Cisco Enters New Territory

Cisco Systems Inc. (CSCO) has decided to invest $32 million in South Korean Investment Fund, SkyLake Incuvest & Co. The plan is to invest up to $2 billion into the country’s technology industry over the next five years.

The decision was well-timed, as the company may be able to take advantage of the country’s economic turmoil that prompted the government to offer an $11 billion stimulus package in November last year.

SkyLake is engaged in funding technology companies through contributions in the form of private equity investments. Its recent investments include Viatron Technologies, which is focused on heat processing technologies for displays; DASAN Networks, a subsidiary of Nokia Siemens Networks, which makes switching and fiber- to-the-home (FTTH) equipment; and Wemade Entertainment Co., which develops online games.

Cisco’s strategy is to enter new markets through joint ventures and gradually build its position in the area. This way, significant investment is avoided and risks are shared until the company’s products reach critical mass. Afterwards, Cisco either makes some direct investment or strategic acquisitions, or both, leveraging off its previous experience in the region.

South Korea is the third Asian country to receive particular focus, following India and China. Cisco generated just 11% of its 2008 revenue from the Asia-Pacific region, so we think that there is significant opportunity for further expansion. South Korea’s broadband infrastructure could have been the point of attraction for the company.

Cisco has also used a similar strategy in some other emerging markets, such as Eastern Europe and Russia, by putting $74 million into the Almaz Capital Russia Fund I and the 3TS-Cisco Growth Fund III.

We think the strategy should be useful, not just because the company has gone that way before, but also because other giants, such as International Business Machines (IBM) and Intel Corporation (INTC) have also succeeded at similar strategies.

Subscribe by RSS Subscribe by Email