Neither Cisco Systems , which dumped its manufacturing, nor the upstart startup, Cerent , which used contract manufacturing from its beginning, were vertically integrated. These two companies became and started out, respectively, as new corporations of the coming 21st century of globalization. Barry Lynn, in End of the Line , does a masterful job about describing the globalization of American business.

I especially enjoyed chapter 5, which was, in some respects, an “extension” of my book, The Upstart Startup: How Cerent Transformed Cisco . In End of the Line , Lynn describes Chamber’s business innovation to outsource work, from manufacturing to engineering. He writes, “Chambers’s purpose was never to promote the Internet as an Esperanto-like forger of global togetherness and understanding. Rather, his aim was simply to grow his company fast enough to dominate an industry that was expanding far more rapidly than almost any industry ever before.”

Indeed, Cisco Systems took both Lucent (the former Western Electric) and Nortel Networks head on in the telecommunications market segment. Lynn adds, “Like General Electric with its lightbulbs and wires and turbines more than a century previously, Cisco’s challenge was to get its new technology into as many markets as possible before any competitor could launch an attack.”

The late 1990s defined the emergence of the new global marketplace where, to become successful, a manufacturer had to “win all the world at once.” Indeed, John Chambers used to say that Cisco had to become number 1 or number 2 in every market segment it targeted, otherwise, the company would abandon that segment.

Cisco’s success required its use of “an audacious acquisition strategy, gobbling up smaller companies filled with technologies and engineers and skilled managers.” Lynn adds that Cisco also developed an approach for manufacturing under Carl Redfield that, outsourced its manufacturing “as an effort to make use of the capital investments of other firms while devoting its own resources to buying and integrating and marketing.” Lynn underscores a key point about the company’s strategy, “Cisco turned the task of manufacturing over entirely to others so it could concentrate more single-handedly on capturing near-absolute control of a brand new market.”

Optical transport was one of these new markets Cisco tackled in 1999 and its Cerent acquisition provided the company with the technology and team to attain a number 1 position in the North American optical transport segment almost immediately.

Why did Cisco outsource its manufacturing capability so aggressively?

Lynn looks at the data and comes up with the answer: “By 2000, some 90 percent of Cisco’s subassembly work took place outside the company, as Cisco managers kept control only of high-end, developmental production work. This work took place in thirty-four plants around the world, only two of which were owned by Cisco. Of all the people who worked to build Cisco-branded products, only 15 percent were Cisco employees. The reason for such a wholesale outsourcing was not hard to figure out. In 2000, Executive Vice President Carl Redfield estimated that turning manufacturing over to outside contractors each year cuts Cisco’s production costs by between $900 million and $1.3 billion.”

The pro-competitive business environment allowed Cisco to pursue its strategy in the 1990s. “Given the existence of a robust base of suppliers and small innovators,” Lynn writes, “Cisco decided to cut loose from the parts of its business that were most difficult to expand organically – namely manufacturing and R&D.”

Concurrent with this direction, “Cisco adopted a strategy of acquiring a closely related set of products” in order to fuel the company’s growth. He adds, “The result was that managers, over the course of five years and on a global scale, were able to capture for their company the de facto title of General Internet.” Cisco’s 26th acquisition, Cerent, as listed on Cisco’s website, fit both of these criteria and so it was a no-brainer for the Internet giant to acquire this upstart startup.

For the whole story about Cisco and its like-minded “outsourcers” and the role Cerent played to help Cisco succeed, I urge you to read both Lynn’s book and my book.

End of the Line: The Rise and Coming Fall of the Global…