Anda has implemented a unique hybrid Silicon Valley/China business model, combining a small number of people with domain expertise in telecoms product planning and network architectural development that can be found only in North America (and primarily in Silicon Valley) with a larger group of engineers, operations, and general and administrative people recruited in China.

Founded in 1998, Anda provides carrier class access products for legacy networks. Technically, the company is headquartered in Sunnyvale, in the US state of California, with a wholly-owned subsidiary in Wuhan, China, but, in practical terms, since 2001 it has functioned as if it had two co-headquarters.

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US tech slump

The shifting of competences to China was prompted by the dramatic and sudden financial collapse of the US technology sector, in which telecoms was particularly hard-hit. Anda was a relatively well-funded company, having raised $100m in total but it had not raised any funds since 2000. When the telecoms crash came the company decided to retool its cost model.

There were two objectives, Mr Kenmore explains: “Number one was to reduce our cash burn by 90%; number two was to become the low-cost – not just a low-cost – developer of telecom access infrastructure products in North America, bar none. That’s what made it imperative for us to go to China.”

With the North American market reeling, Anda had to act quickly. It made the transition to a dual US/China-based company in just one fiscal year. Mike Pascoe, Anda’s non-executive chairman, says: “Anda went through the corporate equivalent of rebuilding in mid-air a Boeing 747 departing from San Francisco into a newly constructed Airbus before touching down in Shanghai.”

The transition was made easier by having senior managers, including Mr Kenmore, who had experience of managing China operations from North America, and matching them up with some former Motorola executives who had experience of working with Western companies in China. “That’s what permitted it all to happen: having two sides that were aware of each other’s ways of doing business and being able to come up with what we hoped would be best practices on a world scale basis.”

Anda Wuhan is born

Anda purchased an entity called the Optical Research Institute in Wuhan, which was one of the country’s premier optical telecoms institutes. That served as the basis of what became Anda Wuhan. This is complemented by an operations centre and a research and development (R&D) and product marketing centre in Guangyang province, as well as various commercial offices in China.

When management transformed the company from a more typical Silicon Valley start-up, its average engineer had a bachelor’s degree in electrical engineering, five years of relevant networking experience and earned $125,000 a year, including benefits. The average Wuhan engineer has a master’s degree, seven years’ relevant experience and earns $17,000 a year. After reducing its US headcount from 191 to 27 and hiring 48 employees in China, Anda now has a cost structure of $28,000 per engineer per year and a company-wide cost of $58,000 per employee per year including benefits.

Apart from cheap labour and the enormous domestic market (which India, for example, also has) China made sense for another reason. Its logistics situation was deemed a better fit for Anda’s software, which is embedded in physical platforms. India has developed a robust application software development industry but, because of the tariff regime, it is considerably more difficult to move physical (rather than intellectual) products in and out of the country. China, with its special economic zones that facilitate the physical movement of products, has developed a competency in embedded software.

The first new product created by the hybrid structure company, EtherTone (ethernet over SONET/SDH/DSX), was released to the market two years ago and won the Product of the Year Award at 2003’s SuperComm, an annual industry event. Anda can now claim top-tier North American and Asia-Pacific telecom carriers as customers.

The company has two core product lines, the Universal Access Platform 2000 (UAP 2000) and EtherTone, both of which are installed in live revenue generating networks, and are deployed in the areas carriers are targeting for CAPEX spending Metro Ethernet Access and FTTP. Since the fourth quarter of 1999, Anda has installed a base of more than 850 EtherTone and UAP 2000 platforms on live revenue-generating carrier networks.

European dimension

In addition to the California and China offices, Anda has a one-man commercial office in Düsseldorf, Germany, that will be expanded with commercial and technical support as the European business grows. The company is being led into Europe by its customers. These include MCI and Level 3, both of which have standardised on Anda in the US and taken it with them into Europe.

Anda has used this business to build a European base and has trials beginning with half a dozen European carriers. “Clearly our staff will have to be built to accommodate it,” Mr Kenmore says.

After a projected break-even on cash flow in the fourth quarter of 2004, Anda envisages seeking an additional $20m in the first quarter of 2005 to expand its business.

“There are basically three large markets for telecoms: North America, Asia-Pacific (and that’s largely China and India) and Europe,” Mr Kenmore says. “One has to be in all three as your financial circumstances permit. It’s not a matter of which one, it’s a matter of when.”

Resources freed up

Fortunately for Anda, the economics of its business model frees up resources to invest in Europe that would not be available if it was still paying $125,000 a year for an engineer rather than $17,000, says Mr Kenmore.

The numbers offer quite an endorsement of Anda’s hybrid US-China business model. Cash burn has been reduced from $10.6m in the third quarter of 2000 to $1.5m in the same quarter in 2004. And in those four years, prototyping costs have been reduced from $2.1m to $328,000; total R&D expenses from $15.6m to $3.7m; sales and support and marketing costs from $11.2m to $1.6m; general and administrative costs from $3.8m to $1.5m; and facilities costs from $3m to $548,000.

All told, the company has saved more than $38m since it became hybrid.

 

 

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