Thursday, March 27, 2014

The NSA scandal produces more unintended consequences

We've already noted how the NSA spying scandal is hitting the bottom lines of US technology companies to the tune of billions of dollars in lost sales.  Earlier this week we noted that the NSA has spied on Huawei and other Chinese technology companies in the same way that the latter were reputed to be doing to US companies - a classic case of 'the pot calling the kettle black'.

Now MIT's Technology Review reviews the situation and points out how both sides have been damaged by these revelations.

How’s this for a tough sales job? The American sales reps of Huawei offer top-notch telecom gear at a 35 percent discount. But anytime they get near to closing a sale, their customers get a visit from the FBI or the U.S. Department of Commerce.

The message from the feds isn’t subtle: buy something else.

. . .

The irony now is that leaked National Security Agency documents suggest the U.S. was doing everything it suspected China of. The documents indicate that the U.S. may have compromised routers from Cisco, Juniper, and Huawei. It’s also believed to have weakened encryption products so the ciphers used by commercial software could be broken.

The companies named in those leaks all deny knowing of the backdoors. All say they are investigating. But the loss of trust is hurting U.S. companies. In December, Cisco said the allegations caused a significant drop in sales in China. “It’s causing people to stop and then rethink decisions,” Robert Lloyd, Cisco’s president of development and sales, told investors. IBM’s hardware sales in China plunged 40 percent in the financial quarter following the leaks.

Huawei can feel vindicated, but only to a degree. Its sales haven’t picked up in the U.S. “There’s a universal lack of trust, and now we have a pretty obvious proof point of that,” says William ­Plummer, Huawei’s vice president for external relations in Washington, D.C. As it turns out, everyone’s gear is vulnerable. “We’ve been saying that for years,” says Plummer.

. . .

But the bigger fallout may be a rise in protectionism. “It’s been mostly open competition since the beginning of the Internet, and the companies that did well are the ones that won the competitions,” says Lewis. Now, with escalating security worries, countries may take the chance to stack the deck against foreign competitors or build up their own industries.

There's more at the link.  Worthwhile reading.

I'll be particularly interested to see whether or not the article's prediction comes to pass that countries may seek to 'build up their own industries'.  With sufficient determination and money, this is certainly feasible.  I was involved to some extent in South Africa's arms industry during the 1980's, when it was laboring under the impact of a mandatory UN arms embargo and crippling economic sanctions.  Despite those burdens, the industry succeeded in producing many items of world-class equipment, some of which have now been further developed to take their place in the armed forces of major powers (including the USA).  If South Africa could accomplish so much under such dire circumstances, I'm willing to bet any reasonably advanced economy could do the same in the communications technology field, particularly in co-operation with other like-minded nations.


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