The Risks of Offshoring: Intellectual Property Theft

In an article in Supply Chain Management Review's July/August 2014 issue, researchers from Penn State's Center for Supply Chain Research outlined their study on counterfeiting. The article looks at the causes and consequences of counterfeiting, and at what companies can do, and are doing, to mitigate counterfeiting and its effects.

Intellectual property theft and counterfeiting are important risks—costs—to consider in any supply chain, especially a globalized one. It is a risk that can affect up- and down-chain businesses and ultimately end consumers: there are recent counterfeiting cases whose consequences have even been life threatening. Further, it is a TCO cost that can have negative repercussions on other variables, including by impacting innovation, quality, the image of the company, cost of replacement parts, and lead time, among others. Thus IP theft can have a cost-multiplying effect on your company’s TCO and is a serious risk of offshoring which needs to be identified and addressed rapidly and thoroughly.

The authors of the Penn State study provide several graphics demonstrating how counterfeits can arise and cause unnecessary costs and loss at various parts of the supply chain, laying out a useful basis to begin critically examining your own supply chain for counterfeit risk and potential IP theft cost.

Further, they provide a variety of proscriptions for combating counterfeiting in your own supply chain. The diagram below outlines how to combat counterfeiting in your own organization by working within the existing supply chain by boosting communication and accountability:

In addition to addressing potential problems within the existing supply chain, as the authors of the article suggest, IP theft can also be combatted by restructuring the supply chain to include lower-risk, onshore, local suppliers.

Only 8% of cases in the ReshoringInitiative’s library (as of August 2014) cite IP theft as a reason to reshore: this suggests there is a gap in awareness about how this issue can affect the bottom line, especially considering the potential cost consequences of IP theft risk in a global supply chain. A recent study from Kaspersky Lab found that 21% of businesses (about 20% of those surveyed were manufacturing firms) suffered some kind of intellectual property compromise or theft in the last year: IP theft can be financially and otherwise dire, but it is a risk that can be easily diminished or mitigated altogether by reconsidering the location and the constituents of your supply chain and by reconsidering its effects on your TCO.

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