Pirates to Worry You: Chinese Manufacturing Partners

Somali pirates who brazenly attacked container ships in the Indian Ocean have garnered a lot of recent attention. But for companies that source products from Chinese manufacturing partners, there are even greater and longer-term business risks due to pirating attacks on companies' intellectual property and supply chains.

China is, by far, the riskiest geography to operate in, as identified by respondents to AMR Research's most recent quarterly supply-chain survey (subscription required), taking the top spot in 10 out of the top 15 supply-chain risk categories.

While China continues to draw the world's business because of its cheap labor and lower material costs, that convenience comes with a price, writes AMR analyst Noha Tohamy. "China is still plagued by product quality failures and safety issues," she writes. (For more, see "Big Supply Chain Troubles in China.")

When asked to identify the risks associated with doing business in each country, intellectual property (IP) infringement in China was tabbed by 49 percent of respondents (the next closest country cited for that category was the United States, by 9 percent).

Other risk categories where China took the top spot include: supplier product quality failures (48 percent); regulatory compliance (36 percent); supply chain security breaches (32 percent); supply failure (29 percent); and IT risks (28 percent).

But it is the area of deteriorating IP protection that should most trouble companies doing business in China. As Tohamy's AMR colleague Kevin O'Marah points out in a January 2009 report, "A Whole New Mind, A Whole New Supply Chain," IP is a key to future supply chain excellence, yet it is severely undermanaged by most companies right now.

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