International Business – Can Piracy Be A Business Model?

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We can’t even really get an accurate picture of how big the counterfeit industry is. Estimates range from the billions of dollars to the hundreds of billions of dollars annually.

For example, the Recording Industry Association of American (RIAA) estimates that music piracy alone costs the U.S. economy $12.5 billion annually and $2 billion in lost wages to the American workers. Include countries overseas and the figures become more and more staggering.

Pirating (stealing for one’s own use) shouldn’t be confused with counterfeiting, which is basically manufacturing something for resale without paying any royalties or recognizing the true owner of the brand or patent.The trends are simple. Piracy and counterfeit manufacturing is growing, popular and unstoppable.
For years many American companies have blamed Asian factories for product knock-offs. There is some truth to this. We can look at laws that don’t punish product counterfeiters and we can look at low-cost labor and illegal (and unsafe) factories as factors. Once you start to add some cultural norms, it’s easy to see that many Asian cultures aren’t even ashamed of piracy.

The Chinese sage Confucius taught that copying great ideas and copying great masters is good practice. Piracy is a form of flattery. And following the lead of other successes is an essential part of Chinese education. In Japan, “observe, then imitate” is a common motto. And how smart could a Thai businessman be if he spent hundreds of dollars for software when his colleagues are getting it for free? Wouldn’t he look foolish when his friends found out?
It’s convenient to blame the Chinese for all copycat products, just as we blamed the Japanese 20 years ago. It’s convenient but unfair. A quick stroll in an major city in the United States or Europe will reveal street vendors hawking fake Rolex watches, Gucci bags, Hermes scarves as well as CDs and DVDs … all sold in violation of the local copyright and intellectual property laws. And those people buying and selling these products aren’t necessarily from Asia. “Why buy the cow if you’re getting the milk for free?” is an American expression, not an Asian one.
Since the market for counterfeit products isn’t going away, and since efforts to stop it have had little or no effect, then it’s a responsible option of a CEO to use this dynamic as something that can enhance business. How can a firm use piracy and copy infringement as a business tool?
Free advertising: Let’s be honest. No one who wants (and can afford) a real Rolex watch will buy and wear a fake one. If a consumer has the thousands of dollars needed to purchase what is arguably one of the world’s best timepieces, then an $8 Malaysian copy won’t satisfy the desire. What the copy watch does do though, is put the Rolex name on thousands of wrists, promote the brand, promote the idea, and create a buzz. And the best part? It’s free to Rolex.
Sell them the real thing: In the Rolex example, one can think that it’s indeed possible to convert some “copy watch” customers to real customers. The magic ingredient is time. A 22-year-old starting her career may not be able to afford the real watch yet, but may be able to replace it with an authentic Rolex when her income increases. And meanwhile, maybe her family takes a hint on what to get her for Christmas?
Sell them something else: In the case of pirated music, many artists agree pirated music helps sell out concerts. While the artist may not get royalties on the fake CDs or illegal downloads, more awareness means more fans — which means more ticket sales for live concerts.
Switch business models: YouTube, for example, broadcasts free (and royalty-free) videos. Actors and producers who enjoy YouTube fame often get other opportunities thrown at them: commercials, endorsements and, of course, advertising dollars.
Test a market: Overseas, piracy is even less regulated than in the United States. Wouldn’t allowing a product to be counterfeit and sold on the market, say in Paris, give a firm a real indication as to consumers’ interest? If millions of Parisians are buying my “copy watch,” could I sell the real thing in Paris as well?
Test a factory: When offshoring, finding the right factory is everything. And if a firm making suitcases can find the manufacturer of its copycat, can that same factory make an authentic suitcase?
While not legal in many countries, copycat production is unstoppable. Strategic thought on how to capitalize on this phenomenon is becoming essential.

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