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The rise of industrial espionage in SA

Industrial espionage is a huge economic activity involving both state and private business entities.

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As the current Sony-North Korea tit-for-tat game attests, industrial espionage has now been brought to an open space, and its debilitating consequences are evident - including in South Africa.

For a long time, the cloak of secrecy enabled a host of countries and corporate entities to apply corporate espionage to increase competitiveness and catch up on innovation. The Republic of Venice of yore passed legislation that incentivised its citizens to steal industrial secrets of its competitors for the advancement of Venetian economy.

In the New World, Alexander Hamilton stimulated commerce by incorporating this strategic practice. Business school case studies demonstrate how fashion house Zara is making a profitable trade in major part by closely observing designs of fellow industry players.

Corporate intelligence is an offshoot of mainline sovereign intelligence. One of the roles of an embassy is not just merely to strengthen relations between two countries or to process travel documents, but rather to collect strategic political and trade information from the host country. Simply stated, countries are routinely conducting intelligence on each other. Rarely does this cause interstate fissures, as long as spying is conducted discreetly and diplomatically.

Veil of secrecy

Industrial espionage is the least-known concept within the intelligence compendium, although many agencies are now involved in this activity. France, the United States, China and Israel now have intelligence units responsible for collecting and co-ordinating industrial intelligence. Several private businesses have been mentioned in cases involving illegal theft of commercial information. This attests to the fact that in modern societies, as was the case in earlier centuries, economic intelligence is an integral aspect of business, albeit as a business risk.

Studies conducted under the auspices of the University of the Witwatersrand and the University of South Africa for several years have found that industrial espionage in SA is on the rise. A variety of covert and overt instruments exist to enable competitors to acquire business information to increase their competitive advantage. Judging by the litany of corporate espionage cases, South African business enterprises do not seem to have adequate security frameworks in place to protect themselves. It is estimated by Ernst and Young (SA) that industrial espionage is a $67 billion-a-year industry. This figure indicates that illicit industrial espionage is a substantial business.

SA-specific accounts of industrial espionage are mostly contained in business publications. An assessment of reported cases indicates the nature of industrial espionage is predominately an inter-organisational activity where rivals steal information from each other using intelligence craft.

For example, in 2003, The Star reported that British American Tobacco SA (BATSA) conducted spying activities on its rival, Apollo Tobacco; and Finsettle, a subsidiary of Barnard Jacobs Mellet, stole business information secrets of CST Outsourcing. In March 2014, Business Day reported on a suspected case of industrial espionage practices of BATSA involving spy networks and payment of agents by the JSE-listed company. The inference is that industrial espionage is a burgeoning business strategy in SA.

Not so secret

Industrial espionage easily succeeds with the aid of ICT, and when there are no proper security measures to prevent the stealing of business information. The widespread presence of industrial espionage in SA could be an indicator that domestic corporate security frameworks have consistently failed to neutralise the industrial espionage threat.

The study mentioned above shows that industrial espionage is one of the major risks of business operations. Business rivals apply a number of instruments, including human and technical sources. The human and technical sources of intelligence are the most preferred means of perpetuating this criminal activity. Information is assembled through overt and covert methods, including collection from grey sources.

Industrial espionage entails purposeful gathering of information of economic and business value related to trade secrets, product formulae, concealed business strategies, trade negotiation strategies, business plans, and product development of industry competitors. Industrial espionage is not restricted to collection from open sources only; the gathering of concealed strategic business secrets is also highly prized. As alluded to, this activity is carried out by both private entities and government agencies.

Simply stated, countries are routinely conducting intelligence on each other.

Industrial espionage presents a serious business risk. The considerable scale of industrial espionage is not only apparent in SA, but exists in international markets as well. For example, a report to the United States Congress in 2004 on Foreign Economic Collection and Industrial Espionage estimated theft of business information cost the American economy between $100 billion and $250 billion annually. The most recent report by the US office of the National Counterintelligence Executive estimates the current cost of corporate spying to the US economy at $398 billion. The total international market for industrial espionage is not known because many victims choose not to disclose when they have incurred a loss. Be that as it may, the conclusion is that industrial espionage is a huge economic activity involving both state and private business entities.

Destructive consequences

Global integration and advancement of ICT is fuelling the exponential growth of industrial espionage. Previously disparate societies have integrated through globalisation and the network knowledge economy. The combination of globalisation and ICT has led to a huge surge in industrial information crime. From its humble beginnings in the 1950s, Internet technology has developed exponentially. Its ability to link people, organisations and enterprises is the major advantage for the commission of industrial espionage. This connectivity enables hackers and other criminals to carry out their operations with ease. The same technology allows for stolen information to be easily concealed from de jure authorities and illegally transmitted to clients.

Ineffective counter-industrial measures are also responsible for the growth of industrial espionage. Most business enterprises do not seem to be conscious of the importance of having high-quality security measures in place. Many corporate entities continue to use old and outdated security management infrastructure that prioritises physical security, while oblivious to the need to protect information in accordance with modern techniques. Physical security-based approaches to security are often rudimentary and inadequate. Competent anti-espionage security systems should, among others, target ICT infrastructure, ICT end-user security awareness, and electronic recording and information transmission devices.

The conclusion is that the global business operational environment has seen a rise in the rate and spread of industrial espionage and SA has not been spared from its destructive consequences.

(# Mukwevho and Rabelani Dagada investigated industrial espionage as part of studies that were done under the auspices of the University of the Witwatersrand and the University of South Africa.)

Seth Mukwevho

analyst.

Seth Mukwevho is a seasoned analyst who has worked in various institutions. Among others, he graduated as a Master of Arts in International Relations and Master of Management in Public and Development Management at the University of the Witwatersrand. He holds an MBA from GIBS, University of Pretoria, and is currently completing a PhD at the Wits Business School. Mukwevho’s several contributions, both individually and with co-authors, in the form of published works and presentations, bear testimony to a young person committed to convergence scholarship, including the field of telecommunications, information security, competitive intelligence and corporate security, as well as economics of investment finance. He is a regular guest lecturer at the Wits Business School, and Public & Development Management School of the University of the Witwatersrand.

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