Outsourcing and Intellectual Property

A common concern when sourcing overseas is protecting intellectual property. This article examines sourcing and piracy as well as steps that can be taken to reduce the risk product will be copied.

Due to the many different types of products available in the world, the uniqueness of a product does not in itself make it attractive to those who seek to profit by copying the ideas of others. Products such as the following are most attractive for those engaging in piracy:

1. High tech goods or other products that require expensive research and development to create. They are appealing targets for copying because the one copying the product does not have to invest in research and development costs.

2. Products such as computer software, DVDs and music are attractive piracy targets since they can be copied inexpensively and those copying them are not paying the true production costs.

3. Famous brand names are piracy targets since those copying them are not paying the advertising and other costs that established the brand and its premium pricing.

Less established products that do not fall into the above categories are also victims of piracy. This happens because someone recognizes a unique product or idea that they think will sell exceptionally well. Since the top three types of piracy listed above are primarily a concern for major corporations, this article will focus on the copying of less established products.

Many people mistakenly assume this type of piracy is driven by manufacturers in the country where the goods are being sourced, such as China. In actuality, most manufacturers will not begin production unless they have assurance of receiving payment. Furthermore, they are not in the business of marketing products or predicting future product trends. Therefore, the piracy of less established products is usually driven almost entirely by competitors and others in the countries where the goods are marketed. It is thus unlikely the type of goods this article focuses on will be copied unless a competitor is determined to do so.Outsourcing and Intellectual Property

Steps to reduce piracy
While piracy of less established products in China is less frequent than most realize, preventative steps should nonetheless be taken when sourcing overseas. These preventive steps include the following:

• For products with a high risk of piracy, follow the steps from the RFQ (request for a quote) phase. This can be done by first breaking down the product and only seeking quotes on its components. The product can then be shown to more manufacturers since none of them will see the big picture.

• Ask any potential manufacturer for a list of their customers to ensure they are not supplying product to a competitor.

• Even though China is not a legal-based society, a simple, direct NDA (non-disclosure) agreement, translated into Chinese, helps eliminate misunderstandings and ensures the manufacturer understands permissible procedures.

• Register brand names as soon as possible. China and some other countries are based on “first-to-register” rather than “first-to-market.” The process, which generally costs less than a few thousand U.S. dollars, can be made much easier with local English speaking attorneys who can usually be found at reasonable rates.

• If the product is very sensitive, the components can sometimes be produced by different suppliers who do not see the entire product. Then, the final assembly or packaging can be carried out at a secure facility either in China or in the country where the goods will be marketed. However, this approach will almost certainly increase costs and can only be used when profit margins are wide.

By understanding the types of goods usually copied and the reasons copying is performed, one can better implement the necessary precautions to prevent theft of intellectual property.


What is outsourcing? Outsourcing has traditionally referred to the delegation of a firm’s responsibilities, such as manufacturing and administrative tasks, to an outside third party. In recent years, the definition of outsourcing has expanded, and companies have increasingly utilized entities located overseas to meet their outsourcing needs.
Reasons for outsourcing: Outsourcing enables individuals and companies to delegate repetitive or unfamiliar tasks so they can concentrate on their core business. It also enables them to access labor sources, resources, technology and ideas they would not normally have access to. This process can greatly aid in specialization and efficiency as well as allowing work to be performed in the most cost-efficient manner and at the most suitable location.

For example, high-technology production is concentrated in places like the Silicon Valley where the appropriate people, technology and infrastructure have been established. Likewise, textile manufacturing is concentrated in areas of China where suitable conditions make these areas ideal for textile production.

By allowing individuals, companies and countries to concentrate and specialize on what they do best, outsourcing can be a win-win situation.

The challenges of outsourcing overseas: There are many advantages to outsourcing manufacturing overseas, however, it can also result in various challenges. While a nation may offer the best labor force and resources to produce a particular product, differences in culture, business practices and quality standards create obstacles. At Manufacturing Sourcing, we provide the expertise and resources to ensure a smooth, seamless process when companies outsource the manufacture of their goods. Products are manufactured at efficient, effective factories with excellent quality control. Furthermore, our clients do not encounter language and cultural issues since these are handled by our qualified staff.

Currency fluctuation and outsourcing: Currency fluctuation is another factor in overseas outsourcing. Increases or decreases of a country’s currency will increase or decrease its purchasing power. Since our pricing is almost always set in US dollars or currencies pegged to the US dollar, fluctuations in currency values will not immediately affect those who purchase in US dollars or those whose national currency tracks closely to the US dollar. However, those who do not purchase in US dollars may see the amount they pay fluctuate depending on the value of their country’s currency vs. the US dollar.Outsourcing

Lean manufacturing: Lean manufacturing is a philosophy of production that emphasizes efficiency and strives to eliminate waste from the manufacturing process while improving quality. This is done by continuously looking for ways to reduce inventories and the amount of labor and resources required to produce a product. Lean manufacturing originated in the Toyota Production System and in recent years, the practice of lean manufacturing has spread across the globe. Lean manufacturing principles are utilized in the manufacturing facilities selected by Manufacturing Sourcing to produce your products. Lean manufacturing practices will assist you in obtaining better products at lower prices.

Outsourcing will continue to expand as modern communication and transportation systems shrink the world we live in and business becomes increasingly competitive. Outsourcing will provide your business with additional opportunities to grow and prosper.