Software piracy in Asia exposed

THREE REPORTS on the burgeoning software piracy industry in East and South East Asia.

SOFTWARE PIRACY is big business. According to a report issued by the European Union in 2000, it is part of an industry estimated to be worth $200 to $300 billion a year. Of course, counterfeiting isn't limited to the computer software arena. Anything from fashion, electronic goods to industrial machinery are all copied and sold around the world, at a percentage of their market value.

The Mafia, the Triads, Hezbollah and, since 11th September, Osama bin Laden's Al-Qaeda, are all reported to have links into the extremely lucrative world of software piracy. They are organisations who have the resources necessary to distribute such massive quantities of counterfeit goods across international borders and onto the streets.

Software piracy fits nicely into their portfolio of similar covert operations such as narcotics, prostitution, alien smuggling and terrorism.

Users of pirated computer software include government offices, law enforcement agencies and legitimate business all the way down the chain to the average computer user. It has been estimated that approximately 25 per cent of computer-using Americans are currently using counterfeit software.

Whilst many parts of the world are involved in producing fake goods, South East Asia (China in particular) remains the main producer. Due to the easy availability of counterfeit goods in this part of the world, many of the traditional holiday ‘stopover' cities such as Hong Kong, Bangkok, Singapore and the increasingly popular Saigon (Ho Chi Minh), Vietnam and Phnom Penh, Cambodia are now becoming not just holiday destinations, but exotic shopping centres for tourists looking for a counterfeit bargain.

Holidaymakers are arriving at these destinations with entire shopping lists of luxury items that friends and family at home have requested…the new Windows XP operating system for Dad, a Louis Vuitton handbag for Mum and Harry Potter on DVD for the kids.

However what are the implications of this global counterfeit shopping fest? Here are some interesting facts about the software piracy industry.

The Washington based industry group, the Business Software Alliance whose members on the piracy side include Adobe, Microsoft, Apple and Symantec claim that 37 per cent of business software sold globally is fake. The cost to the economy is nearly $12Billion a year and that figure doesn't include the copying of games! $12Billion equates to 15 per cent of the total revenue generated by the industry. Piracy Rates peak in the Far East at 97 per cent in Vietnam followed closely by China at 94 per cent.

Nancy Anderson, Microsoft Associate General Counsel, estimates that for every one piece of pirated software seized, another four go undetected. In 1999 authorities seized $2billion worth of Microsoft software alone. For this reason Microsoft has taken onboard members from American law enforcement agencies such as the Drug Enforcement Agency to help combat the problem in the US. Unless the problem is eradicated, she suggests that it could lead to the loss of 100,000 jobs.

Research from Price Waterhouse Coopers (PWC) has predicted that if piracy in Europe was reduced to 27 per cent (the average at the moment is 43 per cent) an additional 200,000 jobs would be created. Microsoft estimates that in the UK alone 30,000 jobs could be created.

PWC also claim that piracy inhibits the flow of new investment funds to software developers and start up companies. They ask, who "would want to invest in a product that was going to be stolen as a matter of course, and that nearly a quarter of all the copies in use would generate no revenue".

It would appear that future creativity, investment and employment in the software industry in the west are all potentially threatened by the actions of unwitting tourists, travellers and businesses who take advantage of the massive savings gained by buying pirated software. On the other hand the massive revenues generated through counterfeiting are crucial to many economies in South East Asia.

However, some good news has recently arrived for the software manufacturers. Last year China, the largest producer of counterfeit software, was finally allowed to join the World Trade Organisation.

"From the date of her accession to the WTO, China has committed to abide fully by the rules of TRIPS (the Trade-Related Agreement on Protection of Intellectual Property)", declared the European Union trade commissioner Pascal Lamy at the organisations meeting in Qatar, which admitted China.

"Foreign companies can look forward to improved safeguards for their rights and have been promised reinforced cooperation from the Chinese authorities," he said.

That is not how it looks to the European Chamber of Commerce, which produced in November 2000 a hard-hitting report on the difficulties its companies faced in the Chinese market.

"The piracy of music CDs, VCDs, DVDs and computer software is rampant throughout China," it said. "Foreign investors will only be willing to introduce advanced technology, patents, software and brands to China if they can be confident about an enforceable protection of intellectual property rights."

The paper went on: "Such protection must include strict criminal prosecution for infringers, in particular repeat offenders…closure of manufacturing facilities and retail shops and awarding of compensation to the infringed company."

At street level there is no sign of this happening. We visited some of the biggest centres for counterfeiting in South East Asia to see just how healthy the counterfeit industry is.

China
In Beijing, business is booming. In Hongqiao market, a shopping centre opposite the entrance to the Tiantan park where millions of visitors go every year to see one of the most elegant pieces of imperial architecture, counterfeit goods are everywhere. The market has a every gift a visitor could wish for, including fake European handbags and Swiss watches, Chairman Mao cigarette lighters that play the national anthem, and mountains of clothes, shoes, scarves and ties, many of them marked as "made in Italy" or "made in France".

In the centre of the market, the Zhong Guan Cun computer shop promises "second-hand everything." On the shop counter were copies of Microsoft's latest software, Windows XP which the company officially launched in October 2001, but was available here from August in Release Candidate (RC) versions. The release version was selling for 32 Yuan (£2.50) and only 12 Yuan (£1) for earlier versions. We left the shop as it became too crowded.

As we walked further along the road we were accosted by numerous other saleswomen. One asked us, "You want software or CDs? Whatever it is, come this way." She walked us to a one storey home a few minutes away from the main road and informed us that "The police come more often these days, perhaps because of the WTO. Business is hard these days. It is illegal, you know."

The front room was a veritable Aladdin's Cave of music and film CDs, computer software and anti-virus disks, with an average price of 10 Yuan (£1), all of it pirated.

There were Hollywood blockbusters such as Harry Potter, which hadn't even opened in Hong Kong, let alone China, porn - both Western and Oriental - and music CDs from classical to jazz and rock. I was amazed to see the new Robbie Williams CD "Swing When You're Winning" which had entered the charts in the UK only the week before.

The Business Daily in China ran a story on its front page in October under the headline "How big is the fake market? As well as the more conspicuous fakes designed for label conscious locals and the tourist market, it said that one of the most worrying aspects of the counterfeit industry in China is the duplication of medical goods.

It is estimated that the percentage of counterfeit products ranges from 10-15 per cent, particularly for over the counter products sold in retail stores. It added that as the quality of counterfeit packing increases, the danger is that a larger proportion of prescription products sold in Chinese hospitals will be counterfeited.

Hong Kong
If China can be said to be the main manufacturer of counterfeit goods, then Hong Kong takes the top spot as the 'shop window' for goods aimed at the affluent local market and the international travelling set. Any visitor in need of a dose of retail therapy will find that this ex-colony offers a welcome dose of shopping medicine.

In Hong Kong we stayed with an English ex-pat who was setting up the overseas arm of a UK business publishing group. "How good the fake is, depends on how much you want to spend," he told us. "If you want to only spend a few dollars you can pick up pretty good quality fake goods, but if you are prepared to spend a few dollars more then you can't tell the difference between the fake and the real thing".

He illustrated his point by producing a Rolex watch which, unlike its cheaper fake counterparts was clearly made of decent materials and "felt" like the real thing. It had cost him over $300HK (£30). He then produced another Rolex which he had bought when he had arrived in Hong Kong for only $25HK (£2).

Although in looks it was very similar, it felt as though it was made of tin and weighed only a few grams. The same is true of the fake software here. You have the option of buying either the basic operating disc in a plastic wallet with a photocopied label or for a few dollars more you can get a 'better quality' disc, with a laser printed label and a proper CD case. Whatever they look like, they are both fakes!

The better fake watch was bought at a market closer to the Chinese mainland which is the place where local Hong Kong islanders shop. The cheaper version was purchased at the Temple Street night market, at the top of Nathan Road in Kowloon which is where the local cabs take tourists in search of a bargain.

For computer enthusiasts travelling to Hong Kong, the Wan Chai Computer Centre, 298 Hennessey Road on Hong Kong Island is the place to go. This emporium in the heart of one of the main shopping districts is an odd mix of legitimate goods being sold in cramped shops, right next door to shops offering the counterfeit version. On Friday the 26th October, what appeared to be release copies of Windows XP Professional were available for $44HK (£4) whilst next door the same box with the genuine article was on sale for $2200HK (£200)!

As well as every game that you could imagine for the various platforms available, the shops are crammed full of every branded software packages that you could want. The software cost an average of $20HK (£2) per disc.

The shopkeepers there are clearly a little nervous about any publicity about their activities. Posing as a pair of visitors, we were asked to leave the building after I took a photograph of my wife "shopping" for software in one of the booths.

In Part II, we will look closely at the counterfeit industry in other Asian countries, including Thailand and Cambodia. Part III will cover other countries including Malaysia and Singapore. µ