,
16 tweets,
3 min read
Read on Twitter
That industrial espionage and IP theft were a common practice at Huawei will shock no one that has experience working with Chinese factory partners. I’ve witnessed this countless times, and it’s pervasive enough to characterize it as part of the business culture in China.
We strived to minimize this type of behavior through detailed vendor agreements that explicitly laid out the protections for IP in advance of projects. Those were preventative measures, but we knew our potential for enforcement within China and other markets was essentially nil.
Once I negotiated directly with an EU-based supplier to make a premium component available at a reduced cost across my global supply chain. They later discovered one of my Chinese suppliers was buying excess quantities in order to offer it to others at a lower cost.
Once a factory showed me a carbon copy of a market-leading, American-made product still subject to a design patent. This means they’d spent roughly $75- $100k on tooling in advance of even having a customer. It never occurred to them that they’d be unable to sell it in the US
It’s quite common for one Chinese factory to make products for half a dozen competing brands. Even if you’re doing your own engineering, they’re still seeing your technical specifications, PCB designs, tolerance definitions, performance requirements, etc
Even explicitly defining tolerances or suppliers for individual semiconductors doesn’t mean a factory won’t begin subbing out parts or cutting corners at a later date. If you don’t complain or even notice, is that just simply shrewd management on their part?
The best defense against this behavior in China is of course finding the right partners as well as having a meaningful on the ground presence. I was shocked to learn some years ago that an Apple executive hadn’t visited Foxconn in like two years. That’s just negligence.
Major international retailers with sourcing operations in China have teams of people wholly dedicated to QC in mass production. That’s pretty indicative of the cost delta from domestic manufacturing when you consider that it still makes economic sense to support such an operation
That gap has been closing for years and—with tariffs—in many cases will be gone completely. Organizations with China-dependent supply chains that haven’t built a contingency plan for this (or other) disruptions are frankly asleep at the wheel. Anyway that’s another thread....
I want to make clear that I’m not impugning all Chinese factories of this behavior. The best ones jealously guard their customers’ technology and expertise. They won’t let you on the production line for certain products. They have dedicated floors with secure access.
But in my experience it’s absolutely responsible and prudent to avoid dependencies in sourcing national security and infrastructure-critical technology like that of 5G telecom hardware through an international supplier.
By the way, I’d say this in reverse. If I were the CCP I wouldn’t want to buy 5G infrastructure from the US. And I’d still caution American regulators from allowing the importation and implementation of that tech from European partners.
Still, China is different. American regulators can still reasonably count on a greater degree of transparency and the rule of law to support punitive or recompensatory action in, say, Sweden, than they can in China.
And I’m under no illusion that those factory floors and technology and expertise that were off limits to me in China weren’t available to the Chinese government, if they demanded it.
In fact there was a constant and official government presence at a couple of factories I worked with that were deemed market leaders. What were they doing? No idea, except that my partners ensured they were happy.
The Zheijiang government once built a high speed train right through one of my factories and I had about 90 days notice. Eminent domain is an operating principle of the CCP. Believing a company like Huawei is somehow exempt is puzzling at best, and willfully negligent at worst.
