Cisco's Chambers lectures on China

Cisco CEO John Chambers described the need for his firm to develop the network market in China and the company's strategy on acquisitions at a lecture at MIT's campus.

In a wide-ranging talk in front of MIT students and faculty, Chambers said China poses great opportunity for Cisco, as the country has an increasingly higher-educated talent pool of engineers and is training ten times the number of workers in engineering, math and sciences as the U.S. The salary gap between engineers in China and parts of the world will also force Cisco to be more productive on a revenue-per-employee basis, with the potential of moving more research and engineering work overseas.

"I'm proud [Cisco is] an American company, but my jobs will go to wherever the best infrastructure is," said Chambers, who spoke at the newly-opened Stata Center, the modern Frank Gehery-designed research building which Cisco donated money to build, and where several thousand Fast Ethernet, Gigabit and 10 Gigabit Ethernet switch ports are installed.

He half-jokingly said Cisco would be taking applications on MIT's campus later on.

The facilities, resources and talent pool China provides for U.S. companies is hard to ignore, Chambers said. An increasingly more-educated workforce there is key; the Chinese government has promised that 20 percent to 26 percent of its students graduate in engineering and math, Chambers said. Around 30 percent of Cisco's workforce now is either based in China, or includes employees from China, he added.

"We're not preparing students in this country," to compete with that, he said. "We have to create an environment where more students go into math and science."

The wage gap between U.S. and Chinese engineers is also shaping how Cisco allocates its resources and people.

"My workforce has to be five-times as productive in this country than the rest of the world," he said, since engineers in India and China average around US$40,000 a year in salary, while U.S.-based high-tech workers make upwards of US$250,000.

Chambers said Cisco's US$700,000 of revenue per employee last year was three times greater than Cisco's top competitors. "But if I don't take that to US$1 million [of revenue per employee] then I won't be profitable in five years."

The tools and practices Chambers described for making his workforce more productive was a basic rundown of many of Cisco's advanced technology offerings -- such as IP telephony and video for collaboration, high-speed networks for ubiquitous access to data and mobility technologies such as wireless.

As for Cisco's acquisition strategy, Chambers said the company will continue to buy smart, small and local companies, for the most part.

"We never acquire a company if it is not strategic to us," he said. Cisco will continue to make small acquisitions to either enter new markets, or to its bolster technology offerings advanced technologies. He said part of the key to acquisition success is integration.

"When [Cisco] acquires a company, we are acquiring a next generation product or technology, but we're also acquiring people," usually at a cost of around $1 million per person. He said that most acquisitions in the industry see 40 percent of employees of the acquired company leave after two years, while Cisco has kept its attrition rate of acquired employees at around 2 percent.

"If you can't retain the people after an acquisition, it's not worth it."

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