If you are like me then you assume that software piracy only affects software development companies and the software industry. You don't associate it with manufacturing, much less think about it negatively impacting the manufacturing industry as a whole. I was therefore surprised when I saw a recent study completed by Harvard Business School (HBS) and the National Association of Manufacturers (NAM) which discussed the impact that stolen software has on U.S. manufacturing. The study argues that between 2002 and 2012 a total estimated $240 billion of manufacturing revenue was lost due to software piracy. Note that it is not estimated at $240 million, but at $240 billion! Additionally, the study noted that approximately 42,220 U.S. manufacturing jobs have been lost due to software piracy.
The startling losses manufacturers have suffered in the last decade due to intellectual property (IP) theft should jumpstart action by our policymakers and law enforcement officials. It’s absolutely clear that the effects of IP theft overseas are significantly felt here at home, threatening jobs, investment and growth. The study released today paints a stark picture of what we’ve already lost due to software IP theft—and how much we stand to gain if manufacturers in the U.S. can compete on a level playing field. Until proper enforcement action is taken, our nation’s innovators will remain at a disadvantage.
So how does software piracy impact U.S. manufacturers? The main impact relates to increased costs for U.S. manufacturers compared to a manufacturer with pirated software. Many (hopefully all) U.S. manufacturing companies pay full price for the software that they purchase (and/or internally develop) to run their business. This naturally increases their cost of production. On the flip side, a company that is using pirated software has full use of and all the advantages of the software, but has not incurred any additional costs. This allows the pirated software user to sell its products at a lower rate, while still maintaining a similar margin.
Has your company ever been impacted by software piracy? Please, leave a comment below!
Justin Hayes is a manager in Katz, Sapper & Miller's Audit and Assurance Services Department, which is comprised of individuals skilled at evaluating business and control risks for clients.