Friday, March 16, 2012

Case History: How Foreign Espionage is Killing U.S. Companies

A cautionary tale of woe...
Last June, three men squeezed inside a wind turbine in China’s Gobi Desert. They were employees of American Superconductor Corp., a maker of computer systems that serve as the electronic brains of the device... to test a new version of its control system software...

The software was designed to disable the turbine several weeks earlier, at the end of the testing period. But for some reason, this turbine ignored the system’s shutdown command and the blades kept right on spinning.

The problem wasn’t immediately clear, so the technicians made a copy of the control system’s software and sent it to the company’s research center...

...some startling findings... The Sinovel turbine appeared to be running a stolen version of AMSC’s software. Worse, the software revealed Beijing-based Sinovel had complete access to AMSC’s proprietary source code. In short, Sinovel didn’t really need AMSC anymore... March 2011, Sinovel abruptly and inexplicably began turning away AMSC’s shipments...

AMSC had no choice but to announce that Sinovel -- now its biggest customer, accounting for more than two-thirds of the company’s $315 million in revenue in 2010 -- had stopped making purchases. Investors fled, erasing 40 percent of AMSC’s value in a single day and 84 percent of it by September.

What happened to AMSC may be incredibly brazen, but it’s hardly exceptional. There have been a large number of corporate spying cases involving China recently, and they are coming to light as President Barack Obama and the U.S., along with Japan and the European Union, have filed a formal complaint to the World Trade Organization over China’s unfair trading practices. 

...14 U.S. intelligence agencies issued a report describing a far-reaching industrial espionage campaign by Chinese spy agencies. This campaign has been in the works for years and targets a swath of industries.

“It’s the greatest transfer of wealth in history,” General Keith Alexander, director of the National Security Agency, said at a security conference at New York’s Fordham University in January. (more)

Manufacturing is gone.
Intellectual property is going.
What will we have left to sell?
Please. Start taking espionage seriously. ~Kevin