Business Today

Network drive

The networking giant, fresh from topping $1 billion in India revenues, begins walking its talk in the hinterland.

Rahul Sachitanand        Print Edition: March 6, 2011

COn a chilly January evening in a Madhya Pradesh village, a group of teenagers files into a classroom for their after-school tuitions. Their teacher is hours away, in a small office at Chhindwara, three hours from Nagpur, the nearest big city.

The distance notwithstanding, the students get their lessons in science and English on a virtual board, thanks to the Internet. Good tuition centres and qualified teachers are hard to come by in these parts, and the virtual solution is a blessing for those who do not have to travel long hours to the nearest town.

For the $40-billion networking giant Cisco, this represents the future of its business in India. The firm, which earns most of its revenue from selling equipment that directs Internet traffic, is now staking its future beyond big cities. After finding a firm footing in India, the San Jose, Californiaheadquartered company is thinking long term. Despite poor physical infrastructure and a rudimentary Internet backbone, Cisco thinks it can perhaps seed its next billion dollars or more from places deep in the interiors of India.

 The gameplan…

  • Turn to India's hinterland for the next $1-bn revenue
  • Custom-made solutions for the rural market
  • Line up new partners to tap the opportunity
  • Provide funding and mentorship to fi rms building Internet-based businesses in the hinterland
  • New business unit to focus on long-term opportunities
But…
  • The plan is dependent on a rapid growth of broadband, where actual numbers have always lagged bold predictions
  • The hinterland is a costconscious market. Analysts say Cisco is yet to show it can compete on this front
  • The government, a major customer, is slow to decide on large projects
  • Cisco is a key partner in the troubled Lavasa project; other regulatory hurdles could slow growth
It plans to focus on developing these markets, building bespoke solutions, sharpening existing offerings in areas like telemedicine, and even cross-pollinating ideas from other emerging markets such as China to tap this opportunity. "Technology is the answer to empower rural communities," says Susheela Venkataraman, Director, Internet Business Solutions Group. Cisco is walking the talk: from teaching maths in Chhindwara to helping kids with English in Karnataka hamlets. Villagers in Gubbi, in Karnataka's Tumkur district, have seen "a 20-km journey for a caste certificate reduced to a two-minute walk", adds Venkataraman.

Cisco had an early start in India, having set up a sales office in 1995. Its revenues here crossed $1 billion (Rs 4,600 crore) last year after growing 40 to 50 per cent per annum over the past five years. As part of its focus on emerging markets, Cisco in 2007 chose India as the first place to set up Industry Business Councils, or units focused on pursuing long-term business opportunities. The same year it relocated Globalisation Chief Wim Elfrink - the No. 2 man after Chairman and Chief Executive Officer John Chambers - to Bangalore.

Not satisfied with its breakneck growth in India - its revenue has grown six times in 10 years - the Internet equipment giant is thinking ahead. Though Cisco boasts of big customers here such as the Tatas, State Bank of India and Reliance Industries, besides a majority market share in routers and switches, it now believes the hinterland could be its next big opportunity.

"We are very bullish on health care and education," says Cisco India chief Naresh Wadhwa. "We believe there could be multi-billion dollar opportunity from such business initiatives globally in the next few years."

The company is looking beyond its conventional partners (big tech systems integrators such as Infosys Technologies) to discover fresh opportunities. For example, it has tied up with truck maker Ashok Leyland to build local transport solutions, Everonn for distance learning initiatives, and solar power solutions developer Neurosynaptic to offer power back-up to some distant hamlets.

In the process, Cisco is trying to connect villages using a combination of its own and partner technologies. In Chhindwara, for instance, the company is mentoring and funding three 20-somethings who think they can use the Internet to improve the reach of education in the smallest of villages.

In May 2008, Anurag Pawar, a resident of this town with a population of 120,000, met Elfrink and impressed the Dutchman. Pawar's company, Lakshya Networks, wants to provide distance learning education to surrounding villages. Lakshya has covered seven villages, teaching 770 students so far. Pawar thinks he has a winning idea because of the overcrowded tuition centres and the low pass percentage in the region. Cisco has seed-funded Lakshya and even flown mentors from Bangalore to help it scale up. Lakshya's expansion plans - 25 centres and about 3,000 students next year - are music to Cisco's ears as the start-up runs on its products and services.

Similarly, in Raichur in north Karnataka, Cisco is providing distance learning services in five villages with its education partner Everonn. The project is even more ambitious than the Lakshya model, because it gets these lessons from tutors in Chennai, some 500 km away.

Naresh Wadhwa, President and Country Manager, Cisco India and SAARC
Education is one of the biggest opportunities in India. The kindergarten to Class 12 segment already accounts for as much as 40 per cent of an overall $65-billion education industry in India and the National Council for Education Research Training believes that 25,000 new schools are required to keep pace with the booming demand.

A few kilometres away from Raichur, a fort town bordering Andhra Pradesh, Cisco is helping rebuild houses damaged in last year's floods. As part of the project, in nearby Gillesugur, it is also building a prototype of a telemedicine project that it hopes can be a model for the rest. Until the pilot project became operational earlier this year, locals had to travel long distances, often as far as Hyderabad or Bangalore for medical tests. Cisco is trying to reinvent technology for this market, devising a laptop version of its costly HealthPresence set-up, which allows doctors to remotely examine patients on their notebook computers using dial-up or wireless Net connections.

A technician rigs up an electronic device the size of a bread box to help a doctor monitor basic health parameters such as heart beat, pulse and body temperature. Telemedicine is not a new concept.

Competition calling

Used to lording over the market for Internet gear, Cisco has found the pitch increasingly crowded in the last couple of years as its global rivals home in on the potential in India. China's Huawei, which has been consistently dogged by data security concerns, sought to make a statement when it announced a $2-billion investment in its India operations, covering R&D, sales and marketing. Smaller startups such as Juniper, too, are growing, by as much as 20 per cent per annum, according to India Managing Director Ravi Chauhan. Others such as HP (with its 3Com buy) is likely to make a bigger impact in communication technology, a segment Cisco has been edging into. "We are ahead of the competition and the market," claims Naresh Wadhwa, Cisco India chief. "When we moved to complete solutions, our rivals began selling boxes." He points to the state-run Accelerated Power Reforms Development Programme, where it bagged 11 of the 13 deals for smart metering solutions. While Cisco may own nearly three quarters of the market for Internet gear such as routers and switches, its dominance is not so pronounced in wireless local area networks and enterprise telephony, where it holds less than a quarter. This may just be the opportunity Huawei is eyeing. With mobile 3G services being rolled out, the Chinese equipment maker feels it is at the right place at the right time. "Huawei supplies 3G equipment to major telecom operators here," Max Yang, MD, Huawei India, recently told BT.


Companies such as Apollo Hospitals have large units in the country and overseas administering medicine remotely. Yet, dozens of projects have failed to take off. If Cisco can prove its model with the Raichur project, the market before it is India's 600,000 villages.

Cisco's most ambitious bet, however, is perhaps on the struggling state-run citizen services centres, or CSCs, which provide technologybased services such as electronic certificates for land, employment, income and caste, payment of utility services and access to high-speed communication for initiatives such as telemedicine in Karnataka, and potentially across the country. The firm, as part of a nine-company consortium along with the Indian Institute of Management Bangalore, or IIM-B, is trying to rewire these centres to make them more efficient and financially viable. CSCs have been beset by poor Internet connectivity, a narrow range of services and a lukewarm response from state administrations, getting reduced to mobile recharge shops and even petty stores.

Susheela Venkataraman, Director, Internet Business Solutions Group, Cisco
Up to 60 per cent of the CSCs are unviable, a recent IIM-B study found. Cisco and its partners want to rewire these centres to provide a range of services. "Rather than just inputs such as agricultural prices, they could provide data on where to sell products, market forecast and weather conditions," says Gopal Naik, a professor at IIM-B. Cisco is starting small on the retooling, working on just four CSCs in Gubbi. "The eventual plan is to have a model for 250,000 centres to be established nationwide," he says.

Unlike its large enterprise business, Cisco's rural India drive is expected to leverage custom solutions, which are both cheaper and easier to install. Cisco says there are plenty of businesses to be tapped here and points to the potential overhaul of CSCs as just one example. "We require hinterland and can implement our projects," says Wadhwa. Despite a raft of new projects, there is plenty of hard work ahead and challenges to overcome. The competition is intensifying, for one (see Competition Calling). In July 2010, Huawei launched a WiMAX (wireless over long distance) project in Rajasthan to provide broadband access to public service centres and village panchayats. Still, what Cisco has going for it is a high degree of familiarity with its products among local support engineers, says Richard Kramer, an analyst with Arete Research, a New York-based equity research firm. "It needs to learn from native emerging market companies like Huawei and Indian firms like Micromax or HCL, and figure out what makes them profitable at lower price points."

Some may say that is a tough task but Cisco executives remain upbeat and believe their discovery of Bharat has just begun. A journey that they hope will pay back handsomely when it takes these solutions and products to poor and middle-income markets elsewhere in the world.

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