Short of becoming a basic human right, internet connectivity is now an essential, rather than a desirable, amenity. And nowhere are the effects of improved access to technology being felt more than in emerging economies, where a government’s digital agenda has the potential to drive economic growth, help alleviate poverty and even leapfrog technological advances in the West.

The fact that technology has become such an important part of the development mix has prompted US multinational Cisco to regard broadband connectivity as ‘the fourth utility’. The company’s head of emerging markets, Paul Mountford, strongly believes that technology is an essential component of any emerging economy’s development plan. Improved technology access impacts upon education standards, keeping people out of healthcare, which reduces costs and makes people available for work, which in turn drives the economy and creates public safety, stability and jobs and a pro-competitive business environment. “That’s really what country transformation is about; all cogs working together,” he says.

Advertisement

Mr Mountford has witnessed the cycle play out many times while overseeing the company’s business in more than 132 countries within central and eastern Europe, Latin America and the Caribbean, the Middle East and Africa, and Russia and the Commonwealth of Independent States. “The reality is that we actually operate in about 47 of those countries,” he says. Mr Mountford has a counterpart who looks after India and China “because it is just too much to manage for one person”, and with whom he meets every month. Cisco’s emerging market strategy is to continuously grow the company’s global footprint, working with emerging economy governments to improve IT infrastructures all over the developing world.

A large part of Cisco’s work in emerging economies is with the public sector, especially as telecommunications and internet services providers are often run by governments in these economies. Mr Mountford estimates that between 20% and 50% of his business is with the public sector, compared with about 10% four years ago. “We’re putting more investment around that space and a lot of businesses in emerging markets are held by government,” he says. Public sector projects are a long time in the planning but Mr Mountford says he is beginning to see the impact of plans laid down four years ago when his division was created. “A country transformation typically starts by working with governments to create a blueprint for a digital agenda.”

 

Progressive economies

Bahrain is a perfect example of the way Cisco has worked with a progressive emerging economy. The company gained access to the crown prince, Sheikh Salman Bin Hamad Bin Isa Al Khalifa, who was a great help. “He understands what the country needs to do in order to attract FDI and recognises the power of technology to drive economic growth very quickly,” says Mr Mountford.

Cisco’s global brand means that the company has good access to global leaders, he says. “But access is not the problem; it is what to say once you get through the door.”

Cisco goes into each country with a clear, tried-and-tested model, which it used to underpin Bahrain’s e-government infrastructure. The company also decided to base one of its data centres in the country because Sheikh Salman legislated to allow voice-over internet protocol, something many countries in the Middle East have outlawed as a way of controlling the sale of voice minutes by service providers which are typically controlled by the region’s governments. Just as many progressive decisions may not seem to make economic sense in the short term, Sheikh Salman recognised the long-term benefits of such openness. “In the long run, the volumes and the elasticity of business becomes so huge that actually no one loses out, much like deregulation of the telecoms market in the West, which opened up competition and was ultimately good for everyone,” says Mr Mountford.

Business is not about domestic barriers any more. A good case in point, says Mr Mountford, was the ban on stem cell research in the US which meant that development moved to the UK, with US scientists working on it over the internet instead. “It is pointless in some respects to stop things because global boundaries have gone,” he says, adding that it is a good lesson to governments in how they can progress markets rather than regress them. Cisco has a team of regulatory experts that go in and advise governments on how to create pro-competitive environments, which the company strongly believes opens markets and improves business standards across the board. “Some countries get that and some don’t,” says Mr Mountford.

 

Demographic shift

Cisco’s focus on the developing world is directly driven in anticipation of huge urbanisation taking place across the globe, which will create 10 mega cities by 2015 – only two of which will be located in Western markets. And those cities will need an IT infrastructure to develop anything from video safety equipment to traffic management solutions. The 10 mega cities will be Dakar, Mumbai, Lagos, São Paulo, Karachi, Mexico City, Jakarta, Calcutta, Tokyo and New York. “Lagos and São Paulo will be the biggest cities on earth in the next five to 10 years, which is why we decided to go there,” says Mr Mountford. Even a location such as Pakistan, which carries more risk, is a location choice because of this huge demographic shift.

The first step that Cisco takes is to open an office in the capital city of the country in which it has decided to operate. All business models are replicable. For instance, Cisco has an airport solution. “We know there are 92 airports being built in the countries we look after so we replicate the solution 92 times for each one,” says Mr Mountford. The firm also has a sports stadium model, an urban centre model, and so on. This strategy is beneficial as it means there is no need to customise every country development from scratch, which would be extremely expensive. At the same time, the firm can replicate best practices across its working models.

One may think using a standard model across multiple markets may present cultural difficulties, but Mr Mountford says cultural differences only account for 2% to 5% of the whole business process. “Most cultural difference is around the relationships between your people in the country and the customers they service – it rarely appears in the business process because the business process typically works everywhere,” he says. It helps that the company always uses a local national to run its country office where possible; the motto, ‘we are a global company but we act locally’ is taken very seriously.

 

Clear focus

The company will continue with an emerging market focus that prior to the economic crisis was driving 30% to 50% of the growth dollars of the company. The impact of the global downturn over the past year has meant a slowdown in this growth and it remains to be seen whether it is Cisco’s emerging market or Western market business which will come out of the downturn first. “If you believe it is the emerging markets, which I strongly believe, we will return to producing that same percentage of growth for the company,” says Mr Mountford.

State funds in emerging economies – in principal markets such as Brazil, Mexico, Russia, South Africa and Turkey – still have money to spend and, apart from the impact of the credit issue, there was a dollar exchange issue which is also starting to soften, leaving two major reasons why Mr Mountford believes emerging markets will make a speedy recovery. “If you had asked our chairman what the biggest contributor to growth dollars in our company was a couple of years ago, he would not have hesitated in saying emerging markets and I am hoping he will be saying the same thing again next year.”

COMPANY PROFILE

CISCO

Headquarters

San Jose, california, USEmployees worldwide

66,558Annual turnover

$35.54bn (2008)Founded

1984