Companies that choose to manufacture in other countries need to pay attention to their intellectual property rights and how best to protect them. A recent article in The Wall Street Journal highlighted the difficulty of protecting patents in China for businesses that choose to outsource. U.S. patents cannot be enforced in China, according to Timothy J. Malloy, chair of law firm McAndrews, Held & Malloy Ltd. It's possible to apply for a domestic patent, but Chinese enforcement of intellectual property is below the standards to which American businesses are accustomed. For example, Chinese companies are permitted to manufacture a product based on another company's plans or physical items as long as they sell it abroad rather than in the domestic market.
Infringement upon a business' intellectual property rights can spell disaster. According to a report by the U.S. International Trade Commission, businesses reported a total loss of $48.2 billion as a result of Chinese intellectual property infringement in 2009. Companies that depend heavily on their intellectual property take most of these losses and find them to be most damaging. Such concerns as manufacturing and chemistry are bound up with intellectual property to a large extent. This means any problems with intellectual property theft will impact these businesses particularly hard.
Offshoring to Mexico as a solution
With all of the above concerns present in manufacturing in China, companies should seriously consider alternatives to foreign business expansion. One option is manufacturing in Mexico. Mexican intellectual property law is more hospitable to businesses than that in China. As a member of NAFTA, Mexico provides certain intellectual property protections as required in the treaty. Additionally, the country is a member of the Universal Copyright Convention and the Berne Convention, both of which assure foreigners' inventions are protected. The Mexico Revenue Service works with the U.S. Intellectual Property Rights Center in order to combat counterfeiting, piracy and the theft of trade secrets. It is possible for companies to obtain Mexican patents for inventions, while industrial designs and utility models can be registered and protected in that way.
For the protection of intellectual property rights, expanding to Mexico through the aid of an established shelter company, rather than outsourcing, is an excellent choice. Such a move can also reduce manufacturing costs for a company without jeopardizing its trade secrets and protected processes or products. Lower costs are often cited as a reason to outsource to China, but the risk of intellectual property theft can outweigh this consideration. In Mexico, however, it is cost-effective to manufacture and it is assured that a business' intellectual property will remain protected.