. . . Let’s look at an example of a company that has been in China for some time, and lost serious market share. At one time, Cisco, generally acknowledged as a global technology leader, was also the undisputed leader as "China’s backbone." No more: in the last four years alone, Cisco has dropped from revenues of $1B in 2001 to about $600MM, reducing market share from 95% to 40%. What happened here, when the demand and opportunity are clearly increasing dramatically? Local competition muscled in, when Huawei, established in 1988, created a joint venture with 3Com and signed an OEM agreement with Siemens (Cisco’s reseller in Europe—ouch). Huawei grew sales to almost $5.6B in 2004, with reports that for the first half of 2005, sales are at $3.3B, which is 85% growth -– and 50% of this is from outside China.

Even without studying the situation deeply, this is a clear case of someone forgetting to align the company (Cisco) with what is meaningful in this geographical market. To start, look at the fact that Cisco employs only 600 employees in China (vs. 30,000 employed by Huawei) and only 5 of Cisco’s 200 vice presidents are Chinese. (I don’t have the numbers on how many of Huawei’s VPs are Chinese, but I bet it’s more than 5.) While this is an operational issue rather than a product/service issue, whoever made the decisions about management recruiting most certainly overlooked one of the deeply entrenched values of the Chinese people -- loyalty to family, community and country. This type of insensitivity to personal meaning can backfire big time, like a slide from 95% to 40% in just a few years.

Apparently another reason that Cisco keeps losing its major contracts, according to street conversation in China, is that they "don’t pay enough attention to the Chinese people." When we probed what that meant, we were told that they just were pretty much ignoring local requirements and didn’t get the importance for locals to be able to "plug in" rather than have to refit for technological compatibility. This is, again, an unfortunate oversight of what is meaningful to the customer.

These mistakes can be largely filed under the category: "Forgetting to Stay Local."