Friday, November 14, 2008

Cisco's Emerging-Markets Gambit

Ciscos Emerging-Markets Gambit

King Abdullah Economic City, Saudi Arabia - Two limos hurtle through the desert north of Jeddah, Saudi Arabia, at 110 miles per hour, blown at times into the slow lane by the winds coming off the nearby Red Sea. The delegation from networking giant Cisco Systems (CSCO), including Senior Vice-President Paul Mountford, is running late for a gala groundbreaking ceremony hosted by the Saudi king at one of the biggest construction projects on the planet. King Abdullah Economic City (KAEC) is mostly sand dotted by cranes now. But by 2020 the Saudis expect 2 million people to be living in a futuristic metropolis three times the size of Manhattan, with some of the most advanced technology money can buy. As the black Lexuses arrive, one traveler remarks on the frenzied pace, and Mountford laughs. "That was nothing," he says.

Not with so much at stake. King Abdullah plans to build four brand-new cities and upgrade the country's infrastructure at a cost of $600 billion over the coming years, and Mountford is chasing scores of similar projects in emerging markets around the world. This goes beyond China and India. Mountford's mandate is to tap the next tier of emerging nations, from Saudi Arabia and Russia to Brazil and Chile. It's a sprawling group that Cisco, and companies like it in technology and beyond, is counting on for much of its growth. But as the financial crisis hammers many of these economies, Mountford will have to hustle to deliver.

The groundbreaking at KAEC makes clear how hard Cisco is pushing. Its executives form the largest Western contingent by far, and, after the event, the company hosts the king in an adjoining tent for a demonstration of Cisco technology that allows a person elsewhere to appear on stage as a holographic image. All this before the company has won a dime of business for its products.

Cisco isn't just selling technology. Mountford's pitch is that Cisco, more than any other company, can help countries such as Saudi Arabia modernize their economies and become leaders in the Internet Age. The company argues that, by investing in the Internet infrastructure Cisco sells, these governments can better educate their citizens, improve health care, and boost national productivity. They may even be able to create their own tech sectors, giving citizens the opportunity to become well-paid "knowledge" workers like those in Bangalore or Guangdong, China. It's the promise of the Cisco Effect. "This is a chance for Cisco to [influence the world] on a much bigger scale," says John T. Chambers, the company's chief executive. "It's about raising standards of living and creating large middle classes."


One parallel is Bechtel. Just as the construction giant built dams, power plants, and airports last century, Cisco believes it can build essential infrastructure for today. It sells everything from the million-dollar routers that direct traffic through the Net to $300,000 videoconferencing systems for executive suites to set-top boxes for cable TV. But it does more than peddle gear: Cisco provides consulting services to help government officials figure out how best to use the Internet and pays for training centers to churn out the technicians to make such plans real. All told, the company is investing billions in emerging markets in hopes of snaring future business. "Cisco is getting itself designed into the fabric of these countries' economic plans, because Cisco is helping their leaders imagine the future," says tech consultant Geoffrey Moore of TCG Advisors. "It's thought leadership at a level I've never seen before."

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