Software Piracy In China Has Staying Power

Computer Partner magazine, published out of the Netherlands, just did an excellent article (in English) detailing why software piracy is so rampant in China and why it will not be going away anytime soon.  Entitled, "Why Piracy Isn't Going Away in China," the article's thesis is that software piracy in China will exist in large numbers until the ratio of software prices in China to average income in China comes closer to the ratio of software prices to average income in the western world:

Piracy is exceptionally simple: it's cheaper to reproduce and sell software in which you didn't invest, market, or frankly do anything else except slap a disc into a replication machine. That's one part of the equation.

However, piracy as an issue is far more complex than, say, the Business Software Association (BSA) makes it out to be. Certainly companies that invest in and develop new software deserve a fair return on investment. But that must take into account local market conditions.

There is a false impression that China is now a rich country. Certain sectors of the society have done very well for themselves. They've made real money. But the average monthly salary in the nation's major cities -- the wealthiest areas -- remains around US$250 to $400 per month.

Compare that to average salaries in the U.S. If someone makes $2,000 to $2,500 per month, then a $250 operating system upgrade doesn't seem too terrible. But when that price is approximately the same in dollar terms in a lower-income country, as it is in China, then suddenly a potentially buggy, definitely pirated edition of the same software for about $5 to $10 sounds much more attractive.

If software companies want better results out of China, then pricing needs to be commensurate with local market conditions. Software developers and their policy representatives have attempted, futilely, to make piracy a moral issue. It isn't. It's an economic issue. Piracy doesn't flourish in developed countries where the cost of legitimate software doesn't outweigh its benefits. But it flourishes in developing countries, where the cost-benefit ratio is different. Authentic software will never be as an inexpensive as pirated goods. But when its value helps to close the gap between price and usability, more people will pay the appropriate price.

I completely agree.  In a previous post, "Faked in China, Protection is Possible," I discussed how economics drives counterfeiting, not culture:

The article notes that "security experts don't buy into the belief that copying is somehow inherent in Chinese culture. The simple fact is that counterfeit goods are cheaper than the genuine ones, and in developing nations like China, wages are low."  I completely agree.  Like everywhere else, those in China who can afford the real thing, prefer to buy the real thing.  As Chinese wealth increases,  and as more and more Chinese companies seek to protect their own brands, counterfeiting will decrease.  This is what happened in both Japan and Korea, both of which were at one time, notorious for counterfeiting. 

In addition to a country's per capita income and the cost of its software, a country's enforcement of intellectual property rights (IPR) can also cause a reduction in counterfeiting.  As China's legal system continues to increase its enforcement of copyright laws, the risks for those producing illegal software will increase, leading to an increase in the prices they charge and a decrease in the demand. 

China's central government does seem to have recently turned the corner in terms of actually believing it is now in China's interests to increase IPR enforcement. Chinese companies are innovating in ever larger numbers and they want to see their IPR protected.  On top of this, China has made clear its aspirations of unseating India as a software outsourcing center and it has to know that to realize this goal it must step up its intellectual property (IP) enforcement.   

BOTTOM LINE:  Producing counterfeit software in China is easy and lucrative, but as the price of doing so continues to rise due to China's increasing IPR enforcement and as the wealth of the Chinese consumer continues to grow, we can expect to see sales of counterfeit software decrease.  To the extent foreign software producers are willing to charge less for their software in China than they charge in wealthier countries, they will speed up the rate of decline in counterfeit software sales.