Tech companies building bridges with China

John Chambers, the chief executive officer (CEO) and president of Cisco Systems Inc., doesn't care when economists think China is going to become the world's largest economy. He's just thinking about what needs to be done for Cisco to tap into that market.

"We can have a healthy discussion about whether that's in 2020 or 2040, but it will (become the world's largest economy) and China will become the IT center of the world," Chambers said, speaking at a press conference in Beijing last week.

Chambers tied his comments about China's growing economy to the announcement of Cisco's plans to invest US$32 million in a research and development (R&D) center that will open next year in Shanghai. The center will employ a staff of 100 and focus on the development of VOIP (voice over IP) products and technology.

Looking ahead, Cisco plans to expand the Shanghai R&D center over time to include work on other areas of technology related to networking, Chambers said, outlining a long-term vision of a network of Cisco R&D centers spread across China.

Explaining why Cisco chose Shanghai for the site of an R&D center, Chambers was quick to note China's excellent infrastructure, a good university system that provides a pool of talent from which to recruit researchers and business-friendly policies implemented by the country's government. But Cisco's decision is about more than developing future VOIP products, it's about positioning Cisco for future growth in China.

"What we're trying to do is outline an entire strategy of becoming a Chinese company," Chambers said.

Part of that strategy means being responsive to requests for investment from the Chinese government. During his presentation in Beijing, Chambers noted that Cisco, of San Jose, California, has spent $38 million since 1998 to set up university training centers for software programmers -- a move he said was made at the suggestion of Chinese officials.

Cisco has also moved the manufacturing of many of its products, which is done under contract with other companies, to China at the request of Chinese government officials, he said.

"Our contract manufacturers, at my request, and candidly at the request of the leaders in your country, began to move our contract manufacturers here to China," Chambers said.

Today, Cisco manufactures $5 billion worth of products in China each year, employing around 10,000 people through the companies that manufacture products under contract for Cisco, Chambers said.

Of course, Cisco is not the only IT vendor to have made a conscious effort to build bridges that bring them closer to the government and customers in China. Most major IT vendors have at some point made a show of their commitment to China, through donations to universities, high-profile investments and similar activities.

For example, Hector Ruiz, the chairman, CEO and president of Advanced Micro Devices Inc. (AMD), announced last week at a press conference in Beijing that AMD would make a donation of 1 million renminbi (US$120,677) to China's Hope Project to help improve education at schools in remote areas of western China, the second such donation made by the company in less than one year.

At the same time, Ruiz announced that AMD, based in Sunnyvale, California, will establish its Greater China headquarters in Beijing to oversee all of the company's operations in China, Hong Kong and Taiwan.

The announcement is the latest in a series of moves made by AMD since last year to strengthen its position in China. These efforts gathered momentum in December 2003, when the company first announced plans to establish a Chinese subsidiary, Advanced Micro Devices (China) Co. Ltd. Prior to that, the company's Chinese operations had been run out of Hong Kong.

"If you operate out of Hong Kong, that doesn't really send the right vibes into the Mainland market," said Henri Richard, AMD's executive vice president of worldwide sales.

However, with AMD's Chinese subsidiary now in operation, the vibes seem to be right.

The company struck a deal in June with Lenovo Group Ltd., China's top PC vendor and a close partner of Intel Corp., for Lenovo to begin selling PCs based on AMD's processors, including the 64-bit Athlon 64 processor. That announcement followed a similar deal that AMD struck in March with China's second-largest PC vendor, Founder Group Ltd.

While AMD has made significant gains in China during recent months, Richard wants to make sure that Chinese customers like Lenovo and Founder understand the importance the company attaches to being successful in China. To drive that point home, Richard said last week that he plans to spend one month in Beijing next year, running AMD's global sales operations from China and spending time with Chinese customers.

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