Mountford’s mission

Cisco Systems is targeting growth in developing countries and the Middle East in particular. Emerging Markets Theatre leader Paul Mountford reveals his strategy.

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By  Stuart Wilson Published  January 22, 2006

|~|mountfordexecsbody.jpg|~|Paul Mountford, centre, president of Cisco's Emerging Markets unit, with the company’s executive team welcomes conference attendees to its partner summit.|~|The emerging Markets Theatre took centre stage at Cisco’s recent worldwide analyst conference as the networking giant laid out its plans for future growth. Covering some 129 countries, including the Middle East and Africa, the emerging markets theatre — headed up by Cisco’s former global channels supremo Paul Mountford — is a top priority for the vendor. Mountford’s mission is to get the emerging markets operation firing on all cylinders as quickly as possible. Stuart Wilson caught up with Mountford to find out his game plan for growth in 2006. What flexibility has the creation of an emerging markets theatre actually given Cisco in terms of driving growth across these 129 countries? I think the big plus for Cisco is the fact that we can now totally focus on the needs of small high- growth markets. Five years from now these will be high volume dollar markets but today they are relatively low. The way that most companies work — certainly the big US and European multinationals — is to concentrate on the bigger markets in the world, because they are seen as a relatively safe place for investment. This means that they tend to ignore the small high-growth markets. What we wanted to do was to focus on markets that have huge potential and bypass many of the traditional old world European and other developed markets to give Cisco a huge growth contribution over time. I have spent the last 120 days building up and defining the business plans for 129 countries. Country managers have all presented their plans to me and the upside is that there is a fantastic opportunity. From Cisco’s perspective, what we really like about the emerging markets is the openness of governments to work with us to further the development of their countries. They have a political agenda and it is focused on capturing growth. We believe that Cisco can hook into that — we are big enough and capable of achieving this. As you ramp up investment in emerging markets and look at long-term growth potential, how important is short-term revenue growth and maintaining overall profitability levels? We are a business at the end of the day and we want to achieve profitable growth. It is not about growth at all costs because that does not satisfy our shareholders and does not allow us to continue putting more working capital into emerging markets. I think that what Cisco brings to these countries is a sophisticated approach in terms of getting results that line up with the political agenda. If you look at many of our competitors, they sell point products. They may sell a service provider architecture but they are not capable of doing everything in these markets. They don’t have a service provider offering connected to an enterprise offering, SMB solutions and even consumer products. They also don’t have the team and the manpower to work across all these areas, cover all the verticals and bring all these solutions together. Cisco has a large public sector team and we concentrate on delivering plans that allow the whole country to progress and develop. We don’t get into a procurement situation where end-users ask for US$10 off a box. Cisco seems to be relying heavily on growth in the eme-rging markets to drive global revenue growth in the next few years. Are you feeling under pressure to deliver this? No. The thing that I live for is making a difference. I think you reach a certain point in your career when you have done most jobs — and I have done lots of different jobs with Cisco. I had the partner business before and we completely re-engineered it and made a real difference. That made me feel good and also had a positive impact on the company and for our shareholders. I want to achieve the same impact with the emerging markets theatre and that is why it is a role I really wanted to have. By the way, it wasn’t like the job was created and someone said, ‘Paul, you can do this’. It was myself, Rob Lloyd and Rick Justice going to John Cha-mbers with a plan to create an emerging markets theatre. This was a role I wanted and an area where we all feel we can make a difference. If I didn’t feel I could make a difference, I wouldn’t be here. How long was the period of time from the submission of the plan to create an emerging market and the actual restructuring that occurred? Two weeks. It wasn’t a detailed plan — it looked at the economics of the emerging markets, the growth potential and the coverage model that we had for these markets. We saw that there was under-investment in emerging markets, a huge upside and we realised that Cisco possessed the skills and intellectual property to make a difference. Why not reconstruct the way we were running our business? So, in the two weeks from us presenting the plan John Chambers had reconstructed the world. Americas international was spilt up and Latin America came to me because it is an emerging market. Canada went to Rob Lloyd as part of the Americas. We really started looking at the world in terms of how it worked as opposed to how it is laid out geographically. ||**|||~|mountford2body.jpg|~|We look to work with local partners rather than trying to force global partners into these markets, claims Mountford.|~| Is there any variation in what you find for each country? In Central and Eastern Europe automotive has become a major vertical. All the major automobile companies are in the region. In that case, it is not about us doing business with the major car manufacturers themselves, it is about doing business with the local companies that make up the supply chain. It varies from place to place. In South America there is a lot of mining and they’ve got money to spend. You go to a copper mine and they are using massive trucks where each wheel costs a quarter of a million dollars. There are many radio frequency identification (RFID) applications these mines can use. The problem is, you can’t go in and talk technology to a mine foreman. You need to understand what he does every day in his job. These are people who can sign-off millions of dollars. We recently installed a large wireless solution at a mine in Peru. We went to them, explained what it was, and they said ‘yes, do it straight away’. If you know their business you can sell to them. So how quickly do you intend to boost the headcount in emerging markets to capture all these opportunities? Straight away and fast. I can’t tell you how many yet — it is all based on the business plan and that influences the request for headcount and also for other investments. I’m asking the company to give me a certain amount. At present, there are approximately 940 staff covering the emerging markets. However, within those 129 countries that make up the theatre 20 countries account for 80% of the business. At the end-user level, how important is driving education and learning initiatives in emerging markets? It is massive. From the government side, it is the number one area they want to talk about. If you look at Cisco’s networking academies today, we are building them out at a rapid rate across emerging markets. The fundamental problem in much of the region is the skills gap — the skills gap in the channel and also at the customer level. Many countries do not have the number of skilled people that they need to match the growth that they want to achieve. So what Cisco is doing is being very aggressive with our networking academy programme. We have half a million students worldwide; I would love to have half a million in the emerging markets alone. And it is not just about networking academies associated with learning institutions. I went to a major company in South Africa that runs many of the government agencies and suggested that they build their own internal academy. They run it and we give them the content and the curriculum. In terms of the governments in emerging markets and their relationship with telecoms operators, is the lack of deregulation in the region still a barrier for Cisco? Sometimes the governments are great and they are really pushing deregulation. In other cases, the government has an ownership stake in the operator and they are slowing down the process of new challengers coming in because they have their own shareholding to consider. That can make deregulation a difficult play, but I think it is a bit like trying to stop the tide. Eventually it breaks through. My real concern is when the government doesn’t understand how important it is to open up their markets and create competition. It is important for the economy. It is one thing having all the wealth concentrated within 1% of the population, it is another having broadband penetration limited to 1% of the population. That can really restrict how a country grows over time. Lack of deregulation is also hampering voice over internet protocol (VoIP) uptake in some countries. How easy is it to push Cisco’s advanced technologies in emerging markets? Well, if the regulatory environment doesn’t allow it, then that is a problem you have to deal with by lobbying the governments and the success of that approach can depend on the level of access. Going to the ministry of telecommunications may not give you the right answer. Sometimes you have to go to the leader of the country and explain exactly how the current situation is slowing down the growth of the economy. Cisco recently purchased set- top box vendor Scientific Atlanta. Is there any sort of demand for the products and services that this deal gave Cisco in the emerging markets theatre? First of all, you have to understand how big technologies such as IPTV are in emerging markets. In specific places, such as Dubai, it has the potential to be big — you can imagine IPTV solutions in all the new hotels. You would need to work with an operator in the middle as opposed to directly with the carrier and so we are building a model to address this. IPTV is only affordable for those in high-income brackets so demand is not as pervasive in emerging markets as it is in developed markets. The technology that Scientific Atlanta gives us includes middleware that can work with other forms of broadband access so it is not just a cable play. There are many opportunities for growth in emerging markets. How do you go about prioritising them? By sizing the markets — that is what we do. We look at the horizontal sectors and the political agenda. We look at the verticals and we assess how important the SMB sector is as a driver of economic growth in each country. Then, based on the regulatory framework, we decide where to push first. There are still some embargoed countries in the Middle East for Cisco products. How do you monitor the product flow and what are you doing in terms of improving end-user verification? There are markets such as Libya that are now opening up. As soon as we’re allowed to work in these countries, we go. The US government guides us because we are a US company. We are working on these areas all the time. In my former channel role we had a team responsible for tracking counterfeiting and grey area goods. There were some situations that we had to jump on but we try and control it as much as we can. What we are now trying to do is introduce more sophisticated systems for service provision where customers have to prove to us who they are and where they bought the product in order to receive service. The principle up to now had been to make services available. As our systems improve, this is a way that we will be able to prevent these problems. We’re also taking a tough line with any partners that contravene regulations. Have there been any surprises for you in terms of the way that business is conducted in the Middle East and Africa? I don’t think so. A lot of the emerging markets are very similar. You can’t change 5,000 years of culture just because you are a US company and you want to see everything done in a clean way. We would love it if the whole market worked in a conventional manner, but that is not the reality. One of the reasons we work with local partners is because they know how to work within these different business models and cultures. That is why we look to work with local partners rather than trying to force global partners into these markets. As these markets become more sophisticated and start looking to the outside as well as the inside, that’s when you can really start looking to introduce some of the global models. We are helping governments that really want to stamp out corruption by introducing e-procurement in the public sector. E-procurement means total tra-nsparency and you can’t get around that. In some countries in emerging markets up to 20% of the GDP is actually wasted and that is very unproductive. In terms of offering solutions in 129 countries, how important is localisation of solutions and the ability to provide genuine local support? Localisation is a big issue, particularly in IP telephony and security — wherever there is a graphical user interface. There are a number of solutio- ns that we want to get into Arabic as soon as possible and we have a whole plan dedicated to this. I don’t know about the SMB Assistant yet — clearly I want to roll that out and I also want to look at innovative leasing optio- ns with finance partners to offer to SMBs in emerging markets. So what are your key objectives for the emerging markets theatre in 2006? What’s top of the to do list? I think the main priority is to get the investment from Cisco that really allows us to build out in emerging markets and capitalise on the growth opportunities that exist. Then we have to take that growth opportunity and really help to develop the countries that we work in. We need to help the governments achieve the goals that they have set. ||**||

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