0019-8501/01/$–see front matterPII S0019-8501(99)00105-4

Industrial Marketing Management

30, 499–509 (2001)© 2001 Elsevier Science Inc. All rights reserved.655 Avenue of the Americas, New York, NY 10010

The Nightmare of International Product

Piracy

Exploring Defensive Strategies

Laurence JacobsA. Coskun Samli

Tom Jedlik

Intentionally copying the name, shape, or look of anotherproduct to steal that product’s sales is pirating. The problems as-sociated with this activity range from the use of similar or soundalike names to the forgery of pharmaceuticals to the productionof fake auto and airplane replacement parts. Losses from these il-legal and unethical practices are estimated to be $200 billion peryear, and growing at a very fast pace. In this article, the we firstdiscuss different types of piracy and then propose different waysof fighting these illegal activities. Among these are communica-

tion, legal, government, direct contact, labeling, proactive mar-keting, and using the piracy as a part of promotional activity. Theauthors believe, above all, that proactive marketing behaviormay be the most powerful solution. Some of the other alternativesare extremely costly and are not equally effective. © 2001 Else-vier Science Inc. All rights reserved.

INTRODUCTION

Being a leader in product management has a price. Inthe current global marketing scene, this price is very highand getting higher. Brand or product pirating and the lossof intellectual property rights cost American industries anestimated $200 billion in lost sales [1, 2]. This number is

Address correspondence to A. Coskun Samli, Department of Management,University of North Florida, Jacksonville, FL 32224, USA.

The authors gratefully acknowledge the guidance and support they receivedfrom three anonymous reviewers of

IMM

and from Dr. Peter LaPlaca, the Edi-tor-in-Chief of

IMM

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estimated to increase at a rate of 30% in seven years [3].Stipp [4] contends America’s annual losses from productpirating have quadrupled over the past decade, and an es-timated five percent of all of the products sold worldwideare phony [5]. He further asserts pirating can be as lucra-tive as pushing heroin. Some authors suggest that pirat-ing is the crime of the 21st century. The returns to coun-terfitters’ investments are so high that they makeinternational piracy irresistible [4]. Literature describestwo economic theories concerning the need to protect in-tellectual property that includes product piracy also. The“Natural Rights” theory entitles investors to reap the re-wards of their creative efforts. The “Economic Incentive”theory suggests that protection of intellectual property isrequired to provide motivation for innovation [6]. How-ever, we think that prohibition in most cases might be ex-tremely difficult. One major way of coping with piracymight be proactive behavior. Thus, it is not natural rightsor economic incentive, but a practical way of fightingthis widespread phenomenon that is the issue.

Although most examples in this article are consumergoods, piracy begins at the point of production; therefore, itis a very critical marketing problem for many manufacturersof a wide variety of products. Thus, it poses a major chal-lenge to industrial marketers and consumer marketers alike.Consider, for example, the following examples of piracy.

• Mexico’s piracy rate is estimated to exceed 50% forall video, audio, and business and entertainment soft-ware [7].

• Indian pharmaceutical companies have built one of theworld’s largest medicine industries based primarily onpirating the products of other companies [8].

• It is estimated that 10% of the annual Brazilian phar-maceutical production is either stolen or falsified [9].

• Electronic Arts, one of the world’s largest entertain-ment software companies, estimated its business lossesat about $300 million. They believe that 95% of thesales in Thailand (with Electronic Arts’s name on thebox) is pirated [10].

• The International Federation of the Photographic In-dustry recently seized 45,000 CDs from a Moscowwholesaler. They were all pirated [11].

• In Istanbul’s covered bazaar, there are rows of stallspiled high with Benetton and Lacoste T-shirts as wellas Nike and Reebok sweatshirts and Levi jeans. All ofthese items are counterfeit copies [12].

• While design piracy is not new in the rug industry, re-cent advances in computer scanning technology nowmakes it possible to have instant copies [13].

• The Software Information Industry Association calcu-lated the 1998 United States loss of software alone tobe $2.7 billion. They further submit this was approxi-mately 27% of world losses. They estimate losses inthis industry may exceed $16 billion annually over thenext few years [14].

• The auto manufacturers and suppliers estimated lost$12 billion in annual revenue in 1998 because of partscounterfeiting [14].

• Fortune 500 companies spend, on average, $2 to $4 mil-lion per year to fight counterfeiting. For some compa-nies, this expenditure will top $10 million annually [14].

• Whereas world trade grew four percent between 1990and 1993, trade in counterfeits grew at a staggering150% [5].

• Of all the counterfeit goods seized by U.S. Customs,38% are from China. That amount is three times asmuch as is seized from number-two Taiwan and tentimes as much as from all of Western Europe [1].

It would appear certain product types are more vulner-able to piracy than others. These products can be classi-fied into four major categories:

1. Highly visible, high volume, low-tech products withwell-known brand names, such as toothpaste, candies,and chocolates.

2. High-priced, high-tech products, such as computergames and audio or video entertainment products.Fake auto and airplane parts are also in this category.

3. Exclusive, prestige products such as well-known ap-parel and accessories as well as perfumes and otherexpensive gift items.

4. Intensive R&D, high-tech products such as pharma-ceuticals.

In addition to these categories, many specialized in-dustrial products are being pirated. The piracy techniquesand defenses for these industrial products are signifi-cantly different and lie beyond the scope of this article.These problems will be treated in a subsequent article.

A. COSKUN SAMLI, Ph.D. Michigan State University, is a Research Professor of Marketing and International business at the University of North Florida.

LAURENCE JACOBS, Ph.D. Ohio State University, is a Professor of Marketing at the University of Hawaii at Manoa.

TOM JEDLIK, MBA University of North Florida, is a graduate

research assistant.

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What is international product piracy? What form doesinternational product piracy takes? What are the protec-tive responses that can be used by global companies, andhow can we develop a diagnostic framework to develop acounter-piracy strategy? These are the four key questionsthis article explores to assist global marketers to counter-act this very costly and ever-increasing problem of piracy.

SCOPE AND KINDS OFINTERNATIONAL PIRACY

Figure 1 identifies four different types of internationalpiracy: counterfeiting, brand piracy, near brand usage,and intellectual property copying. In this article, theseterms are considered under the general umbrella of inter-national product piracy. Counterfeit products may be of ahigh quality, and it may take practice to identify or avoidthem. These imitation goods, however, often have certain

features. Some of these characteristics include: extremelylow prices, an absence of warranties or guarantees, incor-rect spelling of the brand name, and smeared or blurredprinting of the package.

“Counterfeiting” is the unauthorized production ofgoods protected by trademarks, copyrights, or patents[15]. Piracy, by contrast, is the unauthorized use of copy-righted and/or patented goods and brands. That is, coun-terfeiters engage in manufacturing, whereas pirates stealnames, shapes, or other identifications associated with aproduct or brand.

“Brand piracy” ranges from cheap imitations to high-quality merchandise. Whereas cheap imitations usuallyare easy to identify, high-quality merchandise piracy mayrequire special testing. Increased technological capabilityin many developing countries has significantly improvedthe quality of many counterfeit products. This dramaticimprovement has caused many legitimate stores to be de-

Unbelievable examples.

FIGURE 1. International piracy: impact and prevention.

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ceived into buying counterfeit products. Major manufactur-ers maintain vigilance against these imitations. Cartier’s,for instance, has initiated more than 2,500 legal proceed-ings against the forgeries of manufactures of reasonablyhigh-quality watches around the world [4].

“Near brands” or logos are similar in appearance to theoriginal but not exactly the same. The brands “Coldgate”rather than “Colgate,” “Cola Coca” rather than “CocaCola,” “W & W” rather than “M & M,” “Rolix” ratherthan “Rolex,” and “Channel” rather than “Chanel” are allexamples of these practices.

“Intellectual property” includes patents, trademarks,and copyrights as well as protection of integrated cir-cuits, software, music, books, videos, and the like. Copy-ing such intellectual property has become a major busi-ness around the world. Countries such as Indonesia andThailand are sometimes called “one disc” countries. Afew discs are legitimately purchased and then many cop-ies are illegally made from the original [16]. It is esti-mated that 75 million compact discs per year are copiedillegally in China alone. Furthermore, it is estimated 94%of the software used in China is copied [17].

Perhaps the most serious pirating activity is related tocomplex technology products. Among the more danger-ous forged products are pharmaceuticals and machinery.Often unsuspecting retailers or wholesalers purchasecounterfeit drugs. These products may not have the qual-ity or even ingredients of the authentic products [14].Many less developed countries in Africa and Asia aremajor markets for imitation contraceptive pills, antibiot-ics, steroids, analgesics, and heart drugs. Recently Viagrahas been added to this list.

Fake auto parts and forgery of replacement airplaneparts are also in this category. Airlines, especially in theless developed world, are attracted to low prices. Oftenthese companies do not possess the testing capabilities todistinguish the fake from the authentic.

THE APPEAL OF PIRATING

What was once a small-scale cottage industry has be-come a sophisticated network of organized crime. Notonly are fashion and intellectual property being copied

but electronic goods and components, pharmaceuticals,and other high-tech products are being targeted at an in-creasing rate.

Many authors have suggested possible reasons for theworldwide spread of pirating. Kaikati and LaGarce [18]believe the global diffusion of the “popular culture” hascreated global markets. Fashionable products associatedwith this trend rely on a prestige image but require simpletechnology. These products often are associated withlarge profit margins and consumer ambivalence. Manypurchasers welcome and even seek counterfeit goodswhen the value of the product is enhanced by a famouslogo. This approval is especially an issue with the musicand clothing industry where the “knock-off” often pro-vides similar quality offered by the original. These imita-tion goods are viewed as “a better value” [19].

On the other side of the coin, imitators are attracted be-cause there is little risk for large profits. From the pirate’spoint of view, there is a low probability of being caught,low conviction rates, and light penalties if convicted [20,21]. Counterfeiting is especially attractive in emergingand transition economies, where there may be limited, orno, legal problems. These economies are less likely tocomply with the World Trade Organization [22] or Gen-eral Agreement on Tariffs and Trade (GATT) Agree-ments [23]. International crime networks see this as aneasy way to make money [21].

In many emerging or transition economies where alarge proportion of consumers have little money but holdan appreciation for prestige products or brands, buyingcounterfeit goods is sometimes considered just a part ofnormal life. In South Korea, for example, consumers re-fer to some products as real, real phony, or just phony.Hence, there are three categories of product gradationthat will create the prestige effect.

This problem is further exacerbated in many countriesthat are more concerned with local welfare than compli-ance with international agreements. Shultz and Saporito[15] suggest less developed countries like China, Viet-nam, and Russia are more concerned with meeting imme-diate needs, such as hunger, employment, safety, andtransportation. The enforcement of intellectual propertyrights (IPR) is perceived as “technological protection-

Pirating is rather appealing.

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ism” aimed at increasing the divergence of the developedand developing world. Nill and Shultz [24] add that inmany countries there may be a “Robin Hood mentality”and that consumers feel little sympathy for gigantic mul-tinational corporations that complain about lost profits.

Others suggest copyrights and patent protection areviewed as “Western” whereas sharing is more “Asian.”New ideas and technology are considered public goods,and according to some, cultural esteem rather than mate-rial gain is the incentive for creativity. Deng et al. [6] ar-gue protection of IPRs will artificially create higherprices. They further argue the legal restraints imposedupon piracy are not consistent with the redistribution ofbenefits sought in many countries. In other words, bene-fits and constraints are not practically correlated. Theyfurther observe many Asian countries have been industri-alized for a short time. Therefore, these nations do nothave the legal infrastructure to support IPR. Often, evenif the laws are established, the enforcement is sluggish,irregular, or nonexistent.

PROTECTIVE RESPONSES

In Figure 1, seven separate protective responses areidentified. These can eliminate, offset, or at least reducethe negative effects of international piracy. These sevenprotective responses are communication, legal, govern-ment, direct contact, labeling, strong proactive market-ing, and piracy as promotion. These protective responsesare an approximate synthesis of the five studies summa-rized in Table 1. Before a discussion of these seven re-sponses is presented, the five studies cited in Table 1 arereviewed briefly. These present a pattern of emerging de-fensive mechanisms used to counteract international in-dustrial brand pirating.

Harvey and Ronkainen [25] emphasize communica-tion as a defense. They suggest warning consumers of thedanger of being fooled by imitation is a major preventivemove. There is a danger, however, that customers maybecome afraid of all products including the real ones.They also advise that in some cases a withdrawal strategy

is called for. This, they note, may be difficult or expen-sive. Finally, they suggest a harmed company can pursueprosecution. This is often difficult because local lawsmay be either inadequate or difficult to enforce.

The Harvey study [26] emphasizes a more aggressiveaction and follow-up through legal means. He also advo-cates a strategy of anticounterfeiting messages aimed to-ward encouraging customers to seek real products.

Bush, Bloch, and Dawson [27] also emphasize legalremedies. They propose the need for stronger anti-counterfeiting laws, stricter enforcement of existing laws,and financial incentives for channel members to rejectphony goods. They also advocate the need to inform thepublic and trade of the risks of purchasing counterfeitproducts.

Olsen and Granzin [28] propose a somewhat differentapproach. They advocate a proactive marketing strategy.This strategy is explored in some depth below.

Finally, Chaudhry and Walsh [29] propose using high-tech security labeling as a primary means of brand pro-tection. They advocate using methods like holograms andhidden words on product labels.

CURRENT STATUS OF PROTECTIVE MEASURES

As mentioned above, there are seven protective mea-sures identified in Figure 1. These are partially basedupon the strategies listed in Table 1.

Communication

Announcing that a product has been pirated may be afirst line of defense. Promotion of the real product ashaving greater value and as being imitated can supportthe idea that it truly has great quality. This quality mayencourage customers to seek legitimate products or seekprotection against false goods. This seems to be a signifi-cant strategy when health, safety, and durability are fac-tors. In Brazil, for example, the public became incensedby stories of phony contraceptive and anticancer drugsand forced strong legislation [9].

How would companies protect themselves?

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Legal

The North American Free Trade Agreement (NAFTA)addresses the protection of intellectual property. It re-quires an agreement between trading partners to enforceintellectual property rights. Another organization thatfirms could rely on in an effort to prevent piracy is the In-ternational Anti-Counterfeiting Coalition (IACC). This

organization can launch an advertising campaign to dis-courage consumers from buying fake merchandise [29].

Under the special 301 provisions of the Trade Act of1974, a nation can restrain the imports from countrieswhere piracy is judged “out of control.” The GATT alsoprovides similar restrictions [23]. Through these laws,the home country can initiate unilateral sanctions. It has

Using piracy to your advantage.

TABLE 1Anticounterfeiting Marketing Strategies

Study Type of Anticounterfeiting strategy Key Disadvantages

Harvey and Ronkainen [25] Warning strategy Message might not reach consumersWithdrawal strategy May scare off consumersProsecution strategy Could be very costly to discontinue productHands-off strategy Cost of litigation often exceeds the benefit because

laws are not present or are not enforcedCould result in lost sales and market shareMessage might not reach consumers

Harvey [26] Awareness May scare off some consumersActionAssertion

Anticounterfeiting messages may encourage some consumers to switch

Possible high costs and doubtful resultsMay be more effective in the future but not strong

enough in present time

Bush, Bloch, and Dawson [27] Participate in IACCPursue litigation

Cost of litigation often exceeds the benefit because lawsare not present and are not enforced

Lobby for stronger anticounterfeiting laws

May be effective in the future but not nowCostly and not very effective

Encourage enforcement of laws Easily duplicated and may not make much differenceto customers

Costly and difficult to enforce

Olsen and Granzin [28] Add unique identifiers to the profor identification

Message might not reach cutomersMay scare off some consumers

Provide financial incentives for channel Could damage relationships with channel membersMembers to reject counterfeiter Increases costs and is difficult to enforceInform public and trade about risk Increased up-front costMonitor and investigate channel members to Increased marketing complexityProactive marketing strategy

Chaudhry and Walsh [29] Labeling: (holograms, “hidden word”, DNA security mark)

Could be simply manufactured by piratesModern technology enables pirates to reproduce originalToo complex and difficult to implement at the present time

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been suggested that if a company thinks its products aresusceptible to infringement of trademarks, trade names,or copyrights, as a first step, it may register them with theU.S. Customs Service [30].

Government

If the piracy problem is traced to another country, thevictimized company can attempt to gain support from thegovernment where the problem exists. Unfortunately,only a few large and powerful businesses have displayedthe necessary power to elicit such support [30]. Addition-ally, the home nation can exert other diplomatic pres-sures. Sometime a public relations campaign can be usedto place pressure on offending countries. For example,the U.S. Trade Representation (USTR) publishes a list ofthe worst pirating offenders. China and Taiwan top thelist of worst offenders [1].

As an extreme measure, a country can work to havethe offending nation denied most-favored nation (MFN)status. Because this is a severe penalty, some countries,such as the United States, have been reluctant to pursuethis course of action even with flagrant offenders likeChina. Likewise, some nations, such as the People’s Re-public of China, did not ratify the multilateral agreementof Trade Related Intellectual Property Rights (TRIPS) ofthe World Trade Organization (WTO) [24]. There are atleast three fundamental problems with trying to solve pi-rating problems through agencies like the WTO [15]:

1. Because of cultural, economic, and political forces,some countries, at least in the short run, may choosenot to join the WTO.

2. WTO agreements contain loopholes that would enablegovernments to ignore international product piracy is-sues because of domestic policy concerns.

3. There is not enough power to enforce internationalagreements.

In many cases, companies identify agencies and detec-tives who specialize in finding and prosecuting counter-feiters of brands and products [4, 21, 22, 24, 27, 31, 32].Finding and apprehending violators is not enough. Liti-gation, actually is both expensive and time consuming. It

has been reported Microsoft employs more than 50 law-yers just to battle pirates [22]. Only large and powerfulfirms can take the litigation route.

Direct Contact

Many companies facing piracy problems act quicklyand initiate proceedings without bureaucratic formality.Typically their first priority is attempting to remove thecounterfeit goods from shops [33]. However, after thefirst wave of exploration, it is common for companies todecide to ignore the problem. The cost of litigation, en-forcement, and negative publicity may it unattractive topursue the issue [15]. In fact, the litigant may find thegovernment of the pirate’s country is not sympathetic be-cause high government officers may be on the payroll ofthe pirates [22]. In a few cases, the injured company triedto acquire the pirates. In one situation a German, manu-facturer sued the Turkish company for pirating its washerand dryers. The German company won the case but de-cided to merge with the Turkish company because theimitations were of high quality and were much cheaperthan the company could produce in its existing facilities.

Labeling

A number of techniques have been designed to deterthe counterfeiting activity by labeling the original prod-uct. By using holograms, for example, companies try toprotect credit cards, CDs, and the like [14, 29]. Anothertechnique is “hidden word.” Some companies are pro-tecting checks and credit cards by using a message suchas “void” or placing a microscopic word such as “visa”on the document or credit card [29]. Because pirates haveaccess to modern technology, however, they also cancopy these holograms and hidden words for their coun-terfeit products. The use of this technology does not pre-vent piracy, but it does make the process more expensivefor the forgers.

Another modern labeling technique is called a “DNAsecurity marker.” This is used for textiles, passports,CDs, pens, software, and packaging. By using the DNAmarker, the original manufacturer encodes product man-ufacturing information as a part of the product. Although

Best defense is offense.

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this technique appears to be quite advanced, at thepresent time it is too costly and complex for most compa-nies to implement.

Strong Proactive Marketing

When faced with counterfeit merchandise competition,some companies have selectively cut their prices to com-pete directly with the pirates. Other companies have ag-gressively promoted the advantage of buying the “real”product. Other companies work with import/export firmsor other distributors to track down fraudulent products.Olsen and Granzin [28] suggest that retailers and whole-salers are in a very important position to police counter-feiting. They can do this in many different ways. First,these dealers can learn the source of fake products andprovide information to fight counterfeiters. They cangive advice to manufacturers on counter-piracy mea-sures. Second, they are often in a good position to screenproducts and separate fakes from legitimate merchandise.Third, they can advise consumers or final users about thedangers of counterfeit products.

Finally, some organizations aggressively keep chang-ing their product or package to discourage piracy orcounterfeiting [27]. Many products, including personalcomputers and software as well as athletic shoes and ten-nis rackets, have new models annually. Thus, by the timetheir products are pirated they may be able to introducenew models.

As noted above, some companies try to hinder packageclones by using special holograms, stickers, and seals.Athletic footwear companies like Nike and Asics fre-quently introduce new models and discontinue the old.Such activities, however, only slow imitators tempo-rarily.

Pirates are also very skilled at defeating protectivecodes, such as Temporus, a software program specifi-cally designed to repel thieves. A frustrating part of theattempt to prevent package cloning is that once the illegalcopies are stamped out in one area, the counterfeitersmove to a another location where the laws are lax or thegovernment is more friendly [22].

Piracy as Promotion

Surprisingly there actually may be benefits from pi-racy to the “victimized” firms. For example, some com-puter software firms may experience higher profits as adirect result of their software being pirated. Conner and

Rumelt [34] claim the users of pirated software mostlikely would have purchased the software anyway.Through this usage, they create an enlarged user base forthis software. This larger user base then may serve to in-crease legitimate demand for the software, as it becomesthe industry standard.

Conner and Rumelt [34] note this is particularly im-portant in emerging segments of the industry. They givethe following example: suppose early in its development,there were many copies of Microsoft Word available, butnone of WordPerfect. A legitimate buyer would prefer topurchase the Word product because he would more likelyfind complementary products, people knowledgeableabout the product, and users to share data. In this manner,piracy works as a method of “gift giving” promotion withmany of the costs for the gift being borne by the recipient.

Once Word becomes the industry standard, Microsoftmay introduce features that can be added only to legiti-mate copies. These add-on features might be availablethrough a Web site and would require a valid registrationnumber for access. Product support also would require avalid registration number. Finally Microsoft might builda compatibility function for future support products thatwill work only with legal copies. This might encouragethe buyers of pirated products to purchase legitimate cop-ies to gain access to additional technology.

One additional strategy that combines proactive market-ing and promotion is to purchase the pirates. Some phar-maceutical companies have bought out the manufacturersof high-quality imitation products. In other areas compa-nies may enter international markets with aggressive mar-ket entry promotions of the new product or brand. Oncethey become established, the imitators will appear. Thecompany strategy is to buy out the competitors and estab-lish their own second tier line of real phonies and thenmarket them as competitors to the real product. Thesecompanies then compete directly with themselves and theadditional profits accrue to the company. This strategy willbe successful so long as the buyers do not discover the trueownership of the fake products.

MANAGERIAL IMPLICATIONS

The challenge for the injured companies lies in devel-oping counteracting measures to piracy. Larger firmshave more at stake and have more power to fight piracy.All firms experiencing this nightmare must develop astrategy to counteract piracy. Figure 2 illustrates a struc-ture leading to a prevention strategy.

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It must be emphasized that Figure 2 does not applyonly to large multinational firms. Medium- and small-sized firms also can use some version of this counter-piracy strategy. As can be seen, perhaps the most criticalfactor in developing such a strategy is establishing a cost/benefit ratio. If the firm can successfully assess the possi-ble cost of the ongoing piracy, and the possible benefit ofthe counter-piracy strategy, then it becomes clear whatkind of strategic path the firm needs to follow. If the firmis to pursue a counter-piracy strategy, then its swift ac-tion is necessary to attain desirable results.

Although Figure 2 appears to be a normal and logicalprocess, its application is likely to be complex. The pro-posed structure is aimed at helping companies facingthese problems for the first time or for businesses thathave not formalized a response model. This six-step pro-cess can be of significant support for the company’s in-ternational competitiveness.

Step 1. Develop a System to Determine if There Is Piracy Against the Firm

Because piracy problems may occur far from corporateheadquarters, there needs to be a system that recognizespiracy as soon as it appears. Often distributors and com-pany salespeople provide this input. Contract surveil-lance services also provide this data. Larger companies

and consortia of smaller firms may establish surveillancenetworks to report violations.

Step 2. Determine the Extent ofPossible Damage

Whereas it may be difficult to assess in the early stagesof piracy, the firm must estimate the potential damagethat might occur. It is often true that what appears to be asmall problem can mature into a huge concern. Compa-nies should not minimize the potential losses. There issometimes a tendency to feel problems will disappear.With piracy, this is usually not the case. On the otherhand, sometimes the piracy will affect only a small por-tion of a firm’s business. If total losses are seen as insig-nificant, this will lead to a different strategy.

Step 3. Decide on Action

Should a company ignore the piracy or take preventiveaction? What are the options? A list of possible actionshas been outlined above. Whereas each situation isunique, the general approach will be similar. The interna-tional marketing manager should review the seven pre-vention alternatives listed in Figure 1 and modify eachfor the specific situation faced. In some cases, unfriendly

FIGURE 2. Steps in developing a counter-piracy strategy.

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governments may make legal action impossible. In othersituations, distributors may be very cooperative and sup-portive. Whatever the specific situation, the alternativesmust be evaluated.

Step 4. Do a Cost/Benefit Analysis

Once the potential losses and the alternatives havebeen evaluated, the next step is to perform a cost/benefitanalysis for each potential action. It may be that eithermany alternatives are too expensive or the loss is toosmall to warrant the action. Sometimes it is helpful toperform a worst case/best case/most likely case analysis.The marketer could estimate the greatest potential loss,the least possible potential loss, and the most likely po-tential loss. Then for each viable alternative, the marketerwould estimate the highest possible cost, the lowest pos-sible cost, and the most likely possible cost.

Step 5. Decide on the Action

From the above analysis, the marketing manager canselect an optimum strategy. In some cases, there will be aclearly superior alternative. In most cases, however, acombination of actions will be needed. Obviously thegreater the potential losses, the greater the expenditure.

Step 6. Implement and Proceed

As noted above, most companies will initiate a combi-nation of actions based on the severity of the potentialproblem. These actions should be evaluated in terms ofthe timing of establishment, the ease of implementation,and the most effective interactions among the actions.Some alternatives take longer to establish than others. Itmay be that fast action will be sufficient to solve theproblem. Companies also must be aware of potential in-teractions among the alternatives. For example, taking le-gal action may make government support difficult. Thisis especially a problem if the individuals involved in thelegal actions have influence with government officials.

Evaluation and Feedback

The battle against piracy is not static. The successfulactions of today may be ineffective tomorrow. Successdepends upon flexibility, insight, and understanding. In-formation is the key to success. The international market-ing manager must constantly evaluate the options in thelight of changing conditions.

CONCLUSIONS AND FUTURE RESEARCH

From the discussion presented thus far, it is doubtfulthat the reactive strategies to protect against piracyshown in Figure 1 are powerful enough to stop most pi-racy. Communication with potential customers often isnot carefully examined. Many buyers will purchase thecheap imitations no matter what the advantages of thereal item. The laws against piracy are not strong and can-not be enforced in many parts of the world. A number ofgovernment officials, who benefit directly from pirating,are not anxious to stop such activities. Direct contact re-quires a major financial and time commitment from theinternational company’s legal force and thus may not bea viable alternative.

The next two protective responses (Figure 1) are moreproactive. It is suggested that companies using thesestrong proactive marketing strategies may be able toovercome the adverse effects of international piracy.Such strategies would include making the product labeland packaging difficult to copy. Holograms and otherhigh-tech devices can be helpful. Continuing product,package, and marketing improvements can be quite use-ful in keeping ahead of prospective pirates. However,these activities require additional R&D capabilities andmust be analyzed on a cost-benefit basis.

Some companies may fight international piracy by di-verting the pirates’ attention and by using piracy as abeneficial promotion strategy. Finally, some companiesmight consider acquiring the imitators. If the piratingcompany is producing a high-quality product, such a pro-active approach can be very effective and, in the longrun, may prove less costly.

Future research must focus on the parameters of strongproactive marketing. In other words, what are the varia-tions of the suggested strategies? What are their implica-tions? What are the conditions under which a strategy beused? What are its limitations? What is its time frame andwhat are its success or failure indicators? What are itscosts versus benefits?

Much can be learned from practices that are used to di-vert pirates attention. Can these be expanded into differ-ent industries? How can they be further connected to us-ing piracy as a beneficial promotion strategy? TheInternet and Web commerce already have had a small im-pact of making pirated goods available to more people.This is expected to increase dramatically over the nextseveral years. This will cause additional problems for in-ternational marketers [1]. Additional research is needed

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in this area as well. The answers to these questions arelikely to vary from market to market and even product toproduct.

In short, much research is needed to help the marketerdetermine the best strategy to cope with the ever-increas-ing threat of piracy. The failure in doing so will prove tobe very costly to many companies in North America andWestern and Northern Europe. This article is aimed atproviding guidance. The firm must be able to implementthis structure with relevant specific data.

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