Cisco Inc. is looking to mend its troubled relationship with the Chinese government by pouring $10.0 billion into local investments and partnerships, a long-term strategy meant to insulate the company’s earnings from a downturn in Western economies.
The plan was announced on Wednesday, June 17 by incoming CEO Chuck Robbins, his predecessor John Chambers, Chinese Vice Premier Wang Yang, and other government officials. Specifics of the deal were not disclosed, except that a Memorandum of Understanding was signed with China’s National Development and Reform Commission (NDRC). (Source: Cisco Press Release, June 17, 2015.)
Patching Up the Leak
Back in February, documents leaked by Edward Snowden revealed that the U.S.’ National Security Agency periodically spied on other nations using the help of American tech giants like Cisco, Apple, and Intel. According to a Reuters exclusive, the Chinese government responded by officially dropping the relevant companies from its state-sanctioned procurement lists. (Source: Fortune, February 25, 2015.)
Cisco admitted that geopolitical events were a concern and later blamed poor first-quarter results on the damage done by the leaked information. Sales in China were 20% lower than the same quarter last year. (Source: The Wall Street Journal, June 17, 2015.) And from 2012 to 2014, Cisco’s number of products on the central government procurement list dwindled from 60 to zero.
The Chinese government assuaged its national security concerns by enacting new cyber security regulations for U.S. tech groups. For example, tech vendors must navigate through Chinese banks, hand over their source code, or use Chinese encryption.
Some analysts believe that by signing a deal with the NDRC, Cisco is signalling its willingness to accept these standards. While unveiling the deal, Robbins reiterated his company’s commitment to expansion in the Far East.
“Cisco is deeply committed to our Chinese partners,” said Cisco’s incoming CEO, Chuck Robbins. “With these new partnerships and initiatives, Cisco is investing in the next generation of Chinese technology innovation.” (Source: Cisco Press Release, June 17, 2015.)