Bits of Gold

Gold, treasure and valuables used to be the plunder of choice for pirates of old. Today's plunder is now digital bits and bytes, and it can do as much harm to countries now as theft of valuables did then. In the U.S., you don't hear much about businesses pirating software for use in their material handling or manufacturing processes. Software vendors and businesses seemed to have reached an agreement where everyone here has a win-win situation. But then, the U.S. has decent intellectual copyright laws.

Overseas, the story is different. The Business Software Alliance (BSA), an international association of the world's leading software manufacturers, is dedicated to promoting a safe and legal digital world. It recently reported that 36 percent of software installed on computers worldwide was pirated in 2003, representing a loss of nearly $29 billion. Of the $80 billion in software installed on computers worldwide last year, only $51 billion was legally purchased.

How many software companies will take such losses easily? Not many. Like shoplifting, this type of theft costs everyone. As do the options for recovering those losses, such as raising product prices and laying off employees.

As you outsource and build your international supply chain, such news might be important to you, because it could affect just how much cost you may or may not be able to eliminate.

The study, conducted by International Data Corporation (IDC), examined software market segments covering operating systems, consumer software and local market software. Said Robert Holleyman, president and CEO of BSA, "From Algeria to New Zealand, Canada to China, software piracy continues to be a major challenge for economies worldwide."

For example, the report found that the piracy rate in the Asia/Pacific region was 53 percent, while in Eastern Europe it was 71 percent. In Western Europe it was measured at 36 percent. In Latin American countries it averaged 63 percent, in the Middle Eastern and African countries, the rate was 56 percent on average, and in the U.S. it was 23 percent.

The study found that the size of a regional software market is a critical link between piracy rates and actual dollars lost. According to the findings, 91 percent of software installed in the Ukraine in 2003 was pirated, compared to 30 percent in the U.K. But dollar losses in the U.K. were about 17 times higher than those in the Ukraine, probably because there's a larger total PC software market in the U.K.

One of the larger concerns about pirated software is that a user cannot expect the software vendor to help resolve bugs or operating issues, since the program won't be properly registered. If that user is one of your supply chain partners, then the risk of a problem or interruption in the partner's processes will be felt by you, too. What's that risk worth to your supply chain?

You are already weighing a number of risk factors, such as delivery and order timing, forecasting and political instability, when setting up outsourcing and a supply chain. Now you have to consider software legal issues and how they may affect your operations, as well as whether a partner's pirated software will really be reliable. (Pirated software is not just copied software. Sometimes, it's been altered to enable easier hacking.)

Keeping piracy under control can stimulate local economic activity, claims the report. It can also help create job growth and spur innovation. But keeping piracy under control requires strong intellectual property protection and copyright regulations. Material handlers can do their part to help the BSA by working with their international partners to encourage legal purchase of needed software. Pirated software shortchanges everyone.

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