Wednesday, February 8, 2012

Impact of Corporate America's Myopic Focus on “Profit”

Here is one last display of the Digit of Mischief as I leave America.

Notre Dame

This Digit of Mischief is once more directed toward corporations chartered in the USA. Corporations that incorporate portions of their businesses off-shore. Corporations that lay off millions of Americans. Corporations that hire millions of Chinese. Corporations that reap huge profits on Wall Street. Corporations that ensure the US Government does the bidding of Big Business.

Big Business leaders don't care that intellectual property developed in the US is being transferred to China. Big Business is only concerned with profits.

Big Business leaders don't care that it took well educated American workers to develop technologies and products that enable corporate profits. Big Business is only concerned with profits.

Big Business leaders don't care that the People's Republic of China is sponsoring computer network exploitation of company computer systems, extracting peta-bytes of valuable intellectual property. Big Business is only concerned with profits.

La Famille

Occasionally the western press reports that Chinese-based computer network attacks are disrupting US government, military, and commercial systems. Seldom is the topic tied together in a coherent discussion of the risks to US incorporated commercial interests. Yet, with a little digging and a few discussions with government agencies, it's very easy to see how disruptive coordinated state-sponsored theft of product design and manufacturing process information is to a company's ability to generate revenue long term.

Take a close look at private equity firms and roll-up companies. These kinds of companies are the worst offenders of a long list of corporate profiteers. If you're paying attention what you'll see is that companies narrow focus on revenue has put them at risk for two things. First, moving product development engineering and manufacturing to China opens a company directly to the risk of theft from the inside. While the immediate effect of this is a loss of jobs in the US, the longer term effect is that these kinds of companies either naively or willfully transfer intellectual property and manufacturing process knowledge directly into China.

Gothic Paris

Second, these companies deliberately resource-starve functions tasked with protecting company intellectual property. Information Technology (IT) departments have recently take the brunt of mass layoffs, while trying to resource these functions out of India. Understaffed, corporate executives place important revenue generating intellectual property at risk of being stolen.

The People's Republic of China attacks computer network systems for two reasons. The first reason is based on recent military doctrine changes. The Chinese feel that successfully disrupting open networks could stall the movement of resources and material long enough for the Chinese military to again the position that target before the US has had a chance to sort out it's disrupted information flows. To support this, the People's Liberation Army has over the past 15 years formed many battalions dedicated to computer network exploitation and computer-based warfare. The Chinese place such high value on military-based CNE that it currently ranks number two in importance behind nuclear defense.

The second reason the Chinese are using CNE is to actively extract intellectual property from US corporations. They intend to reach scientific and industrialization parity with the US by 2020, and to become a world leader by 2050. To accomplish this, the Chinese government has sponsored technology initiatives. Widely known efforts, such as the 863, 973, Chinese Academy of Sciences, and numerous military-industrial partnerships have failed to meet government directed technology-industrialization goals. Due to these widespread research and development failures China has turned to stealing as much IP from the West as they can.

Paris Window Art

What this means is that the Wall Street economy is at serious risk for it's ability to compete long term. Companies have turned a very blind eye to these revenue impacting risks. The level of Big Business leadership irresponsibility can not be understated.

It was recently reported that two to three peta-bytes of information has been extracted from just 70 US companies in over the past five years. The shear size and success of Chinese IP theft is breath-taking. Yet, Big Business continues to shift as much engineering and production into China as it can, as fast as it can.

If I were invested in equities, I would be very concerned about private-equity and roll-up company management and their long term ability to generate sustainable revenue. If I were a shareholder, I would be very concerned that these companies are actively aiding and abetting a foreign economy at the direct determent of the US economy.

Paris Window Art

References ~ all found in the public domain

US-China Economic and Security Review Commission

Government Computer News

The Hacker News

Network World

Annual Report from US-China Economic and Security Review Commission to Congress, October 29, 2010

Annuals of National Security, The Online Threat, Should we be worried about a cyber war? By Seymour M. Hersh, The New Yorker, November 1, 2010

Capability of the People’s Republic of China to Conduct Cyber Warfare and Computer Network Exploitation. Prepared for The US-China Economic and Security Review Commission. Project Manager Steve DeWeese, Principal Author Bryan Krekel, Subject Matter Experts George Bakos and Christopher Barnett, October 9, 2009

China’s Program for Science and Technology Modernization: Implications for American Competitiveness. Prepared for The US-China Economica and Security Review Commission. By Micah Springut, Stephen Schlaikjer, and David Chen. CENTRA Technology, Inc. 4121 Wilson Boulevard, Suite 800, Arlington, VA 22203

Fiscal Year 2010 Report to Congress on the Implementation of The Federal Information Security Management Act of 2002. Issued by the Office of Management and Budget.

Hearing on Research and Development, Technological Advances in Key Industries, and Changing Trade Flows with China. Briefing Paper by Dr Charles W. McMillion, President, MBG Information Services, 385 Russell Senate Office Building, July 16, 2008

Targeting US Technologies, A Trend Analysis of Reporting from Defense Industry, 2010. Issued by the Defense Security Service

Guojia Zhongchangqi Kexue he Jishu Fazhan Guihua Gangyao (2002-2005), February 9, 2006 -
(translation into English from Chinese required – use Google)

The United States Congress, House Report 105-851, Report of the Select Committee on US National Security and Military/Commercial Concerns with the People’s Republic of China, PRC Acquisition of US Technology – submitted by Mr. Cox of California, Chairman -

The China Business Review – Can China’s Government Procurement Market be Cracked? By Jason Matechak and Brett Gerson, 2010

Two chip scandals set back China’s IT industry, by Wu Zhong, China Editor, Hong Cong, Jul 4,2006

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