Survey: Hong Kong's IT Sector Could Double with Decrease in Piracy Rate

Study shows a 10 percent decline in the piracy rate in Hong Kong could create fifteen hundred jobs, US$40 million in tax revenue and US$ 0.5 billion in new business opportunities

Increased copyright protection for software could provide a welcome boost to the Hong Kong economy by creating new jobs, business opportunities, and increases in tax revenue.

According to a global research study by IDC, a 10% drop of the local piracy rate from 53% to 43% could double the Hong Kong IT sector within the next 4 years, from US$2.6 billion to US$4.3 billion. The reduction would add another US$630 million to Hong Kong's economy and increase local industry revenues by more than US$0.5 billion. This would generate an additional US$40 million in tax revenue for the Hong Kong Government and create nearly 1,500 jobs in the IT industry - almost as many as there are currently employed in Hong Kong's emerging software sector.

Commissioned by the Business Software Alliance (BSA), the study, Expanding Global Economies: The Benefits of Reducing Software Piracy, assessed the information technology industry's impact in 57 countries around the world, including 14 countries in Asia.

“This report reveals not only how significant the software sector has been for Hong Kong' s economic growth, but also how it could be an engine for powering our transition to a knowledge-based economy, where innovation and ideas can flourish” said Ringo Wong, Chairman of the BSA Hong Kong.

"The protection and enforcement of intellectual property rights is an important factor in developing the local IT industry. Only a low piracy rate encourages entrepreneurs to invest in developing innovative products and services. This growth of entrepreneurial activities creates jobs and drives spending in Hong Kong, which ultimately results in higher tax revenue for the Government. In short, everyone benefits," Wong added.

Hong Kong has reduced its piracy rate by 11 points since 1996, unleashing significant economic growth. Between 1995 and 2001, Hong Kong's IT sector has increased by an average of 6.7 percent per year, generating almost US$1 billion in revenues.

Wong applauded the Hong Kong Government's efforts to step up enforcement and work proactively to further reduce Hong Kong's piracy rate. He said: “The IDC study reveals how beneficial a lower rate would be to the development of Hong Kong's IT sector and long term economic growth. A key challenge moving forward will be ensuring effective criminal enforcement against the illegal use of software in the business environment, a damaging form of software theft that accounts for well over half of the industry's total losses each year.”

Wong also announced that BSA just joined hands with the Intellectual Property Department to produce an anti-piracy television spot and MTR poster campaign. Both are currently under preparation. A re-designed local website was launched in March 2003 to provide information on BSA's activities and support tools (www.bsa.org/hongkong).

BSA hopes that these initiatives will raise additional public awareness for the importance of strong intellectual property rights protection.

Asian Countries Benefit Most from Piracy Reductions

Globally 40 percent of software programs sold in 2001 were pirated. A reduction to 30 percent would add 1.5 million jobs, increase economic growth by US$400 billion and generate US$64 billion in new taxes to help governments fund public programs like education, health care and law enforcement, the IDC study suggests.

In Asia, nearly 54 percent of software programs were pirated. Reducing the rate 10 points to 44 percent by 2006 could create 1.1 million new jobs, increase economic growth by US$170 billion, and generate another US$15 billion in tax revenues.

The Revenue

Based on estimates from the Organisation for Economic Cooperation and Development, (OECD), this revenue could provide:

More than 7 million computers for schools in Asia, or

Health care for 7.5 million people in Asia, or

College degrees for 1.6 million people in Asia or

Internet access for more than 4.6 million people in Asia for four years, or

Primary education for roughly 930,000 children in Asia

Growth of Asian IT Sector Could Double with Piracy Reduction

The report also shows that the growth of the information technology industry, driven largely by the software and related services sector, accelerates with software piracy reductions. The global IT industry grew 26 percent between 1996 and 2002. The industry is predicted to grow 34 percent between 2001 and 2006. However, for Asia alone, the growth of the IT industry between 2001 and 2006 is predicted at 54 percent. With a 10-point drop in the software piracy rate in Asia, that growth is set to record a staggering 93%, the IDC study has found.

Studies clearly show that achieving a drop is both realistic and achievable. Many countries that have worked hard to reduce piracy have seen significant economic benefits or rapid acceleration of the growth in their IT industries. Korea, for example, since achieving a 22 percent piracy rate reduction, has enjoyed enormous economic benefits, with its software sector growing 20 percent annually and doubling in size.

"For the 57 countries studied, we found that the economic impact of even a slight reduction in the amount of pirated software can be dramatic. Therefore, the benefits of lowering software piracy can be substantial to the local economy," said Robin Giang, Research Manager, IT Investment and Strategy Research of IDC Asia/Pacific. "More importantly, local industry would gain more than the multinational importers, mostly because so many of the benefits would accrue to local services and channels firms, and because local software firms, which cannot spread their risk across geographies with lower piracy rates, would have the wherewithal to reinvest in their businesses."

Governments Play a Key Role in Unleashing Potential IT Sector Growth

In addition to detailing the solid economic benefits of reducing software piracy around the globe, the IDC report lays out a framework for reducing piracy rates. Specifically, the report outlines steps and policy changes governments can take to strengthen and better enforce intellectual property protection laws. It also encourages governments to lead by example and to embrace programs to educate consumers about their responsibilities, and the harm piracy causes innovators, copyright owners, and the economy.

Local governments can stimulate greater IT sector growth and benefits in a number of ways:

1. Fight piracy by organised crime by stepping up criminal investigations and prosecution of intellectual property infringements. This will make it easier for the industry to provide referrals. Specialized training for investigators and prosecutors for high-tech crimes should be provided. Further assistance should also be provided to foreign law enforcement officials in order to get at the borderless nature of these crimes.

Reduce optical piracy by implementing strict licensing controls on the operation of optical disc mastering and replication facilities.

Combat internet piracy by adopting stricter laws, specifically tailored to address digital and online piracy. Adopt new laws that enable governments to battle digital piracy, shutdown websites that offer pirated software and prohibit the production or trafficking in tools that circumvent technological protection measures for intellectual properties.

2. Increase education and awareness of copyright laws. Encourage legal use of legitimate software and explain the legal consequences of software piracy. Governments and businesses should work together to launch comprehensive educational campaigns to reduce piracy.

Lead by example and communicate the message that governments would not tolerate piracy. Software management policies will serve as a catalyst for greater software protection in both the public and private sectors.

For more details about the study, please visit the BSA Web site: www.bsa.org/IDCstudy.