Updated Cisco Statement on Brazil

Over the past week, media reports in Brazil have continued to raise a number of questions about Cisco’s business in Brazil. The company appreciates the opportunity to provide clarity around three of the most immediate questions that have been raised, which include: 1) Cisco’s commitment to doing business in Brazil; 2) the company’s business model globally and in Brazil; and 3) an update on when Cisco should be in a position to will provide more detailed information about the allegations that have been raised against the company to date.
Cisco’s Commitment to Brazil

Cisco’s commitment to Brazil spans over a decade, when the company first established a presence in the country in 1994. Since then, Cisco has maintained offices in Sao Paulo, Rio de Janeiro and Brasilia, and it currently employs more than 250 employees in the country, whose work ensures that Cisco’s products support critical internet networks in Brazil and regionally.

Cisco intends to continue to grow its commitment and business in Brazil, and remains fully committed to doing business in Brazil, as well as to its employees, customers, partners, shareholders and operations in the country. Brazil is a vibrant and important market for Cisco and will continue to play an important role in our regional plans.

The company remains equally steadfast in its commitment to giving back in Brazil through continued work to bridge the digital divide, including in rural areas. Cisco has already established close to 140 Networking Academies throughout the country, in which more than 11,000 students have participated and learned invaluable ICT skills. In addition, Cisco is one of the main sponsors of the “IT Access for Everyone” Initiative (ITAFE), an umbrella for unilateral and multilateral digital inclusion initiatives involving the World Economic Forum and its partners.

Consistent with its position as the world leader in internet networking, Cisco looks forward not only to continuing, but expanding its business operations and corporate social responsibility efforts in Brazil for many years to come.
Cisco’s Business Model

Cisco organizes its business into five geographies: US and Canada, European Markets, Emerging Markets, Asia Pacific and Japan. Latin America is part of the Emerging Market geography, which contributes to approximately 10% of Cisco’s overall business. Brazil represents approximately 1% of Cisco’s global market.

Cisco has a team of employees based in Brazil to serve its customers and partners there. While many of these employees work directly with customers, Cisco works with more than 55 certified channel partners to sell products and services in Brazil. More than 90% of Cisco’s business in Brazil flows through channel partners. This is not uncommon; more than 80% of Cisco’s business globally flows through channel partners, who own the importation process.

Manufacturers of all types of equipment - from auto makers to personal computers to handsets and other ICT equipment - utilize an indirect sales model in order to scale business and grow in new and emerging regions. An indirect sales model allows local distributors and value-added resellers (VARs) to distribute products and, often, to locally customize those products as well as add their own tailored products or services for end users. This important channel of distribution allows for a regional economy to exist beyond the home office of a manufacturer and creates regionalized offerings to customers.

Of the over 80% of Cisco’s global product and services revenue that comes from channel partners serving our mutual customers, some channel partners purchase products directly from Cisco, while others procure product through an authorized Cisco distributor. Distribution partners are authorized to resell Cisco products to VARs and systems integrators to help ensure Cisco best meets end user needs for Cisco products through partners.

As is common in the technology space, Cisco has employed a channel model globally for many years, relying on local business expertise to accelerate the adoption of Cisco technology and services to allow Cisco to reach more customers. This is the same proven model we use in Brazil and elsewhere. This widely-used model in and of itself is not inappropriate. Manufacturers typically provide discounts to their resellers, and offer extra discounts to help compete in especially competitive situations. The discounts provided to our resellers in Brazil are completely consistent with those we provide worldwide, and have nothing to do with Brazilian import duties.

Like all global businesses, Cisco engages in appropriate fiscal planning, including adherence to tax laws and import practices. Resellers and distributors are required to do the same. If fiscal fraud occurred in the companies that distribute or resell Cisco products, Cisco is not necessarily responsible for these misdeeds. While we hire highly respected audit firms to perform random audits of our distributors, no corporation engaging in an indirect sales model can directly vouch for or control every action of its distributors.

Cisco’s ethics, integrity and compliance with the law are core to who Cisco is as a company. We stand by these values in Brazil, as we do everywhere. We have a strict Code of Business Conduct in place that employees sign each year and is strictly enforced. The Global Code of Business Conduct prohibits Cisco’s employees from entering into relationships that give rise to a real or perceived conflict of interest, and we take this requirement very seriously.
Next Steps

As we have stated, Cisco’s focus at the moment is on working diligently to better understand the details and facts of the situation in Brazil. While the company has not had full access to the Federal Police’s investigation, Cisco is doing all that it can to assess the situation and fully cooperate with the authorities in Brazil. Cisco is also conducting its own internal inquiry to help understand events and to provide the most complete information possible. Until the complete body of facts is known, however, it would be inappropriate and unfair for the company to prematurely comment on details of the situation.