The international market represents a significant business opportunity for U.S. microcomputer software companies, but illegal copying of programs and other non-tariff trade barriers are limiting growth of sales abroad.
While the U.S. market currently accounts for almost 75 percent of world software consumption, the non-U.S. market is growing at a much faster rate. Combined industry revenues from 1985 are estimated at more than $6.2 billion.U.S. exports of microcomputer software are growing for many reasons. In several nations, predominantly in South America and the Far East, increased software sales can be attributed to the growth of indigenous hardware manufacturing. Although the computer industry is young in countries such as Brazil and South Korea, it is becoming increasingly important to their economies.
The tremendous growth in hardware availability has been accompanied by an equally impressive growth in the software market. This is evident in the foreign microcomputer software market figures compiled by the International Trade Administration of the Department of Commerce. For example, Brazil's microcomputer software market is expected to grown an average of 82 percent annually between 1984 and 1987 - from $142 million to $856 million.
But much of the software sold in foreign countries is pirated from U.S. manufacturers. In Brazil, software distributors estimate that 80 percent of the software sold is pirated from U.S. firms and their distributors. The value of this software has been estimated conservatively at more than $23 million annually. Furthermore, it is estimated that 90 percent of the microcomputer software used in southeast Asia (but excluding Japan) is pirated.
The International Intellectual Property Alliance and the microcomputer software industry list the following 12 countries as the major software piracy offenders: Brazil, Taiwan, Singapore, Korea, Malaysia, Philippines, Indonesia, Mexico, Argentina, Hong Kong, India and Canada. If not dealt with quickly, international piracy of software could become one of the most serious trade problems faced by the United States.
While the IIPA estimates losses at approximately $128 million annually, ITA's Office of Science and Electronics believes that software industry losses to piracy are far greater - as large or larger than those encountered by the U.S. record, book and motion picture industries.
One reason for these substantial losses is that software is extremely easy and inexpensive to duplicate. Although development and marketing costs are high, the actual cost of duplicating a software program on disc may be as low as a dollar or two. A software program, which often has a retail value of $400 or more, can be reproduced for the cost of the disc itself.
Another reason is more economic/political in nature. Many countries have come to view piracy as an industry unto itself and many of their government officials, if not condoning it,look the other way. Moreover, they have become protective of their fledgling high-technology industries - even those that are illegal - making it extremely difficult for U.S. companies to get their products "legitimately" into the country.
Once an industry becomes entrenched and its economic importance established, changing the laws, regulations and practices that perpetuate a piracy industry becomes extremely difficult. This results in entry barriers for U.S. firms that could mean potential losses of millions of dollars in new business. Diminished U.S. sales not only harm individual firms, but also adversely affect the U.S. economy.
However, a number of countries have begun to realize the stifling affect that piracy can have on the development of their domestic software industry, and have taken steps to improve protection for intellectual property. For example, last summer Taiwan implemented a new copyright law that specifically covers computer software. The Taiwanese government has assisted U.S. companies in identifying software pirates.
Korea recently announced plans to offer protection for computer software to non-Korean producers, and Singapore has a draft law before its legislature that specifically covers computer software. Further, important precedents have been set in both Australia and Canada, where courts have applied existing laws in software piracy cases.
To halt international piracy, the following joint U.S. Government/Private Sector options could be exercised:
Continued vigorous use of the powers available in existing U.S. trade legislation - such as the Generalized System of Preferences provisions of the Trade and Tariff Act of 1984, Section 301 of the Trade Act of 1974 and the Caribbean Basin Economic Recovery Act.
Closer cooperation and communications between the U.S. government and software firms.
Increase coordination between federal agencies and policy-makers in the development of policy.
These are long-range plans that may take several years of meetings and cooperative government/private sector initiatives to complete.