The company was in the process of bargaining with the Chinese government for drilling rights off that country’s coast. Chinese officials told the company’s negotiators that everything looked fine and that its contracts would soon be approved. But they also presented a list of 30 Chinese students graduating from "fine American universities" and indicated that China would consider it a sign of goodwill if the company hired them. The Chinese negotiators also pointed out that the company would benefit from having employees who were familiar with China. Because the company wanted to please the Chinese government, it acceded to the request.

Shortly thereafter, the company’s security manager received a disturbing call. An employee was alarmed that her coworker–one of the recent Chinese hires–was spending an inordinate amount of time on the phone speaking in Chinese. The security manager pulled the employee’s phone log and found numerous calls to one number. He then passed the phone log to the FBI, which confirmed that the number in question was registered to the Chinese consulate in Houston, and that the specific number was that of a known spy.

Few would think of an old economy industry such as big oil as a prime target for espionage. Yet, just the opposite is true. Corporate espionage exists in nearly all industries.

The company quietly fired the employee. During this episode, I spoke with the company’s security manager about the daunting challenges global corporate espionage presents. "While we don’t believe that all of the other 29 Chinese employees are spies, how can we tell which ones are, and what can we do to minimize the loss?" he wondered.

Alarmingly, such cases are increasingly common. The American Society for Industrial Security (ASIS) in Alexandria, Va., projects that global corporate espionage costs businesses more than $300 billion annually. Because few firms will publicly admit to having been the victim of spying, the true costs are unknown. What is certain is that the loss of critical proprietary information can destroy a company’s competitiveness and ultimately lead to financial ruin.

Although it may come as no surprise that those industries whose business models are built on intellectual property–high technology and pharmaceuticals, for example–are particularly vulnerable to its loss, few would think of an old economy industry such as big oil as a prime target for espionage. Yet, just the opposite is true. Corporate espionage exists in nearly all industries.

Consider this: An oil company owns intellectual property related to processes and formulas for refining petroleum, which give it a competitive advantage. Licensing this IP can generate a great deal of revenue. Furthermore, some of an oil company’s most critical IP are the mathematical simulations of the location and size of oil reserves. If Chinese authorities knew exactly how much oil the company expected to get from the Chinese reserves, they would know how far they could push the oil company during negotiations to obtain more favorable contract terms.

The Houston oil company targeted by the Chinese spies will not suddenly go out of business, but its earnings and stock prices could be affected over time. Espionage can also lead to numerous small losses that add up to the equivalent of a large setback. Bill Boni, the chief information security officer of global technology giant Motorola, calls this the "death by a thousand cuts."