world, coming second to the United States. The communist government encourages Internet use for business and education but tries to block access to material deemed subversive or pornographic. The level of censorship reportedly hit a peak last month, as the Communist Party geared up to make new governmental appointments. Hundreds of Web sites have reportedly been blocked or shut down.

Chambers, however, said Cisco does not, and will not, provide equipment which offers "unique capabilities" to block Web content.

"I think if you really look at the capabilities of the Internet, it will weigh in in many, many positive ways," Chambers was quoted as saying in the AP report. "And will there be some disadvantages along the way? The answer is yes. But the overall benefits are so positive. Secondly, one thing tech companies cannot do, in my opinion, is involve themselves in politics in a country.”

For more information about Cisco’s news today, visit its press page at http://newsroom.cisco.com/dlls/pressreleases.

-----------

Patrick Barnard is Associate Editor for Customer Interaction Solutions magazine and Assignment Editor for TMCnet. To see more of his articles, please visit Patrick Barnard’s columnist page.