A Roaring Spy Business In Taiwan

As competition gets rougher, industrial espionage picks up

When managers at Nan Ya Technology, a Taiwanese memory-chip maker, decided to develop complex DRAM designs without a major foreign partner, they knew they'd need consulting help. So they hired chip designers in the U.S. and South Korea. Fair enough. But now, the Korean government says these consultants--all former Samsung Co. and Lucky Goldstar engineers--stole high-tech secrets from their former employers and sold them to the Taiwanese. Prosecutors have arrested 16 engineers and charged them with corporate spying. These engineers, now in jail in Korea, have not entered their pleas. And Nan Ya executives deny any knowledge of a deal to steal secrets.

Wherever the truth lies, Asian executives should expect more such nasty cases to come to light as companies cut corners in the drive for new products. The Koreans are so alarmed that they want to pass a law giving the government greater authority to prosecute economic espionage. "Industrial spying is not an issue just in the U.S. or Europe. It has become a reality in Asia as well," says an official at the Agency for National Security Planning, formerly the Korean Central Intelligence Agency.

RIPE TARGETS. Asian companies of all stripes have secrets to protect, from high-tech patents down to marketing plans and sales data. Asia's famous semiconductor and computer hardware industries, especially in Japan, Korea, and Taiwan, as well as chemical and defense equipment makers, are ripe targets.

The problem has special characteristics in countries such as Taiwan and Korea, where laws and corporate mores haven't kept pace with rapid technological advances. Foreign companies operating in the region must teach security awareness to new employees, who may have lax attitudes toward company secrets, says Moray Taylor-Smith, senior manager at Pinkerton Consulting Services' Taipei office. For example, employees can be especially vulnerable to "pretext" calls, in which a caller impersonates a customer or fellow employee, seeking confidential information.

In Taiwan, where many companies are small and midsize, managers may be tempted to spy simply because they are likely to get away with it, says James Ho, executive director of Taiwan's Asia Pacific Regional Operating Center, a government group trying to lure multinationals to the island. Taiwan doesn't have a strong law against corporate spying, and local cases are rarely prosecuted. "They might not be so cautious about getting information from another company," says Ho. Taiwan officials hope to raise managers' awareness through government-sponsored seminars. Taylor-Smith adds that while the Taiwanese have pulled off economic burglar jobs, they can be victims, too. Taiwan companies, he says, are "a likely target for the Chinese," who are limited in the kind of technology they can obtain from the U.S.

The Koreans haven't said whether they'll bring charges against Nan Ya, which is somewhat insulated by having an arm's-length relationship with the engineers who were arrested. Nan Ya officials say they don't need to steal technology to develop 64-megabit chips on their own. Yet Nan Ya is under intense pressure to obtain the latest technology to compete in the global DRAM market. A latecomer in the DRAM business, Nan Ya has struggled to move up to leading-edge chips. Even Taiwan's top manufacturers of DRAMs have struggled to develop 64-megabit designs and relied on license agreements instead. "If even the big boys are having trouble getting these things right, how is Nan Ya going to do it?" asks Don Floyd, a semiconductor-industry analyst at ING Barings Securities Ltd.'s Taipei office.

Thus, the idea that Nan Ya may have resorted to economic spying makes sense to the Koreans. "We used to enjoy a technological lead of two years on the Taiwanese, but such a leak could close the gap significantly," says S.K. Lim, an assistant manager at Samsung Electronics Co. Nan Ya says it did nothing wrong. It's possible the Taiwanese got taken in. No matter. Look for more such cases as the race for the next big technology intensifies.

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