Berkshire Business Outlook: Security reigns in digital age
Protecting Your Assets. Merchandise Protection. Internal Controls. Credit Card and Checking Fraud. Shoplifting Prevention.
Those aren't typical topics that the Berkshire Chamber of Commerce addresses at its workshops. But last fall, the chamber held an entire series of seminars on those subjects to prepare its members for the busy holiday shopping season.
"We've done these in the past," said Michael Supranowicz, the chamber's president and CEO. "We would typically do them around the holiday season. But it might be worth it to do it more now than just that one time a year."
Consumer crimes -- like shoplifting -- and cybercrimes such as identity fraud and intellectual-property theft have become a huge economic issue for business owners locally and nationally.
Among the key figures:
n In 2011, the federal Internet Crime Complaint Center received 314,246 complaints, compared with just 16,838 in 2000. Of the complaints from two years ago, 115,903 included monetary losses totaling $485 million. The median dollar amount for each entity reporting a loss in 2011 was $636; the average dollar loss was $1,544.
n Retail theft, which includes shoplifting, is a $30 billion business annually, according to the FBI.
n The FBI estimates that computer viruses and other security incidents cost businesses $78.1 million, according to David Anderson, an economics professor at Centre College in Danville, Ky., who examined the issue in a paper titled "The Cost of Crime."
Meanwhile, just guarding against the possibility of crime has an economic effect on businesses and consumers. According to the U.S. Department of Commerce, Americans spent $16.2 billion on security systems in 2011.
The Berkshire District Attorney's Office doesn't keep statistics on specific crimes it prosecutes, according to spokesman Fred Lantz, who said those numbers eventually are included in the FBI's annual crime statistics. But in 2011, Massachusetts ranked 19th in the country in reported cybercrime complaints and 18th in loss per victim, which amounted to a combined $6.2 million, according to the FBI's Internet Crime Report.
Massachusetts ranked 36th nationally in average loss per person at $53.05.
In Berkshire County, small-business owners are installing security systems, food markets like Guido's Fresh Marketplace employ loss-prevention officers, and Berkshire Health Systems -- the county's largest employer -- has a privacy and security committee. Local companies that develop their own products have either hired outside security companies to protect their intellectual property or have installed sophisticated firewalls.
Meanwhile, municipal governments and school departments across the county have security measures in place, and law-enforcement agencies will improve their information-gathering capabilities once Berkshire County has full access to broadband technology.
The potential for crime has kept local gun shops, and stores that offer security systems, busy. Unlike in some urban areas, motor vehicle theft isn't a major issue in the Berkshires. But auto dealers in the county offer vehicles that are safer for passengers and contain security systems that make theft almost impossible.
Keith Girouard, director of the Berkshire Chapter of the Massachusetts Small Business Development Center in Pittsfield, said residents interested in opening small businesses here are more concerned about the uncertain economic conditions and tight lending practices than about consumer crime.
But he said they don't take consumer crime lightly.
"I think there's a heightened awareness of the possibilities," Girouard said. "Technology has been both a help with that as well as a concern. With technology, you can have identity theft, and a lot of things can be done remotely. A business has to be thinking about security, the security of important, sensitive data."
Martin Bressler, an associate professor of marketing and management at Southeastern Oklahoma State University, said that, based on his research, crimes against businesses normally increase during economic recessions, a trend he says began in the 19th century.
"Economic cycles indicate that in more difficult times, the activity tends to increase," he said. "It's really hard to compare apples to oranges. There's more businesses today than there were then, but there are also more preventive measures in place [now].
"But in general, we could say there's much more criminal activity today in part because cybercrime is so prevalent," Bressler said. "Even small businesses get caught up in cybercrime because so many lack the means to protect themselves."
Bressler said consumer criminals tend to target larger businesses because "that's where all the money is." But he said small businesses actually are more susceptible to these types of economic crimes because they can't afford to install the sophisticated security features required to prevent crime.
"When they're hit, there's a greater impact on average even though it's a relatively smaller amount," Bressler said.
"For a small business, it can put you out of business," he said. "The public doesn't understand how close the margins for those companies are. Lots and lots of small businesses are right on the edge. All it takes is one good hit to knock them out."
The advent of cybercrime has made the possibility of consumer crime even greater.
"It's the newest vehicle for criminal activity," Bressler said. "What makes it different is that you can be almost anywhere in the world and hack into anybody's data."
In Massachusetts, a coalition of manufacturers known as Massachusetts Competes, which is dedicated to battling the theft of informational technology, has been particularly interested in stopping the theft of intellectual property, including computer software that companies spend significant sums researching and developing.
Stella Karavas, executive director of Massachusetts Competes, said intellectual property theft began in the early 2000s, when companies started outsourcing manufacturing jobs overseas to capitalize on lower labor costs.
According to Karavas, the practice gave manufacturers in foreign companies the opportunity to examine the products that American manufacturers were producing and copy them. Legal claims against foreign companies that steal an American manufacturer's ideas are difficult to pursue, she said, because in some countries patent agreements are practically unenforceable.
"So there's no recourse," Karavas said. "If you're developing a product and selling it for two or three times less, where's the consumer going to go? You can see the impact it has on the bottom line. It gives them an edge, and it can shut your company down."
In 2007, the state attorney general's office met with police officers and prosecutors across the commonwealth to identify challenges in the investigation and prosecution of cybercrime cases. After Attorney General Martha Coakley formed a strategic plan to identify solutions to those challenges, her office established a cybercrimes division to go after cybercriminals.
In addition to criminal offenses such as child enticement and exploitation, the cybercrimes division investigates illegal downloads, illegal purchases, hacking and spam.
After an investigation by the attorney general, Narong Seafood Company, Ltd., a Thailand-based fish processor, agreed in October to pay $10,000 to resolve allegations that its use of unlicensed software provided it with an unfair advantage over state businesses.
Karavas said that decision, and a similar ruling involving a case in California, represent big steps in the fight to prevent the theft of intellectual property from businesses in the United States.
"What we're trying to do is send a message to the emerging markets that they're not playing by the rules, so there's a fear that they'll be cut out of the American markets," Karavas said. "Once we're finished with this recourse on a national level, I think it will go local."
To reach Tony Dobrowolski:
or (413) 496-6224.
On Twitter: @tonydobrow
By the numbers: The cost of crime
314,246: Complaints received by the federal Internet Crime Complaint Center in 2011. A total of 115,903 of those complaints included monetary losses.
$485 million: Amount lost in those complaints.
$16.2 billion: What Americans spent on security systems in 2011, according to the U.S. Department of Commerce.
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