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EDA/IP  

U.S. companies turn to domestic markets to safeguard IP

Posted: 08 May 2014     Print Version  Bookmark and Share

Keywords:IP theft  intellectual property  onshoring 

Offshoring offers a number of advantages to global companies, especially in terms of finding cost-effective labour and services. However, it also has its share of shortcomings. One of these is the lack of measures to secure intellectual property (IP). In fact, the frequent and deliberate theft of IP in China is making more U.S. companies turn to domestic markets for better protection, adding yet another dimension to the onshoring movement.

The Commission on the Theft of American Intellectual Property said in a 2013 report: A core component of China's successful growth strategy is acquiring science and technology. It does this in part by legal means: imports, foreign domestic investment, licensing and joint ventures, but also by means that are illegal. National industrial policy goals in China encourage IP theft.

Though some of its does occur via cyberspace, a lot of IP theft takes place in countries where the laws are lax and enforcement is haphazard at best. In fact, the report said, "Much of it occurs the old-fashioned way." Bribing, re-engineering and physically stealing documents still rule in China.

In some instances, the Chinese government has even made divulging company technology a prerequisite for opening a factory. Further exposing carefully engineered properties to foreign supply chain partners is a risk some U.S. companies are no longer willing to take. In a 2012 Hackett Group study, the protection of IP ranked third among the drivers of strategic sourcing decisions, trailing only total landed cost and product quality.

The theft of everything from trade secrets, proprietary products and parts to music, movies and software costs the U.S. billions of dollars every year. Cyber espionage alone accounts for 500,000 domestic jobs lost annually, according to McAfee and the Centre for Strategic and International Studies.

For an individual company, the lack of respect for its IP can lead to the demise of the entire operation.

Imagine the feeling of a company rep from a Midwestern firm that had outsourced to China as he was walking the floor at a tradeshow. A display showcased products that were more than familiar. Even the marketing materials were identical. A closer look revealed the Chinese company had stolen everything, right down to a promotional photo featuring the rep's own child.

Apple has tried for years to crack down on bootleg products and fake Apple stores across China, but few companies can afford such legal wranglings. They likely will go nowhere because of weaknesses and biases against foreign IP in the Chinese legal and patent systems.

Though Apple has not said so outright, it's a good guess the protection of IP played at least some part in its decision to bring back to the U.S. the production of one line of Mac computers, as well as the assembly of other products. In any event, Apple is not alone.

- Frank Cavallaro
  EBN





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