Cisco and Fujitsu

In late 2004, Cisco Systems, the world’s largest manufacturer of Internet routers, entered into an alliance with the Japanese computer, electronics, and telecommunications equipment firm, Fujitsu. The stated purpose of the alliance was to jointly develop next-generation high-end routers for sale in Japan. Routers are the digital switches that sit at the heart of the Internet and direct traffic— they are, in effect, the traffic cops of the Internet. Although Cisco has long held the leading share in the market for routers (indeed, it pioneered the original router technology), it faces increasing competition from other firms such as Juniper Technologies and China’s fast growing Huawei Technologies. At the same time, demand in the market is shifting as more and more telecommunications companies adopt Internet-based telecommunications services. While Cisco has long had a strong global presence, management also felt that the company needed to have a better presence in Japan, which is shifting rapidly to second-generation high-speed Internet-based telecommunications networks. By entering into an alliance with Fujitsu, Cisco feels it can achieve a number of goals. First, both firms can pool their R&D efforts, which will enable them to share complementary technology and develop products quicker, thereby gaining an advantage over competitors. Second, by combining Cisco’s proprietary leading-edge router technology with Fujitsu’s production expertise, the companies believe that they can produce products that are more reliable than those currently offered. Third, Fujitsu will give Cisco a stronger sales presence in Japan. Fujitsu has good links with Japan’s telecommunications companies and a well-earned reputation for reliability. It will leverage these assets to sell the routers produced by the alliance, which will be co-branded as Fujitsu-Cisco products. Fourth, sales may be further enhanced by bundling the co-branded routers together with other telecommunications equipment that Fujitsu sells and marketing an entire solution to customers. Fujitsu sells many telecommunications products, but it lacks a strong presence in routers. Cisco is strong in routers but lacks strong offerings elsewhere. The combination of the two company’s products will enable Fujitsu to offer Japan’s telecommunications companies end-to-end communications solutions. Since many companies prefer to purchase their equipment from a single provider, this should drive sales. The alliance introduced its first products in May 2006. If it is successful, both firms should benefit. Development costs will be lower than if they did not cooperate. Cisco will grow its sales in Japan, and Fujitsu can use the co-branded routers to fill out its product line and sell more bundles of products to Japan’s telecommunications companies.