The gloves are coming off in the government’s fight against counterfeit parts and intellectual property protection.
Brian Toohey, president of the Semiconductor Industry Association, testified Tuesday before the Senate Armed Services Committee calling counterfeit parts "a ticking time bomb." China’s role in counterfeiting featured centrally in the Committee’s discussion of the problem. (If you have a few hours, I suggest you watch the hearing here.)
"The catastrophic failure risk inherently found in counterfeit semiconductors places our citizens and military personnel in unreasonable peril," said Toohey. The SIA estimates that counterfeits cost US-based semiconductor companies more than $7.5 billion a year.
The SIA’s recommendations for stemming the tide of counterfeits includes strengthening the partnerships among the chip industry, the Department of Defense, the Department of Justice, and the US Customs and Border Patrol; better procurement procedures on the part of the DoD; and stronger international enforcement of intellectual property (IP) rights, including more aggressive prosecution of counterfeiters.
The Committee’s hearing comes on the heels of a report released last week to Congress by the Office of the National Counterintelligence Executive (NCIX) titled "Foreign Spies Stealing US Economic Secrets in Cyberspace." Not surprisingly, the report fingers China as one of the two prime suspects in the illegal acquisition of US IP (the other was Russia):
Chinese actors are the world’s most active and persistent perpetrators of economic espionage. US private sector firms and cyber security specialists have reported an onslaught of computer network intrusions that have originated in China, but the Intelligence Community cannot confirm who was responsible.
The report documents cases of employees at Boeing, DuPont, Ford, Rockwell, and Vaspar stealing IP by downloading documents to thumb drives or emailing the documents as attachments. (The report was unclear whether the employees named in the report were Chinese Americans or Chinese nationals.)
The report also described a more insidious cyber-attack of Google’s network in January 2010. NCIX “identified the Chinese Government as the sponsor of intrusions,” the report claims. “Google subsequently made accusations that its source code had been taken -- a charge that Beijing continues to deny.”
There was a time not too long ago that the US government and the chip industry were loath to speak publicly about the problems of counterfeiting and corporate espionage. But as the threat has escalated, and the stakes have risen, the debate has become very public. And increasingly China is being held up as the evil perpetrator.
You have to start to wonder if the increasingly direct accusations within the US electronics industry and by the US government will contribute to a chilling of relationships between the two countries. If so, it could prove problematic if China retaliates, since many US electronics companies are deeply invested in design, supply, and manufacturing operations inside the PRC.
What’s needed to prevent this scuffle from escalating? Admission of the severity of the problem by the Chinese government would be a good starting point. Direct dialogue between China and the US is another good idea. And perhaps industry associations on both sides should convene a summit to address the problem. The economies of the US and China are too tightly connected to allow the pressure to build much further.
Well, in that case the US has a strong argument to stop contracts being fulfilled by Chineses companies... but they will have to pay extra for that. In difficult times, maybe the budget constraints is too big to listen to conspiracy theories.
@pocharle, Counterfeiting is not widespread in aviation or anywhere else but it's no comfort. You only need one failed component to have a major calamity. Companies in the electronics industry are committed to fighting the problem but this is not enough. A more concerted effort is needed.
With some of the industries that you mentioned, is the distribution of the counterfeit goods widespread. Like, for example, aviation. I cannot fathom that Delta, for example, would buy goods from untrusted manufacturers. Don't suppliers/vendors have to gain some type of certification prior to selling goods?
@pocharle, I realize the military is important but counterfeiting at any level can be extremely dangerous. In the medical industry, for instance, fake drugs, sub-par equipment and any other forms of counterfeiting can be as deadly as a weapons system with the wrong or faulty components. The story about the military grabs the headlines, however, counterfeiters are as active in other critical parts of the economy too. For instance, they are involved in aviation, industrial, home goods, etc. Counterfeiting is a danger to everyone.
Anything related to the military should always be protected with accuracy and reliability. But I come across many reports citing China's involvement in many hacking plots and information espionage. So what I would recommend the US do is disallow (at least): any products made in China should not be included in military hardware. Whether this is a realistic goal is another point but it's a starting point.
@Mr. Roques - The are separate but the fear is that they have and will overlap. There was a rumored case a few years ago of communciations equipment used by the US Navy that provided access to unauthorized (potential enemy) sources. There's the potential to embed viruses, and malwear in software and programable devices that can bring down systems. This is suspected as the cause of problems reported in computers used at the Iranian Nuclear site. There was also a report recently that the US Air Force's drone operations were hit by a virus. So the threat is real.
Good point on the replacemen parts. The design and testing for military hardware has had such a long cycle time that some components become obsolete during production phases. There is often the chance to make a 'last time buy' purchase, but repairs may be needed much further dowm the road.
It's hard to compare Japan to CHINA. Japan didn't want to control all the manufacturing in the world, them just want there fair share. When various free country's talk about loss of job's it's because CHINA has taken all the low pay, manufacturing job's out of there country. When a country wants to expand manufacturing in CHINA, they say NO, only if they switch manufacuring to CHINA.
Do you all know that CELESTICA Canada is a Qualified Military CM owned by CHINA!!!! When will FOXCONN take over CELESTICA?
For now China actions against conterfeit prducts will still be very limited because it is how chinese are learning new technologies. They copy to gain the knowledge to become more competitive. That is what the Japanese used to do in post wars periods (part of the second period of the 20th Century) until they become a well established industrial country and are able to offer competitive products. China will come to that, but we will have to wait.
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Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
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Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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