3.2 Background

3.2 Background

GlobTel is a large North American multinational with a powerful history in which it has moved from the manufacture of telephones, to digital technology, to public and private networks and currently to Internet-based technologies. Some of the new and exciting streams of revenue include optical networks, wireless Internet solutions and intelligent networks.

GlobTel continues to be a very large, powerful, and successful global telecommunications vendor. It is among the top telecommunications equipment manufacturers in the world. In the 1970s GlobTel was primarily a national manufacturer of telephone equipment primarily for the local market. At the time of starting our research in 1996, it had about 68,000 employees, and worldwide revenues of US$12 billion, including US$500 million in profits. In 1996, GlobTel was the sixth largest telecommunications vendor and third highest cellular equipment supplier in the world. In 1996 it had customers in over 150 countries , with about one-third of its employees and half of its R&D operations and 11 per cent of its revenues coming from national operations. Roughly 45 per cent of its revenues came from outside North America, including Europe, Asia and Latin America. In 1996, GlobTel s product lines could be broken into four categories:

  • Public carrier networks for phone companies across the world

  • Broadband “ cable, TV and new long-distance carriers

  • Wireless (cellular-based technologies)

  • Enterprise networks “ internal communications for large enterprises .

    In 1997, switches accounted for 27 per cent of its revenues, while wireless accounted for 22 per cent. After a period of tremendous churn and upheaval in the telecommunications industry globally, GlobTel, with a new name and focus, has (2000) an annual turnover of more than $30 billion, customers in more than 150 countries, R& D facilities in seventeen countries and multiple manufacturing facilities globally. GlobTel is operating manufacturing and R&D facilities in many different countries throughout North America, Asia Pacific, the Middle East and Europe.

GlobTel is more than 125 years old. It focused on manufacturing until 1960 when it created an independent R&D division. Even though the internal R&D function had started in the 1930s, these efforts were given a big push in the 1960s, and the strength of the R&D personnel expanded from an initial forty-two engineers to 800 in about five years. Around this period, the first international manufacturing was also established in Europe. In the early 1970s, a conscious attempt was made to reinvent the R&D culture by developing an environment akin to that of a graduate university, an environment that is conducive to free thinking and innovation. This strategic thrust in R&D contributed to nearly 75 per cent of sales being based on internal designs compared to less than 10 per cent in 1960. GlobTel developed a series of electronic digital switches, including a pioneering breakthrough of the all-digital central office switch that made it a leader in the industry. The company was renamed in the mid-1970s, which we refer to by the pseudonym of GlobTel.

The period since the late 1980s has been turbulent, with a focus on cost reduction, including a cutback on R&D expenditure. In the early 1990s, there was a new CEO who, despite continuing some of the cost-cutting measures, restored spending on R&D. In the mid-1990s, a policy decision was taken that all the GlobTel labs worldwide would come under a common banner and brand name (GlobTel). Around this time there was another change in the CEO, but the new incumbent continued the direction of his predecessor in providing a strong R&D focus. In the late 1980s, about 45 per cent of GlobTel employees had been classified as ˜knowledge workers ; by the mid-1990s this figure was about 70 per cent and the current figure is in excess of 75 per cent. This transformation had been fuelled by the increased expenditure on R&D, to focus on new product and services. A senior GlobTel executive described this transformation process in a public meeting in 1998:

GlobTel has moved from the labor- intensive manufacturing of hardware “ of boxes so to speak “ to creating the software and communications technology for a wide variety of network solutions and services that require heavy investment in research and knowledge workers. Our future is going to be even more closely linked to the development of the Internet. We can lead the telecom industry from dialtone to what we call the webtone.

The move from dial tone to web tone was part of the new ˜right-angle turn strategy of GlobTel in 1998. At that time, the company had about 73,000 employees and the strategy entailed laying off people and also hiring new ones in the quest to change from a capital-based to a knowledge-based orientation. Telecommunication companies like Lucent were no longer the only competitors to GlobTel, as data companies like Cisco also were now challenging them. This shift in competitive focus reflected the significant upheaval taking place in the ICT industry in the 1990s catalysed by the proliferation of the Internet.

The transition of this giant firm from a ˜pure telecommunications to a ˜data oriented telecommunications form has not been without its problems. In 1998, the company lost about US$11 billion market capitalization, reflecting investors loss of confidence in the company. Some of GlobTel s acquisition of technology companies also raised questions, and shook customer confidence with a negative effect on the share prices. Our research took place during this extremely turbulent period of transition. In order to make its R&D activities globally competitive and cost effective, GlobTel pursued a strategy of expanding its network of international alliances and partnerships. Globalization of R&D activities would also help GlobTel to get closer to customers and to accommodate different standards, approaches and customer requirements around the world. It was in the early 1990s within a backdrop of rebuilding the focus of international R&D that the software alliances were created with the four Indian GSAs. A key difference of the ˜body-shopping Indian alliances as compared to other GlobTel alliances was that they did not cater to local markets and served rather as a resource base for GlobTel s global R&D operations. In the second part of the 1990s, during the period of transition, the four relationships went through frequent changes. It is against this background that we provide an overview of the genesis and growth of GlobTel s GSA programme in India.