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2012

 

Healthcare executives around the world are investing in their supply chains as they prepare for continued global growth in an increasingly complex and dynamic market, even though they also continue to worry about increasing regulations, according to the results of a new survey.

The UPSPain in the (Supply) Chainsurvey, conducted by TNS, polled approximately 375 senior-level healthcare supply chain decision makers in the pharmaceutical, biotech, and medical device and supply companies. Those companies are spread across the U.S., Western Europe, Asia, and Latin America.

In recent years, a key trend in the healthcare industry has been increasing global growth as companies ramp up expansion into new markets each year. Not surprisingly then, the top two planned investments for healthcare companies globally—as cited by 83 percent of the decision-makers—are tapping into new global markets and investing in new technologies. Survey respondents plan to use both strategies over the next three to five years as the means to increase their competitiveness, maintain product integrity, and gain efficiencies. The top four countries where companies will focus expansion efforts over the next three to five years are China, the United States, Brazil, and India.

While the companies do plan on investing in their supply chains, they also are “cautious.” That comes with good reason. The top supply chain concern is regulatory compliance, cited by 65 percent of respondents. Furthermore, barriers to global expansion remain significant, with the top barrier being country regulations (cited by 46 percent of the executives). Country regulations have remained the top barrier to global expansion each of the past three years.

Cost management, cited by 60 percent of the survey participants, is the second key supply chain concern. Interestingly, only 41 percent of the executives report success in managing their supply chain costs.

Healthcare companies feel the pressure to expand and drive new growth while containing costs and ensure compliance, says Bill Hook, vice president, global strategy, UPS Healthcare Logistics. That has only heightened the need to build more global flexibility, integration, and transformation into the healthcare supply chain.

With the rise of increasing globalization, healthcare executives have reported growing concerns around the areas of product protection and intellectual property protection. That’s why intellectual property protection now ranks third on the list of top concerns, as cited by 48 percent of the respondents. Concerns around intellectual property protection are highest in the U.S. and Asia.

I was surprised to see that while only 13 percent of the survey respondents cited product security and product integrity as a concern in the 2008 survey, the number had rapidly climbed to 61 percent by 2011, and now dipped slightly to being cited by 57 percent of the healthcare executives. It is the third most cited supply chain issue overall. In emerging markets, however, it is a more significant concern, and is ranked first or second by survey respondents.

Concerns around regulatory compliance and cost management have been constants for healthcare supply chain decision-makers over the past five years while we’ve seen growth in concern around areas such as product security and product protection, says Scott Szwast, UPS Healthcare Segment Marketing Director. While these areas will always be a focus in the healthcare industry, companies can experience positive impact by examining strategies such as increased collaboration, adopting segment based supply chains, and leveraging new innovative models and technologies.

If your company is in the pharmaceutical, biotech, or medical device and supply industry, do these survey findings mirror your own concerns? If not, what are your key concerns and challenges?

Do you think there are too many federal regulations governing manufacturing in the U.S.? I ask because I’m intrigued by a new study, which found that—according to its research--U.S. manufacturers are significantly impacted by the escalation in the volume and cost of compliance with federal regulations.

A recent Bloomberg article pointed me to the study,Macroeconomic Impacts of Federal Regulation of the Manufacturing Sector,” from NERA Economic Consulting and commissioned by the Manufacturers Alliance for Productivity and Innovation (MAPI). The NERA team, led by Dr. David Montgomery, a senior vice president in NERA’s Environment Group, examined the qualitative and quantitative impact of major federal regulations on the U.S. economy in general—and the manufacturing sector in particular—by focusing on five types of regulation that have the most significant impact on the manufacturing sector: financial, labor, energy, environmental, and transportation. To estimate the cumulative cost of federal regulations affecting the manufacturing sector, the team analyzed more than 30 years of all regulations, and developed several alternative calculations of the direct costs of major regulations.

The findings were interesting. For instance, according to the group’s research, the pace of U.S. federal regulations is accelerating. An average of 72 major regulations per year have been promulgated since 2009, compared to an average of 45 per year between 2001 to 2008, and 36 between 1993 to 2000, the group writes.

This increase in federal regulations has hurt manufacturing output, especially in energy-intensive sectors, the report continues. In 2012 alone, regulation may reduce manufacturing output by between $200 billion and $500 billion, and manufacturing exports may be 6.5 percent to 17 percent lower than they would be without the regulatory burden, the NERA team estimates.

In a Supply Chain Management Review article, Josh Bond writes that following the report’s release, Stephen Gold, president and CEO of MAPI, said the report affirmed suspicions he and other manufacturers have about the impact of regulations on growth. “In fact, I didn’t realize costs are growing as fast as they are,” Gold says in the article.

In additional MAPI news, Gold explains that the group understands the important role regulation can play in promoting health and safety, but there also needs to be a more rational approach to the regulatory system. Vibrant manufacturing sector is essential to growing the economy. However, if policymakers want American manufacturers to be more competitive and to invest more in this country, they need to ensure that federal regulations are better coordinated and streamlined to minimize costs, Gold says.

Echoing those comments, the NERA report concludes, “If helping the manufacturing sector to escape its flat growth trap is an important priority of national economic policy, it is imperative that the pace of new regulations be controlled and the cumulative burden of existing regulations be reduced.”

I’m not surprised to see that the Environmental Protection Agency imposes the largest regulatory burden on manufacturers by both count (972 regulations in total, 122 major regulations) and cost ($117 billion in constant 2010 dollars). By cost, after EPA, come the Departments of Transportation, Health and Human Services, and Homeland Security.

Environmental regulations, such as those to reduce cross-state air pollution, sulfur dioxide, and particulate matter have the greatest impact on manufacturers. The trick is to strike a balance between creating regulations that improve air quality or make highways safer, and hindering manufacturing productivity or profitability. Both sides of the issue have their points, and at some point, there also is a “cost of doing business” that must be reconciled.

But what do you think? Are there too many regulations on manufacturing in the U.S.?

 

 

Although the frequency of drug shortages—primarily generic injectables—isn’t as bad as it was earlier this year, it is still a concern. However, work is being done to prevent shortages and ensure there is an adequate supply of legitimate drugs.

The problem is that some generic drugmakers decide to stop making certain drugs because they offer little profit. When the maker of a particular generic drug stops producing it, other companies don’t have enough capacity or time to make up the shortfall before the stoppage begins to effect patients. There also always is the possibility of manufacturing-quality problems that cause drugmakers to shut down production while they make improvements.

To help combat shortages, earlier this summer, President Obama signed into law the Food and Drug Administration Safety and Innovation Act (FDASIA) of 2012, which gives the FDA new authority to combat shortages of drug products in the U.S. The act imposes requirements on manufacturers to supply the FDA with early notification of issues that could lead to a potential shortage or disruption in supply of a product. The FDA Office of Drug Shortages is actively coordinating short-supply drugs, production schedules, and alternative supplies.

More recently, Pharmaceutical Commerce reports this week that the Accelerated Recovery Initiative (ARI), a project organized by the Generic Pharmaceutical Assn., and contracted to IMS Health for operating, has received a positive advisory opinion from the Federal Trade Commission, moving it one step closer to reality. ARI, announced early this year, will seek to gather information voluntarily, from generic manufacturers, especially those whose products are—or could soon be—in short supply, and then predict future availability based on production plans and market forecasts. The FTC opinion was needed because the undertaking could be considered collusive, without the data-security safeguards that GPhA and IMS Health say are being implemented.

It isn’t just the U.S. that suffers from drug shortages, however. World Pharma News recently reported on an editorial that ran in Canadian Medical Association Journal (CMAJ), arguing that Canada needs a national approach to managing its supply of pharmaceutical drugs—starting with a mandatory reporting system for drug shortages. Jointly written by Dr. Matthew Stanbrook, deputy editor, CMAJ, and Rosemary Killeen, editor-in-chief, Canadian Pharmacists Journal, the editorial explains that shortages of drugs, particularly those used in chemotherapy as well as antibiotics, antiepileptics, and anesthetics, have become increasingly common, unpredictable, and widespread in Canada. These shortages result in poorer health for Canadians, with consequences such as worsening of medical conditions, negative reactions to substitute drugs, cancellation of surgeries and procedures, and increased costs to patients and the health care system. The authors also write that the situation will not improve in the foreseeable future without major changes in how Canadian governments, federal, provincial and territorial, respond.

“It is ridiculous and intolerable that a wealthy, developed nation like Canada cannot reliably provide medicines to its people,” Dr. Stanbrook and Killeen write in the CMAJ editorial. “Although the causes of drug shortages are myriad and complex, Canada’s lack of preparedness for and ability to cope with this problem seem more readily apparent. One salient feature is the absence of integrated, coordinated national leadership on drug policy in Canada.”

The authors call for a mandatory reporting system for impending shortages so healthcare stakeholders at all levels have adequate and timely information with which to make decisions. With coordinated national leadership, Canada could potentially implement other strategies to mitigate shortages of vital supplies, such as expanding the national pharmaceutical stockpile to include more drugs deemed essential to health care delivery; requiring that supply contracts for all essential drugs be made with a minimum of two suppliers; and establishing contingency plans to share supplies across the country and be able to restock from alternate international suppliers quickly if a shortage occurs.

What do you think? Will the U.S.’ efforts help alleviate the situation? Will the plans outlined for a national Canadian policy help ease the country’s drug shortages?

Conflict minerals have been a hot topic, both within supply chains and federal agencies, over the past year. The debate has intensified as the Securities and Exchange Commission (SEC) studied the Dodd-Frank Financial Reform Act. Enough, a project of the Center for American Progress to end genocide and crimes against humanity, reports that the SEC voted today to adopt conflict minerals regulations required by section 1502 of the Dodd-Frank Financial Reform Act despite industry pressure and the threat of a lawsuit by the U.S. Chamber of Commerce.

The conflict minerals regulations require that companies disclose whether they use conflict minerals—gold, tin, tungsten, or tantalum sourced from eastern Congo or its neighboring countries. The problem is that the minerals are mined in conditions of armed conflict and human rights abuses. What’s more, the profit from the sale of these minerals is used to finance continued fighting in eastern Congo.

It has been noted before that given their broad application, the minerals have been a primary target of humanitarian groups concerned about genocide, sexual violence, child soldiers, and other issues that are common outgrowths of conflicts in Central Africa. Just about every company affected by the law says they support it, however many business groups have pushed to put wiggle room in the restrictions, calling for lengthy phase-in periods, exemptions for minimal use of the minerals, and loose definitions of what types of uses are covered.

It appears they got at least part of what they wanted. Enough Project Executive Director John C. Bradshaw says that after a more than one-year delay in issuing the rule, it’s disappointing that the SEC has added an unnecessary two-year phase-in period to implement these conflict minerals regulations. The group still needs to analyze the final rules to assess their impact on companies sourcing minerals from Congo and its neighboring countries but such an extended phase-in period clearly caters to corporate interests over the people of eastern Congo, he says.

Two of the largest reasons for the wrangling are the cost—the SEC estimates companies will have to spend millions of dollars to comply with its regulations—and the sheer scope of trying to track the minerals through the supply chain. Last fall, The Washington Post reported on an SEC roundtable discussion, and noted that a lawyer for Boeing said minerals are embedded in millions of parts from thousands of shifting suppliers, and no manufacturer can trace these all the way back to the mine. Unreasonable requirements could cost the aerospace industry hundreds of millions, if not billions, of dollars, which would be passed on to customers such as the Defense Department, Boeing’s Benedict S. Cohen said at the time.

That’s not to say all companies have been unresponsive or slow to react. According to research from Enough, a number of leading electronics firms are making progress to eliminate conflict minerals from their supply chains. In particular, Intel, Motorola Solutions, HP, and Apple have been pioneers of progress. These firms have already established conflict-free programs, proving that clean supply chains are possible, and profitable, says Enough Project Senior Government Affairs Manager Darren Fenwick.

Furthermore, while there are many laggards, several other companies—SanDisk, Philips, Sony, Panasonic, RIM, and AMD, in particular—have significantly improved their efforts by surveying their suppliers, piloting due diligence, and joining a smelter audit program established by industry leaders, Enough reports.

It’s true that many companies already require their suppliers to certify they do not use conflict minerals. The flip side is that this often is a verbal certification, and some suppliers attempt to obscure the origin by claiming the minerals came from neighboring countries where there are no restrictions or they are loosely enforced.

While there is a phase-in period for companies to comply with the regulations, compliance will ultimately require much more of companies than simply receiving verbal assurance from suppliers that minerals are not mined in Congo. This will take considerable money and time, and will undoubtedly have a significant impact throughout the supply chain. Furthermore, regardless of a phase-in period, some companies—and industries—will likely struggle to comply.

As the truck driver shortage appears to get worse, it’s interesting to see what some companies are doing to stem the tide.

It has been reported before that there are several reasons for the driver shortage. For one thing, many older truckers are retiring or will soon do so. But the long hours and many nights on the road hold little appeal for a younger generation, so they opt to pursue training for other trades. Another problem is that many potential drivers simply can’t afford the $4,000 to $6,000 cost of a six-week driver-training course. Although most companies will reimburse drivers for that cost once they are hired, the drivers do need to pay the cost upfront—and many cannot afford that cost.

The result, as noted in a recent Reuters story I saw in the Chicago Tribune, is that by the end of next year, the shortage could more than double to 250,000 drivers, according to Noel Perry, principal of research firm Transport Fundamentals. That would mean the industry would suffer occasional spot shortages where freight wouldn’t move, Perry says.

There is, however, encouraging news. Marketwire reports that according to Truck Jobs Today, a national recruitment company specializing in jobs for truck drivers, the number of employment opportunities for new truckers is growing. Although many fleet companies refused to hire inexperienced commercial drivers in the past, the continued truck driver shortage combined with new government restrictions on hours-of-service intended to prevent accidents caused by fatigued truck drivers is forcing a large number of those companies to reconsider that policy.

The findings of a new survey from the American Trucking Association support that expectation. According to the report, 90 percent of the carriers surveyed said they cannot find enough experienced drivers to fill demand. Although 56 percent of fleets interviewed by the ATA said they do not hire inexperienced truck drivers, they are now considering it.

Some experts believe carriers will ultimately be forced to offer trucking jobs to drivers with no experience or leave their fleets parked. They will do whatever is needed to keep shipments moving. If that means recruiting more drivers at the schools or hiring inexperienced truck drivers and training them, that’s what carriers will do.

The Reuters story also notes that trucking companies are conducting a similar campaign. Worried they cannot afford pay hikes big enough to retain experienced drivers and entice new drivers, Con-Way, Ryder System, Swift Transportation, and others now offer perks and new sleeper cabs to improve the job’s quality of life. For instance, some companies are starting to hire husband-and-wife teams to ease the time on the road. Also, new trucks in the fleets of Con-way, Ryder, and others now sport GPS, Sirius XM satellite radio, DVD players, and satellite dishes. Finally, Swift began a quarterly performance pay bonus in July to “retain and reward drivers” with up to 6 additional cents extra per mile in pay.

Furthermore, companies that dominate truck stop business have invested in improvements over the past two years, Reuters reports. TravelCenters of America, which runs TA and Petro rest stops, and other truck stop operators have spent millions of dollars over the last two years on jogging trails, gyms, health clinics, private showers, and healthier dining menus to enhance driver loyalty and improve life on the road. TravelCenters, for example, spent $171 million in 2011 and $40 million in the first quarter on upgrades. After taking over Flying J in 2010, Pilot spent $135 million on upgrades to showers, restrooms, delis, and restaurants. The company plans to invest $49 million more by the end of 2013.

Keeping enough drivers on the road is critical for the industry, which, according to some estimates, moves about two-thirds of all freight in the U.S. But the shortage of drivers appears to be deepening even as U.S. unemployment hovers over eight percent. So the shortage remains.

What do you think? Will the driver shortage get worse? If so, how will it impact your company and supply chain?

 

Risk management continues to be a hot topic, and for good reason. Given the global nature of today’s increasingly complex supply chain, companies face longer shipping distances and lead times. Other factors they must consider include currency shifts, geo-political unrest, and the threat of natural disasters.

I’ve seen several articles lately about risk management. One was about black swan events while another explained the merits of a particular risk management simulation technique. The article I was most interested in, however, ran on SupplyChainBrain.

The author, Paul Vanderspek, clinical professor at Colorado State University, wrote that businesses need to profile their risk exposure carefully and in depth. They must determine what can go wrong, the likelihood of any given occurrence, and its potential impact. That starts with the “pull-your-head-out-of-the-sand” phase, examining such possible disruptions as labor strikes, Vanderspek says. Each event should then be assigned a probability of high, medium, or low. Finally, companies need to assess the financial impact of any event.

Just doing that can go a long way toward helping to understand risk, Vanderspek says.

But I think there are two more points that bear mentioning. The first, of course, is that supply chain risk management should be a continuous process that takes place on a regular basis and includes trend analysis to watch for early indication of risky situations. Furthermore, everyone should always be thinking of risk management. That way, for example, when procurement teams are working to source new suppliers, they are also working to reduce overall supply chain risk.

The second point is that while identifying risks and planning for their possibility is important, responsiveness is equally important—and it can be argued that it’s more important. Regardless of the source of a supply chain disruption, responsiveness begins with a timely alert and notification being sent to the appropriate people so they know an event has occurred.

Those people then need a variety of tools that enable them to ensure the company takes the right response. For instance, use of analytics will enable them to model the event and determine its impact on both the company and supply chain. These analytics, of course, must be performed in real time so the company can respond quickly to the disruption.

Another critical tool is simulation. When performing risk management and assessing risks, simulation can model different risk scenarios. The flip side of the coin is that when a supply chain disruption does take place—or may be on the horizon--simulation is used to model various response alternatives.

Collaboration may be the most important element in the responsiveness equation. That’s because a response team will need to evaluate several possible mitigation alternatives but members of the team will not have the detailed knowledge necessary to explore all alternatives in sufficient detail. That means they will need to bring other people with detailed knowledge into the evaluation process to ensure the response alternatives are reasonable.

Finally, during the process of developing a response, the team will likely develop a number of approaches. So, for example, one approach may significantly extend lead times while a second approach may increase cost of goods sold. The team will then need to evaluate and compare the scenarios to determine which approach best meets corporate goals.

To be sure, identifying risks and planning for their possibility is a critical capability. Being able to recognize a supply chain disruption and respond to it quickly with an approach closely aligned with corporate goals is, at least, equally important. Depending on the disruption, proper response may even enable some companies to gain advantage when other companies falter.

Let me know what you think. Is your company prepared to respond quickly and adequately to supply chain disruptions?

 

Many factors contribute to manufacturing success but according to the results of a new survey, manufacturers believe labor productivity is the most important factor.

Indeed, Businesswire reported last week that according to the results from the survey—sponsored by Kronos Incorporated and conducted by IDC Manufacturing Insights--74.7 percent of all respondents agreed that a high level of labor productivity is very or extremely important to achieve manufacturing success. The respondents included manufacturing managers, directors, and executives from the automotive, food and beverage, machinery and equipment, and textiles industries across Australia, Brazil, Canada, China, France, Germany, India, Mexico, Spain, the U.K., and U.S. 

Perhaps most interesting is that the respondents were also asked which single strategy they would recommend for global competitiveness. The recommendation, cited by nearly half of the respondents, was for manufacturing companies to keep existing facilities as is and instead, invest in workforce operational excellence methodologies—including strategies for more effective labor cost control, minimized labor law compliance risk, and improved workforce productivity.

I was reminded of those findings when I saw a recent article by Keith Updike, managing director of BBK, in IndustryWeek. Updike wrote that the recent volume increase in the automotive industry points out some key concerns: notably a lack of talent and capacity. What’s more, he believes that a lack of sustainability in the automotive supply chain for talent and capacity, as well as liquidity, could lead to disastrous consequences because parts production ultimately leads to the doorstep of the major global automotive manufacturers .

The situation, Updike says, stems from the industry’s widespread layoffs in 2009. Consequently, many experienced people who have retired, relocated, or repositioned in non-automotive fields, are now needed to effectively meet the challenges of the recent volume ramp-up but they aren’t available. The lack of talented, experienced workforce at all levels, executive through hourly, creates issues in a multitude of areas from management to operations, he says.

A second crucial issue for the automotive industry is capacity. When volumes decreased by significant double-digit percentage points, the suppliers who survived did so in part by removing excess equipment, using parts from idle machines as repair parts for operating equipment, selling or closing plants, and doing everything possible to right-size operations, Updike writes. However, now that the industry sees significant growth, those once-necessary actions have created problems.

That’s because while it’s relatively easy to cut capacity, it’s considerably more difficult to bring new capacity online. So while adding capacity typically comes from either injecting equity capital into the organization or by borrowing funds, companies in the automotive supply chain are reluctant to invest as they have in the past because they remember the difficulty of making payments on idle equipment, Updike says.

The result is already evident. AutoNews reports that as Toyota Motor Corp. prepares for record North American vehicle production in each of the next two years, the company is closely monitoring suppliers that are struggling to keep up. Indeed, the automaker is monitoring “less than 20” suppliers that may have trouble boosting production to meet Toyota’s needs, said Robert Young, Toyota’s North American purchasing chief.

Young says some of the suppliers—those that provide “less than 10” components—eliminated so much capacity during the recession that they will have to make sizable investments to meet rising production schedules. Other suppliers in the group have encountered operational problems in their plants, and can improve productivity without big investments.

Young says Toyota has asked each of the suppliers to specify the measures they are taking to fix the problem. Toyota also is dispatching engineers to their plants for on-site inspections.

So it seems automotive suppliers may be at a crossroads. As painful as it may be to add talent and capacity, it now needs to be done. The lesson for companies in other industries also seems to be that in today’s business climate and global marketplace, the importance of a talented workforce cannot be overemphasized.

While I’m intrigued about what NASA’s Curiosity rover may discover on Mars, I’m also interested in what impact the rover and the work that was completed to begin the exploration will have on companies here on Earth.

 

In case you missed it, NASA is celebrating the success of what is arguably its most ambitious achievement since the lunar landing: dropping its one-ton, $2.5 billion Mars Science Laboratory and Curiosity Rover safely on the surface of Mars. Curiosity landed at 10:32 p.m. PDT Aug. 5, near the foot of a three-mile tall mountain inside Gale Crater, which is 96 miles in diameter.

 

Now the nuclear-powered rover begins a two-year mission to examine rocks within the crater it landed in, looking for carbon-based molecules and other evidence that early Mars had conditions friendly for life. Curiosity carries 10 science instruments, including a laser-firing instrument to check rocks’ elemental composition from a distance. It also will use a drill and scoop to gather soil and powdered samples of rock interiors, then sieve and parcel out these samples into the rover's analytical laboratory instruments.

 

This picture of the Martian landing site of NASA’s Curiosity rover puts a color view obtained by the rover in the context of a computer simulation derived from images acquired from orbiting spacecraft. (Photo courtesy of NASA).

http://www.nasa.gov/images/content/674322main_pia16007-43_428-321.jpg

 

 

Putting Curiosity on Mars is partly possible, as an article in IndustryWeek notes, due to key work completed by ATK. The aerospace, defense, and commercial products company has been heavily involved with every critical stage of the mission. The company’s divisions designed and built products such as the lightweight composite heat shield, interstage adapter, and boat tail sections of the rocket; along with five propellant tanks. ATK Engineering Services also supported the design development of the Terminal Descent Sensor, which guided the descent stage.

NASA engineers themselves made use of key technology. In her Wall Street Journal blog, Rachael King explains that NASA engineers used Siemens’ product lifecycle management software to create a 3D model of the craft, and then put the model through virtual simulations. Those simulations included the vibration and shock from takeoff and a temperature range of 3,000 degrees, a 154 million mile journey, and the impact of Martian gravity.

Finally, Curiosity’s landing on Mars was also different than may have been expected. An article in The New York Times explains that given Curiosity’s weight of one ton, engineers chose not to use the tried-and-true systems used in the six previous successful landings. That’s because they figured neither the landing legs of the Viking missions in 1976 nor the cocoons of air bags that cushioned the two rovers that NASA placed on Mars in 2004 would be sufficient for Curiosity’s weight.

Instead, for the final landing step, the engineers decided on a new plan so the capsule would enter Mars’ atmosphere using thrusters to guide it toward the crater. A parachute would be deployed, the rover and rocket stage would next drop away from the parachute, and a sky crane would lower the rover to Mars’ surface from the hovering rocket stage. Obviously, the plan worked.

So what’s happened is that a great number of people took an innovative approach to solving challenges. They examined what has been done before, identified short-comings in previous efforts and potential risks, applied technology to create new products and processes as well as mitigate risks, and—in the end—the collaborative and innovative effort was a success. No wonder everybody at NASA is happy. This is a supply chain of sorts, and this type of performance bears celebration.

What’s interesting is that one never knows when somebody’s innovation and collaboration may inspire similar results elsewhere. Only time will tell if Curiosity—or NASA’s approach—will inspire breakthrough innovation and collaboration in other industries, or even further efforts in aerospace, but it will be interesting to watch.

 

I’ve been thinking today of a confrontation with China. While I have been following the Olympics closely, I don’t mean the fallout from the Olympic badminton tournament. Instead, I’m thinking of the need to protect intellectual property as companies expand operations into China.

That’s because, as an IndustryWeek article reports, Assistant Secretary for Economic and Business Affairs Jose W. Fernandez today called on China to do more to stop the theft of U.S. intellectual property, which he said is costing U.S. companies billions of dollars. Fernandez told a business audience in Hong Kong that some U.S. companies had seen their businesses almost destroyed within days.

Piracy targets included U.S. firms specializing in biotechnology, nanotechnology, and telecommunications, which have had “billions of dollars’ worth of technology stolen from servers and funneled to Chinese companies,” Fernandez said. One U.S. company was the victim of Chinese hackers who stole technology that cost $1 billion and 20 years to develop, he explained. What’s more, he continued, after theft of its technology came to light, another company lost 40 percent of its value in a single day—and 84 percent of its value within five months.

To be fair, Fernandez did say that the U.S. sees “positive steps” taken by China to enhance protection of IP rights in recent years, including requiring government agencies to use legitimate computer software. But he said China needs to do more to increase sales of legitimate goods. Furthermore, Beijing should also honor its commitments to the World Trade Organization, including opening up its massive public procurement market to foreign suppliers, he said.

Those comments reminded me of an article that ran in Businessweek earlier this year, which offered some salient advice for companies doing business in China, including that companies need to make sure the government is on their side. For instance, if a company does get caught up in a dispute with a local player, it would be nice to know they have government officials on their side who can make problems go away.

The article’s author, Bruce Einhorn, also points out that while it sounds simple enough, companies need to buy their own trademark—if necessary, and if so, then take steps to transfer it properly. To determine who owns what names, foreign companies often use specialists that monitor trademark registrations in China and other countries, Einhorn says. Once they’ve identified potential problems, companies then try to buy back the rights to those names. For instance, when negotiating with Proview for the rights to the iPad name, Apple worked through an intermediary, a company it set up to do the negotiations and buy the trademark, says Einhorn.

That process also calls to mind a second IndustryWeek article, in which the author--Mark Partridge, founder of Partridge IP Law—explains that while it’s important for companies expanding into China and other countries to obtain U.S. registration for copyrights and trademarks, they also should consider extending U.S. trademark registrations to foreign countries. Nevertheless, there is another equally crucial step as well, which is to retain effective local counsel, Partridge says.

Using a local attorney with knowledge of the local court system is critical for getting matters enforced in a foreign jurisdiction, Partridge explains. A letter from the U.S. may be ignored, but an official letter from a well-respected local attorney or law firm is likely to command attention and respect, he says.

Secondly, companies should consolidate legal efforts in the hands of trusted U.S. counsel, Partridge says. Inconsistent actions taken from country to country can be damaging to long-term interests. That means companies expanding overseas need coordinated efforts to protect IP rights abroad, and that’s best accomplished by using IP counsel who knows the company’s business, interests, and legal needs, he says.

What I’d like to know is how your company works to protect IP. Is this seen as a critical challenge? Does it keep folks awake at night?

If you want to talk about sandbagging a tournament, that's fine too.