Cisco chose to exploit divisions of labor by using the manufacturing capacity of others beginning in the 1990s, and then, by exploiting lower wages for engineers in other countries at the outset of the 2000s. India was one such country where significantly reduced employee wages could be had [2]. Both moves – offloading manufacturing and outsourcing human talent – Cisco believed, would continue to generate profits, boost company valuation, and produce “Smithian” wealth for its ventures.
The Cisco Choices
Cisco’s focus has NOT been on making things, but on using others (e.g. contract manufacturers) to make things for the company. Cisco’s focus has NOT been on people, but on the numbers game of how many people were needed in engineering and at what cost to the company. It was a dance the company executed brilliantly in the firing and hiring of human resources and the rationale for where those next hires would physically reside.
Cisco couldn’t easily fire people in Italy, for example, so the optical Monza facility (from its Pirelli acquisition, in 2000) stayed around [3], while startup Cerent’s hometown, Petaluma, was abandoned as soon as Cisco could afford to leave that small North Bay town.
Like other companies of the 1990s who discovered cheap engineering labor elsewhere, Cisco sought lower cost engineering talent in India and shed the higher cost of engineers located in Silicon Valley and Telecom Valley. It became worth competing for the best resources outside of America in foreign markets owing to the “three-times the price tag” for an engineer in San Jose versus one in a foreign country.
How they did it was quite simple. John Chambers asked his executives to move select product development offshore. Jayshree and Pram picked two development areas to move out of California. Gary adds, “Jayshree picked the ONS 15454 and Pram picked the 7500. Jayshree tapped me on the shoulder and said we’re going to move some of the ‘454’ work out to India.”
These two Cisco executives paved the way, as both Jayshree and Pram went to India to get the ball rolling. “A lot of the ‘454’ software work was moved out to India,” according to Gary. “The problem we found right away was that the culture that we had for how we did things, and bringing excellence to what you did, and getting passionate about it [was missing]. There was nobody on the ground living and breathing it.”
Gary’s concerns were echoed by other top software developers that came out of the Cerent-Cisco era [4]. Gary recalls, “Things went according to the model Cisco had for what they did there. We found a person that made all the difference in the world, Soohan Mansing. He wanted to go back to India, anyway, and so [he went over and became] the cultural force in India . . . Soohan was irrepressible, and he almost singlehandedly turned it around; to a ‘454’ software release every 6 months; to a few participating things; to just being a world class software development organization, which they are today (2013).”
“Like John [Chambers] said, ‘Go make Cisco India world class,’ and we did,” recounts Gary. “Cisco’s India team [working on optical] had become the next generation of Cerent. It’s Cisco, and it’s that culture of getting things done that I experienced at both companies.”
Although there was an economic factor (lower wages, fewer benefits) associated with outsourcing, this factor has slowly dissipated, so companies, today, tout the diversity factor for their globalization initiatives.
Gary told me, “One of the motivating factors, to be competitive on the global stage, was that you had to do development in Taiwan and China and India and so forth. There were some 400 people in India, and the ‘454’ went over there, and it was one of the key things that helped make Cisco India the juggernaut that it is today.”
[2] As early as 1995, Cisco set its sights on exploiting lower cost Indian labor. The Internet giant commenced its India-based operations in 1995. By 2016, the Cisco Global Development Center continues to operate in Bangalore and it has become the largest development center outside the United States. The company bills its “Research and Development (R&D)” arm as the organization that “develops disruptive business models for Cisco to create new go-to-market channels, markets, processes and technologies for emerging markets.” Note that Cisco has shed its “Acquisition and Develop” or A&D model in favor of the traditional R&D model. It’s déjà vu and a tip of the hat to the Nortel and Lucent models of the 1990s.
[3] Cisco’s optical team, after being shopped around and almost deep-sixed in 2006, made a comeback shortly thereafter. One example of this resurgence was the acquisition of CoreOptics in 2009, where key optical development folks became part of the Monza, Italy team, officially named back then as the Cisco Service Provider Technology Group. These engineers were chartered to collaborate with Cisco's existing optical engineering teams in Monza, Italy; Bangalore, India; and Richardson, Texas.
[4] Humphrey Chin from his vantage point, with a different startup in 2013, told me that conditions for startups, in general, had changed: “My understanding is that you can’t give the exact same proposal to the VCs that Ajaib [Bhadare, Cerent’s co-founder,] gave them back in 1997 and get funded without having an offshore component.” There was pressure to use engineering talent outside of the U.S. to keep costs under control even at the outset of the 2010s. Humphrey adds, “Communications is better than it was in the past but still you can’t do a hardware-software development like that [of the Cerent 454 anymore]. If we weren’t willing to stick around 18 hours a day to get something to work it wouldn’t have been successful. Just timeline wise, your India team is 12 hours away and all my conference calls these days are either late at night or very early in the morning. That type of communications is not sufficient to do what we did at Cerent.”