Manufacturing companies in Brazil, Russia, India and China (BRIC) that choose to use illegal software steal more than $1.6 billion (U.S.) from their in-market competitors that opt to play fair by using genuine software.
Microsoft Corp. today released the findings of a first-of-its-kind study that tackles the financial impact using illegal software has on the competitive landscape within developing countries. In support of Play Fair Day, a global initiative to emphasize the importance of using legitimate software, this Microsoft-commissioned study quantifies the anticompetitive harm software piracy inflicts on businesses that play fair.
“I do like to have a good night’s sleep, which I wouldn’t be able to do if I was stealing something,” said Bharat Somany, a director at Hindusthan National Glass & Industries (HNG). “Transparency is something that starts vanishing pretty quickly when you [pirate]. Not only do you hide from others, but you end up having things in your own company that are hidden from you — there is no accountability when you go in for pirated software.”
HNG has more than 4,500 employees in India and strives for compliance within its IT. As a major exporter to the U.S., being able to compete on even ground is vital to the company’s success and growth.
As part of a study to examine the broader economic impact of software piracy, analysts from Keystone Strategy evaluated the unfair competitive advantage enjoyed by companies that practice widespread piracy. In China, for example, manufacturers that “play fair” with legal, licensed software suffer a competitive disadvantage of about $837 million compared with companies that illegally slash costs and use pirated software. This harm translates into the opportunity for pirating firms to increase profits or reinvest in their businesses. For example, pirating firms can reinvest the $837 million to construct 66 major manufacturing plants, buy 12,700 molding machines for a plastics manufacturer or hire 217,000 additional employees.
Manufacturing accounts for 16 percent of Russia’s gross domestic product. Russian manufacturers who play fair are disadvantaged more than $575 million over the five-year software lifespan. Severstal, which is the second largest steel manufacturer in Russia, has committed itself to choosing legal software.
“Software is critical to our business. Our board believes that it is one of the key differentiators of our business and a source of competitive advantage,” said Evgeny Charkin, chief information officer, Severstal. “We are a business with a very good reputation and strong ethics — we want to maintain that reputation. We do not steal. We do much business globally, such as in the U.S. We hold ourselves to the same standards as the international business community.”
The new research also reveals the following insights on piracy’s impact around the world:
Piracy creates more than $2.9 billion of competitive disadvantage per year across manufacturers in Latin America, Central and Eastern Europe and Asia-Pacific regions.
In specific countries, Keystone determined how much pirated software harms manufacturers playing by the rules as follows: Brazil ($186 million), Russia ($115 million), India ($505 million), and China ($837 million).
Over a five-year software life cycle, manufacturing companies in BRIC countries will lose more than $8.2 billion to their cheating competitors.
There are more than 4.1 million PCs legally licensed by manufacturing firms that play by the rules in China. The competitive disadvantage to these firms amounts to about $837 million annually, or $4.18 billion over the typical five-year software life cycle.
Indian manufacturers experience $505 million per year in competitive harm. Their pirating competitors could use this money to hire more than 215,000 new employees.
“This research quantifies the harm unfair competition causes in emerging markets,” said David Finn, associate general counsel for worldwide anti-piracy and anti-counterfeiting at Microsoft. “And this is not just a problem that harms businesses in emerging markets. On Nov. 4, the National Association of Attorneys General in the United States announced that 39 Attorneys General sent a letter calling for stronger federal enforcement against companies around the world who use stolen information technology to gain an unfair business advantage and who seek to sell their products in the United States. In the same letter, these top prosecutors affirmed their own commitment to use existing state laws to address the anti-competitive harm done when companies — both foreign and domestic — steal information technology.”
In the letter, the attorneys general summarized the challenges businesses face in competing with businesses that use illegal software:
“Competition is unfairly distorted when a manufacturer gains a cost advantage by using stolen information technology, whether in its business operation or its manufacturing processes. It offends our sense of fairness when such wrongdoers reap a commercial advantage from their illegal acts.”
Playing fair begins when people and businesses take a stand and demand legal software.