published Sep 28th 2016, 11:50 am, by Nacha Cattan and Andrea Navarro

(Bloomberg) —
Cisco Systems Inc. plans to spend as much as $4 billion in Mexico through 2018 to expand production, creating jobs in the country even as the American company cuts its global workforce by 7 percent.

The spending will lead to the 270 new direct jobs and 77 related positions, according to a statement from the Mexican government Tuesday. The biggest maker of equipment that runs the internet plans to upgrade its factories and increase production through contract manufacturers, a person familiar with the matter told Bloomberg News earlier. The investment figure includes some spending that had already been planned.

The plan helps Mexican President Enrique Pena Nieto show his economic reforms are attracting more investment. The timing could be delicate for Cisco, coming just after the U.S. presidential debate this week in which Republican candidate Donald Trump threatened to increase taxes on companies that move jobs to Mexico and other countries.

Cisco, based in San Jose, California, announced about 5,500 job cuts six weeks ago, without saying which countries would lose positions. Savings will be invested in newer businesses that Cisco expects to fuel sales growth, such as cloud computing and connected services, the company said.

Cisco is indicating it doesn’t put much weight in Trump’s threats, said Alejandro Schtulmann, president of Mexico City-based political-risk advisory and consulting firm Empra. “They are saying that from the point of view of the market they’re not afraid of a Trump scenario, and even more so it seems they see it as improbable,” Schtulmann said.

In addition “they are announcing that they have confidence in Mexico despite the problems the country is facing,” he said. Homicides in Mexico have risen to levels not seen since the term of Pena Nieto’s predecessor, Felipe Calderon, and presidential approval levels are at the lowest in two decades.

Including the new jobs, the spending plan will affect 4,830 direct employees in Mexico, the government said. The expansion enables the manufacturing in Mexico of products including routers, servers and video-conferencing screens.

“These facilities are expected to supply products to more than 110 countries, and directly complement our manufacturing efforts in the U.S. and around the world,” Cisco Chief Executive Officer Chuck Robbins said in a blog post Tuesday after meeting with Pena Nieto. “Mexico is rapidly becoming one of Latin America’s economic success stories.”

Cisco started operations in Mexico in 1993 and now has more than 1,000 employees there, Robbins said.

The Cisco plan is one of the first major investment announcements by a U.S. company in Mexico since April, when Ford Motor Co. said it would spend $1.6 billion on a new small-car factory in Mexico, drawing a rebuke from Trump. It’s one of the top five spending announcements since Pena Nieto became president in 2012.

Ford has begun fighting back against Trump’s accusations and took to Twitter during the presidential debate to rebut the Republican candidate’s assertion the company is cutting U.S. employees to move work to Mexico. The second-largest U.S. carmaker tweeted it “has more hourly employees and produces more vehicles in the U.S. than any other automaker.” Earlier this month, Chief Executive Officer Mark Fields went on CNN to say the company is “absolutely not” cutting U.S. jobs.

In June of last year, AT&T Inc. said it would invest about $3 billion to extend mobile Internet service to Mexico in addition to spending $4.4 billion earlier in the year to acquire Iusacell and Nextel Mexico.

(Updates with analyst’s comment in fifth paragraph.)

–With assistance from Ian King. To contact the reporters on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net ;Andrea Navarro in Mexico City at anavarro30@bloomberg.net To contact the editors responsible for this story: Vivianne Rodrigues at vrodrigues3@bloomberg.net Crayton Harrison

copyright
© 2016 Bloomberg L.P