Piracy is a common phenomenon (better said, crime) in developing countries. First of all, because of low enforcement of intellectual property laws and scarce punishment for those who sell and buy copied products. Second, it is a good business, especially in countries with “informal” markets and micro-enterprises. You don’t require major investments to copy products (forget about R&D and marketing and which are already done for you) and some products don’t need knowledge, ability or expensive tools to copy (like music or movies). Developing countries have a big demand on piracy caused by low income customers with needs and desires of brand status who are not going to get in trouble if they buy it.

How does piracy affect innovation? For starters, companies that invest in innovation become less profitable, and have less incentive to keep innovating, which would be negative for everyone. Also, if the product is being sold as an original, quality and other attributes that are not well copied affect the brand’s value. Companies that innovate also have to invest in law enforcement and in developing products with anti-piracy security which are elements that do not bring direct value to the customer. Expenses increase, so does the price.

But can there be positive effects?

Piracy IS in fact competition. Competition as we know encourages innovation. If a company does have a play-to-win strategy, then they will keep investing even in order to outrun piracy.

Piracy also makes customers question themselves about the price-value (or benefit) relationship of a product. If the original product is “just not worth the price” people could prefer buying piracy to keep the brand’s status attributes, such as Lui Vuitton bag. In that sense, companies with the original product have to make sure it is worth the price and to create differential value elements that are hard to copy. This also concerns quality. As piracy becomes more accurate in quality then people do not distinguish the difference, therefore companies that own the original products should worry more about quality. For example, after Napster and iTunes I think music artists are more worried in creating several good tracks since sales are no longer driven by two-hit CDs, but by individualy downloadable songs.

Piracy creates brand presence and can enhance wanting an original product (even if it is not the target market). Maybe you see someone in the streets with fake Armani jeans but that makes you want to buy a pair of original ones for yourself. The effect of wanting the original brand can also be kept by those who buy piracy in one point of their lives. When we were in high school, a friend of mine drove a small Ford Fiesta but modified the seatbelts with doubtful-Ferrari racing team protectors. We called the car the “Fiestarri”. I’m sure he, and those of us who he always drove around, keep Ferrari as an aspiration brand that if we reach economical acquisition capacity now that we are professionals, we would buy the products.

Piracy can be an indicator of your success and therefore brand value. The other day I saw a South Parks episode where Mr. Garrison felt “unwanted” by his father since his dad never abused of him as a child, as all “caring” parents do today (of course being this a satire of a severe and shameful social problem). What I want to say is that if I was Nike and my newest sneakers haven’t been copied in a relatively short period of time, I would definitely think something was wrong. As the Trash Indicator I proposed in an earlier post, there could also be a Piracy indicator (metric). A well known brand has greater value.

Although these “positive” side effects can occur, as a firm promoter of innovation, I value originality and intellectual property. As an innovation consultant in developing countries one of my main objectives is to make company owners or entrepreneurs to understand: IF YOU HAVE THE TOOLS, KNOWLEDGE AND ABILITY TO CREATE A COPY, OR TO FOLLOW INSTRUCTIONS AS IT HAPPENS IN MANUFACTURING, WHY NOT CREATE SOMETHING OF YOUR OWN??

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