The company said Thursday that it plans to spend $32 million over the next five years on the Chinese research center, to be located in Shanghai. The facility, which will focus on developing voice over Internet Protocol (VoIP) technologies for telephone carriers, is expected to open in the third quarter of 2005. Over the next 18 months, approximately 100 people will be hired to work there. It will be the first research center Cisco has established in China.
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Additionally, earlier in the week, Cisco said it would launch a venture capital program in India to scope out investment opportunities in new start-ups.
Asia has become anfor telecommunications and networking companies, and China and India are two of the hottest countries in the region. With more than a billion people each, these countries are rapidly expanding their economies and building new communications infrastructures. As a middle class emerges in each country, a huge base of consumers is poised to take advantage of new services that depend on the Internet.
Cisco already has a long history in Asia. The company has been selling and manufacturing gear in China for about 10 years, and it has already been extensively investing in Chinese start-ups. In fact, most of the $300 million the company has invested in Asian companies over the course of its history was spent in China, according to Dan Scheinman, Cisco's senior vice president of corporate development.
And, Cisco has had research and development facilities since 1998. The company currently employs more than 500 engineers at its Bangalore facility, where engineers are developing routing and optical technologies, as well as updates to the company's software.
Cisco's expansion in these markets comes at a time when U.S. technology engineers are losing jobs at home. While Cisco claims no Americans are expected to lose their jobs as a direct result of the new facility in China, it's clear that cost has played some role in Cisco's decision to expand research facilities there.
The Chinese government has fostered an investment environment friendly to foreign companies. The country is also home to a highly educated work force that offers qualified and inexpensive labor. Taking advantage of these incentives and tapping into China's cheap talent pool is important for Cisco, especially as it competes with homegrown Chinese companies such asand ZTE, both within China and abroad.
"Cost is one factor," Scheinman said. "But it's not the only factor. Getting access to talented engineers in a particular location is very important and often difficult. It's also important to have those engineers close to customers."
Cisco isn't the only North American networking company to see an opportunity in China and India. Juniper Networks, Cisco's biggest rival in IP routing, announced earlier this month that it also plans to open a research facility in China.
Juniper's center will focus on developing network and security products for small and midsize businesses in the world market. The company, in Bangalore, India, last year. Juniper started the Bangalore facility with 27 engineers and now employs more than 100.