Pacific Perspective
Pacific Perspective
The commendation by the Office of the U.S. Trade Representative earlier this month to Malaysia for its progress in fighting optical media piracy was well publicized, and has helped to reassure U.S. companies hurt by the increasing proliferation of pirated goods. But this is only a small victory in an open-ended war. Efforts against copyright infringement seem to have accelerated recently. Yet, with a sluggish global economy, piracy continues to be significant. Digital piracy is a threat
to global competitionAs digital technologies rapidly take over business and entertainment media such as music CD's, video compact discs, digital video disks, electronic books, and the like, revenue losses from piracy are expected to escalate far beyond the $11.7 billion estimated just for business software piracy alone. Adding to the direct revenue losses are the extraordinary indirect costs of fighting against piracy.
Enforcement efforts have mainly focused on three activities: tough legislation, effective policing and aggressive education. To date, these measures have had limited results.
According to the Business Software Alliance (www.bsa. org), Vietnam leads the world in software piracy where an estimated 97 percent of software used is pirated. Regrettably, other Asian and European nations are not far behind. Eastern Europe continues to have the next highest piracy rate, with a regional average of 63 percent, versus Asia-Pacific with 51 percent. Even in North America and Western Europe, piracy rates are still at 25 percent (43 percent for Hawaii), and 34 percent, respectively, resulting in an absolute revenue loss of $6 billion.
Digital piracy is a structural economic problem that alters the healthy forces of global competition. Its consequence is much more far reaching. As long as the selling prices of original goods are much higher than those the market can bear, piracy remains an irresistible temptation. With reproduction costs typically low for digital goods, producers should revisit their pricing strategies.
Surveys among those who purchased pirated digital goods revealed piracy is the only opportunity for them to appreciate these products. Acknowledging the unfair loss of income, piracy, nevertheless, has not, and will not, ruin U.S. software or movie producers. Instead, it could present an unconventional opportunity for U.S. companies to secure stronger market penetrations.
More importantly, piracy constitutes a major barrier to market entry and a threat to technological progress. As an example, with Windows XP sold in black markets for $1.50 (compared with the original price tag of $299) potential rivals are dissuaded from creating competing products -- even from countries known to have some of the world's best and lowest-cost software engineers such as China, India, and Vietnam.
In this gloomy contest, Malaysia, with a 66 percent piracy rate -- down from 77 percent five years ago -- with an estimated loss of only $95 million, is spared from the long list of top offenders. Until economic forces are adjusted appropriately, extensive copy- right infringement will continue to plague nations. The end result might actually do greater harm to the offending countries than those who are victims of piracy.
Tung Bui is the Matson Navigation Co. Distinguished Professor of Global Business at the University of Hawaii at Manoa College of Business Administration. E-mail him at tbui@cba.hawaii.edu.