Cisco deals 'not handouts'

By Kimberly Guest for Cisco

Johannesburg, 05 Sep 2007

The three black economic empowerment (BEE) deals announced yesterday are not purely philanthropic, says global networking vendor Cisco.

Paul Mountford, president of Cisco's emerging markets, says the company looked at SA's BEE codes and decided to part with equity purely for business reasons.

"For Cisco, BEE compliance and attendant politics were not the overriding issues. We based our decision on what we want to do in SA, the potential we see in the broader region, and the long-term development strategies we have devised for our emerging markets. This is not a handout," he explains.

SA's BEE codes and the ICT industry's charter have been a topic of much discussion among the country's multinationals. When equity requirements were initially suggested, many international companies complained this would not be feasible.

As an alternative, the Department of Trade and Industry re-evaluated its original proposals. Ultimately, the department determined multinationals could propose equity replacement strategies. These would enable companies to access BEE ratings that reflected their commitment to government's transformation strategy.

Investing in equivalents

Last week, HP said it was the first company to receive government approval for its equity equivalent proposal.

This deal sees the vendor setting up an HP Business Institute. The enterprise and skills development programme will bring its investment in broad-based BEE to over R150 million, said HP.

Other international vendors, including IBM, SAP and Oracle, have said they are investigating the equity requirements of the codes. However, early indications suggest most will propose equity equivalent strategies.

Big business

Separating emerging markets from its traditional regions helped the company to identify the value coming from those regions, says Mountford.

"Our emerging markets strategy has been extremely successful. Its contribution to the company has grown from 8% to 12%, and the division represents 30% of our total growth. [Cisco president and CEO] John Chambers always opens with the potential of emerging markets whenever he speaks," he explains.

Cisco rates SA within the top five of its primary emerging countries.

Having a clear view of the contribution and potential of emerging markets has given the division leverage to discuss localised transactions, such as those in SA.

"You can't argue with the potential from emerging markets. In fact, the only region to have more implementations of our advanced technology solutions is the US. Our board and shareholders recognise we are in business for the long term. As a result, they are willing to look at investments such as the ones we are implementing in SA," says Mountford.

"We are not going to pay lip service to the transformation needs of SA. These deals are important to the country and its communities; however, they are equally important to Cisco and its employees. We have demonstrated our commitment to exceeding the government's requirements and will continue to do so."

Cisco's local empowerment transactions will see 20% equity in its sales business, 25.1% equity in its capital business and 25.1% equity in its services business sold to a consortium made up of a private investor, a Cisco black employees trust and a newly-formed Cisco education trust. The holdings may not be disposed of prior to 2017 and are linked to the performance of Cisco's business.

Additionally, the company yesterday announced a Cisco Scholars programme. It will provide scholarships to high-potential, previously disadvantaged students to attend the African Leadership Academy. This initiative is aimed at building management capability and entrepreneurship within the local market.