Hacking isn’t a silver bullet against U.S. companies, but it’s a piece of the picture. Teach a few bright people how to build smartphones here, steal a little software code there, and suddenly a new competitor is born.
China shooting itself in the foot
The crazy part of the hacking reports is that China has more to lose than we do. Its economy relies on exports to survive and if U.S. companies began pulling out, it could be devastating. China isn’t at the point where it can export its own products. It currently relies on U.S. companies to provide brands and technology while leveraging cheap Chinese labor, and it doesn’t have a consumer-driven economy.
Over time, that will change, but China has a long way to go before it has a consumption or locally developed export economy. Whether it’s hacking or IP theft, the country has to keep its eye on how far it pushes U.S. companies, which are already dealing with higher labor costs and could bring production home to the U.S.
China isn’t the only problem
None of this is to say that China is the only problem. Facebook Inc (NASDAQ:FB), Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), and Twitter have all been hacked very recently and it doesn’t appear to be coming from China. Eastern Europe and Russia, which are known to have some of the most sophisticated hackers, seem to be the source of recent problems. Microsoft Corporation (NASDAQ:MSFT) has been fighting Chinese copyright infringement for decades so it already understands what a challenge these new markets present. For Facebook, the stakes are extremely high given the information people put on their site. A hack from anywhere in the world could render the company untrustworthy, sending users fleeing the site.
The difference between Chinese hacking and the recent tech hacking is that these countries don’t make a lot of the products we buy so stealing IP wouldn’t have the same impact. China could take the IP and leverage an already existing manufacturing infrastructure to build industries that compete directly with U.S. companies.
Buyer beware
With IP in danger, labor costs rising, and local competitors popping up, I think we’ll see increased scrutiny by U.S. companies doing business in China. We won’t see a wholesale move back home, but a trickle will take place. If hacking from China continues, the discussions in boardrooms across the U.S. will take a more serious tone, particularly in high-tech industries.
U.S. companies have a lot to lose and a slightly lower margin may be a small price to pay if your whole business is under attack.
The article U.S. Companies: Beware in China originally appeared on Fool.com and is written by Travis Hoium.
Fool contributor Travis Hoium manages an account that owns shares of Apple and Microsoft. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw. The Motley Fool recommends 3M, Apple, and Facebook, and owns shares of Apple, Facebook, and Microsoft.
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