EXECUTIVE SUMMARY

ECONOMIC IMPACT OF SOFTWARE PIRACY FOR MANUFACTURERS IN THE U.S.William Kerr, Associate Professor of Business Administration, Harvard Business School and Dr. Chad Moutray, Chief Economist, National Association of Manufacturers (NAM)

The theft of intellectual property,

information technology and trade

secrets by firms in emerging

markets is a well-documented

problem. This study proves that

such theft harms both the owners

of this property and the entire

U.S. economy. Far too many

businesses in emerging markets

steal IT as a means to compete

unfairly with manufacturers who

follow the law, costing the U.S.

economy jobs, revenue and GDP.

Reducing global software

theft is an easy and direct

way to level the playing field

between manufacturers in the

U.S. and emerging markets.

Manufacturing Jobs Manufacturers U.S. economy

-42,220 -$239.9B -$69.6B -$6.7B

Cost of software piracy U.S. 2002-2012

manufacturing jobs lost Revenue lost by manufacturing in the U.S.

GDP lost lost in federal tax revenue

We have studied the economic impact of one such

practice, software theft in emerging markets, on

manufacturing in the U.S. sector. Weak rule of law in

emerging markets enables rampant piracy and is a form

of unfair competition. Software is essential in every stage

of the modern manufacturing process. Firms engaging

in this theft get business software at no cost, while their

competitors must pay significant up-front costs and

licensing fees. Software theft therefore results in an unfair

advantage allowing firms to charge lower prices than their

rivals, or invest in additional labor, capital, or research and

development (R&D).

In 2011, the global

commercial value

of pirated software

reached $63.4

billion, a record

high and more than

double the 2003

value of $29 billion.

Software is essential in every

stage of the modern manufacturing

process. Firms engaging in software

theft take business software at no

cost, while their competitors must

pay significant up-front costs and

licensing fees.

Opportunity for economic growth(2.5 percentage point change per year over 4 years)

Jobs Manufacturers U.S. economy

New manufacturing jobs

Revenue added by manufacturing in the U.S.

Added GDP Added federal tax revenue

+27,239 +$29B +$8.7B +$807M

Total impact of a 10 percentage point reduction in global piracy over 4 years

U.S. Industry Jobs created

Manufacturing (direct effect) 27,239

Manufacturing (spillovers) 13,075

Software/IT (direct and spillover) 25,431

Total 65,745

IDC reports that manufacturers in the U.S. spent $29.8 billion on packaged software in 2010.

As American University’s Professor Andrew Popper notes, “firms steal IT in order to gain a cost advantage, merit-based success in the marketplace is at risk and the motivation to create better and more efficient goods and services is in jeopardy.”

Software theft causes a potentially dangerous gap in innovation by both lowering pirating firms’ R&D costs and reducing the benefits to U.S. manufacturers from new innovations.

Over the past decade, the threat

to manufacturers in the U.S. from

software theft in emerging markets

has increased. First, globalization

means that manufacturers in the

U.S. compete more intensely with

emerging market firms engaging

in software theft. Second, the

increased importance of IT and

software in manufacturing has

increased the size of the cost

advantage from software theft.

These factors add up to heightened

unfair competitive pressure on

manufacturers in the U.S., who

rely on software and technology to

remain innovative and competitive

within the global market.

Source: http://www.nam.org/Statistics-And-Data/Facts-About-Manufacturing/Landing.aspx

www.naji.orgwww.nam.org

This study was commissioned by: