Cisco Systems Inc is poised to step up investment and acquisitions in China regardless of trade frictions between Beijing and Washington, aiming to secure its place in a tricky but pivotal market. Already the world's largest Internet and mobile phone market, China is likely to become even more crucial to the network equipment maker's growth as the country's burgeoning middle class gains access to new technology.
What's more, Cisco faces growing competition from Chinese companies, unlike other US tech heavyweights like chipmaker Intel Corp or Microsoft Corp that enjoy overwhelming leads in their markets. The result is that Cisco will likely pursue local joint ventures and acquisitions to compete against the likes of Huawei Technologies Co Ltd and ZTE Corp. That could also help it work around difficult regulations to ensure it fully benefits from the market's explosive growth.
"China is a high growth market that comes with opportunities but also challenges and unique ways of doing business. Foreign companies will find they will have to rely on joint ventures, local partnerships, and multiple ties across various Chinese agencies," said RBC Capital Markets analyst Mark Sue.
Analysts say trade disputes between the United States and China are reasons to expand, rather than pull out of local partnerships.
While the United States and China appeared to avert a major collision at a summit this week, some US politicians are still pushing for new tariffs on Chinese goods if Beijing does not loosen its control of the yuan. China, for its part, has also been planning an "indigenous innovation" policy to promote home-grown technology.
Higher trade barriers could affect a wide range of companies including Microsoft and Apple Inc. But analysts are keeping a particularly close eye on Cisco, which has been particularly bullish about expanding in China further after investing billions there over the past decade.
In its first acquisition aimed at China, Cisco announced it would buy the set-top box business of Hong Kong's DVN Ltd last November, and analysts expect more.