Commercial Espionage or Learning by Hiring?

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YAHONG LI JIANGYONG LU ZHIGANG TAO SHANG-JIN WEI

FOXCONN V BYD (A): COMMERCIAL ESPIONAGE OR LEARNING BY HIRING? Teaching Note
Synopsis
Foxconn International Holdings Limited (“Foxconn”) is the world’s largest contract manufacturer of mobile phones. Its competitor, BYD Company Limited (“BYD”), entered the market in 2003 and has initiated a learning-by-hiring strategy by actively recruiting workers from Foxconn. In May 2006, Foxconn first discovered a leakage of its trade secrets to BYD through current and former employees. Materials seized from BYD’s premises were found to contain substantial non-public information belonging to Foxconn. A number of individuals involved were arrested and prosecuted. However, BYD has declared that the information it possessed about Foxconn came from publicly available sources. Foxconn has concluded from internal investigation that BYD has been stealing its trade secrets systematically over a long period. Its management is contemplating pursuing criminal charges against BYD in order to protect its intellectual property (“IP”).

Conceptual Foundation and Teaching Objectives
This is a case on international business and strategy, exploring the learning-by-hiring strategy used by BYD to generate rapid growth in a new market sector. The case also addresses Foxconn’s court case against BYD for trade secret theft. It facilitates classroom discussion on the boundary between trade secret theft and learning by hiring, and on factors that contribute to haemorrhaging of talents to competitors. Discussion may also focus on the importance of proper information system management in protecting trade secrets, and appropriate litigation

Penelope Chan prepared this teaching note under the supervision of Professor Zhigang Tao, Professor Shang-Jin Wei, Dr. Yahong Li and Dr. Jiangyong Lu as a guideline to teaching: “Foxconn V BYD (A): Commercial Espionage or Learning by Hiring?”. © 2009 by The Asia Case Research Centre, The University of Hong Kong. No part of this publication may be reproduced or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise (including the internet)—without the permission of The University of Hong Kong. This teaching note was developed jointly with Columbia Business School and appears as case #090316A in the Columbia CaseWorks collection. Ref. 09/452TN

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09/452TN

Foxconn vs. BYD (A): Commercial Espionage or Learning by Hiring?

strategies for handling trade secret thefts. [Please refer to case B for China’s legal system for resolving IP disputes and factors that influence IP litigation outcomes in the country.] The teaching objectives of the case are: 1. To analyse the factors that render a company vulnerable to trade secret thefts. 2. To discuss the boundary between commercial espionage and learning by hiring. 3. To analyse the factors contributing to the success of learning-by-hiring strategies adopted by companies to generate rapid growth. 4. To discuss the pros and cons of pursuing court battles over trade secret thefts.

Suggested Student Assignments
1. What are the strategies and tactics used by BYD to leverage the IP of its competitors? 2. What management practices at Foxconn have facilitated the success of BYD’s learningby-hiring strategy? What are the loopholes in Foxconn’s information management systems that have enabled trade secret theft by its employees? 3. What are the arguments for and against Foxconn’s pursuit of criminal prosecution of BYD?

Analysis
1. What are the strategies and tactics used by BYD to leverage the IP of its competitors? The strategies and tactics used by BYD to leverage the IP of its competitors are summarised in the table below. Strategies Tactics 1. Learning by hiring • Has established a dedicated office to recruit employees from from competitors Foxconn. • Targets senior managers and researchers of Foxconn who have access to the company’s key trade secrets, such as Surface...
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