Your Biggest Customer: Your Biggest Threat

Sara Peters, Editor in Chief | 6/28/2013 | 56 comments

Sara Peters
We talk often about the security threats posed by criminals, competitors, contractors, and employees. But what about your customers... can you trust them? If you ask AMSC, an American solutions provider for the energy industry, it'll answer with a resounding "no."

AMSC claims that one of its largest customers -- Sinovel, a China-based company that is one of the world's largest manufacturers and exporters of wind turbines -- stole AMSC's proprietary intellectual property. The stolen IP included software that runs the electrical control systems used in Sinovel's wind turbines. In addition to basically aiming to cut AMSC out of the supply chain, AMSC claims that Sinovel refused to pay for $100 million of products and services AMSC had already delivered and backed out of $700 million worth of new contracts. AMSC has cut 500 jobs since the incident occurred in 2011.

Yesterday, a federal grand jury in Wisconsin charged Sinovel, two of Sinovel's employees, and one employee from AMSC's Austrian subsidiary, with one count each of conspiracy to commit trade secret theft, theft of trade secrets, and wire fraud.

According to the Department of Justice, US Attorney for the Western District of Wisconsin John W. Vaudreuil stated, "The allegations in this indictment describe a well-planned attack on an American business by international defendants -- nothing short of attempted corporate homicide."

Sinovel denies the charges, but the case nevertheless raises some important concerns for all companies -- especially OEMs.

First, as Bruce Rayner advised E2 readers when AMSC first filed suit against Sinovel, don't base your business too heavily on just one customer. Have a strategy to expand and diversify your customer base so that the catastrophic end of one relationship doesn't cause the catastrophic end of the company.

Second, you obviously need to enhance all security measures that protect your company against insider threats. IP theft is far more difficult to pull off if you don't have an insider like Dejan Karabasevic, the former employee of AMSC's Austrian subsidiary Windtec GmbH, who was charged in the indictment yesterday.

Complicating matters further is the fact that the US may not be able to successfully prosecute the accused, because they are not American. Although Karabasevic technically worked for AMSC, he worked in Austria, and is a Serbian citizen who has since moved back to his own country -- and neither Austria nor Serbia has extradition treaties with the United States.

However, if he is extradited, Karabasevic faces up to five years in prison on the conspiracy charge, 10 years for theft of a trade secret, and 20 years for wire fraud. In the meantime, according to the indictment, he was offered a contract to work for a Chinese turbine blade factory.

Whether or not the accusations against Sinovel are true, it's important for any company in the OEM supply chain to be wary anytime it looks as if a customer is trying to become a competitor instead -- whether they're doing it legally or illegally.

How would you prevent IP theft of this caliber? Would you ever voluntarily stop selling your goods and services to a major customer? Let us know in the comments below.

View Comments: Newest First | Oldest First | Threaded View
Page 1 / 6   >   >>
Susan Nunziata   Your Biggest Customer: Your Biggest Threat   12/3/2013 3:23:56 PM
Re: Your Biggest Threat
@Tuscany: heh heh. Never underestimate the intelligence of the criminal mind.

Sara Peters   Your Biggest Customer: Your Biggest Threat   11/30/2013 7:15:51 PM
Re: Customers and Trust ?
@Tuscany. You're right, that there is potential there to rub a lot of people--partners and customers included--the wrong way. But some oversight is necessary, as this case shows. Tricky balancing act though.
Tuscany   Your Biggest Customer: Your Biggest Threat   11/30/2013 6:38:48 PM
Re: dealing with developing countries is a sketchy business
@Henrisha    Yes, I agree. This trust amongst companies in your supply chain is a must.  But it would make me loose sleep at night knowing it only takes one person to disrupt the whole apple ( no pun intended ) cart.
Tuscany   Your Biggest Customer: Your Biggest Threat   11/30/2013 6:35:58 PM
Re: Your Biggest Threat
" Imagine if the people who are coming up with these shoplifting schemes put their minds to something really worthwhile? "

Very True Susan, there are some real geniuses out there stealing wallets. : )
Tuscany   Your Biggest Customer: Your Biggest Threat   11/30/2013 6:34:18 PM
Customers and Trust ?
This is one of the most difficult aspects of business IMO Sara.  After all the expensive safeguards have been placed in motion.  Can you trust your customer ?  I think the answer is an easy one - No.  So what can be done. ?  Simply resign yourself to fate ?

I think you would have to much more of a "watchdog" along your supply chain and that is sure to make enemies.  No easy, clear cut path that is for sure.
Susan Nunziata   Your Biggest Customer: Your Biggest Threat   9/11/2013 3:56:01 PM
Re: Your Biggest Threat
@Keith: Yikes. Like every other form of theft, it sounds like shoplifters have grown more sophisticated at circumventing any efforts by the retailers to thwart them. Too bad folks can't put their innoative thinking to better use. Imagine if the people who are coming up with these shoplifting schemes put their minds to something really worthwhile? 
KeithGrinsted   Your Biggest Customer: Your Biggest Threat   8/31/2013 3:42:15 PM
Re: Your Biggest Threat
@susan : 'Are you saying employees are stealing items from the department stores where they work?' No, but there is an ever increasing problem with shoplifters. They steal to order and come into town in gangs. Very difficult to deter them.
Sara Peters   Your Biggest Customer: Your Biggest Threat   7/29/2013 12:48:41 PM
Re: dealing with developing countries is a sketchy business
@Marif  Thanks, Marif.  Good point about the low cost of labor in some of those developing countries. Ultimately everything comes down to risk management, doesn't it?
SunitaT   Your Biggest Customer: Your Biggest Threat   7/29/2013 5:26:16 AM
Re : Your Biggest Customer: Your Biggest Threat
This is really difficult to prevent this type of IP theft. But selling goods and services to major customer could not be stopped. The important decision should be taken from the incident is to increase security and try to understand customer's behavior.
Marif   Your Biggest Customer: Your Biggest Threat   7/10/2013 4:05:36 AM
Re: dealing with developing countries is a sketchy business
You are right Sara, especially in the developing countries where GDP is consistently rising I think it is the right market to invest and as you said worth the risk. If the country is populated than it will be a bonus as the labor will be cheap with a huge target market. Even if you have competition still there will be enough customers for the company to run the show.
Page 1 / 6   >   >>

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