Thursday, July 7, 2016

Business Espionage: A Brief History

early example of industrial espionage came about in the late eighteenth century, when France found itself attempting to compete with the emerging industrial strength of Great Britain. The French government surreptitiously placed apprentices in English iron and steel yards to abscond with production formulas. To maintain its market dominance, Britain became the first country to pass legislation aimed at preventing industrial espionage.

In the United States, American businesses employed former Pinkerton detectives to uncover employee theft after the Civil War. And during the 1920s, anxiety over Communist and unionist upheaval caused companies to hire double agents to expose internal threats. According to a report by the U.S. Senate Committee on Education and Labor, a majority of American companies had placed labor spies in their plants and unions around that time.

As labor-management tensions started to ease after World War II, American companies shifted their focus away from themselves and began spying on competitors. Industrial espionage began to follow one of two familiar patterns: (1) a former employee would misappropriate confidential information before departing for a competitor, or (2) a competitor would place a “mole” inside an organization to gain access to corporate secrets.

Industrial espionage became a global affair during the Cold War, as U.S. businesses faced threats from Soviet spies and multinational competitors alike. For example, in 1982 six executives from the Japanese firms Hitachi and Mitsubishi were arrested in Santa Clara, California, for allegedly trying to steal computer parts from IBM. Companies also became increasingly worried about executives overseas defecting to competitors. A dispute between General Motors and Volkswagen arose when a group of GM executives in Germany left GM to join VW. Upon seeing similar designs in VW’s car models, GM accused VW of using proprietary information gained from its former executives. In one of the largest industrial espionage cases ever, VW settled with GM for $100 million and agreed to buy at least $1 billion worth of car parts from the company. more