Protecting Intellectual Property in Supply Chain Systems

This weeks articles on supply chain systems suggest that the trend of offshore sourcing and manufacturing may be less profitable than in the past, suggesting that supply chain managers consider “re-shoring” to the USA or considering closer options (Goel, Moussavi, and Srivatsan couldn’t drop the Mexico hint any harder).[1] The New York Times article focuses on increasing labor costs abroad and a changing culture related to what truly benefits companies and country in China. Goel, Moussavi, and Srivatsan echo the increased labor costs but also point to increased logistical costs, especially related to energy for shipping.

            Another critical element leading some companies to consider “re-shoring” is high levels of intellectual property risk abroad. According to a Forbes article, major contributor to billion dollar losses in data protection affecting the US economy is “offshore outsourcers we contract with for product development who can then make bootlegged or pirated copies of our products.” A United States International Trade Commission Report on China “estimates that firms in the U.S. IP-intensive economy that conducted business in China in 2009 reported losses of approximately $48.2 billion in sales, royalties, or license fees due to IPR infringement in China.”[2] Many companies considering “re-shoring” have quoted increased intellectual property protection as one of many reasons (along with increasing labor costs and logistics costs) they are returning home.[3] Beyond China, where are major intellectual property thefts? What is the trade-off between “cheap labor” and property risk when chosing where to establish aspects of ones supply chain?

I may have a fun addition to this later this week that was supposed to be available today… stay tunned

---

[1] Time to Rethink Offshoring? (Goel, Moussavi, and Srivatsan, McKinsey

Quarterly, Winter 2008, pgs. 32-35)

[2] “China: Effects of Intellectual Property Infringement and Indigenous Innovation Policies on the U.S. Economy” http://www.usitc.gov/publications/332/pub4226.pdf

[3] Some Firms Opt to Bring Manufacturing Back to U.S.

http://online.wsj.com/article/SB10001424052702303612804577533232044873766.html?KEYWORDS=reshoring