International Trade Case Study

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CASE STUDY: Microsoft and the People’s Republic of China
Software piracy has been a major challenge for software makers such as Microsoft that want to sell software in the global marketplace. Laws that protect intellectual property vary from country to country, and the laws in many countries provide little or no protection. Governments in developing countries are reluctant to increase the protections afforded by their intellectual property laws because they see no point in passing laws that protect the profits of foreign corporations by imposing higher costs on their struggling local businesses and citizens. In the late 1990s, after years of holding firm on its global pricing, Microsoft began to offer significant discounts on its software to governments, small businesses, and individuals in developing countries. It also provided discounts on Windows operating systems software that was installed in new personal computers manufactured in developing countries. Microsoft donated software licenses to schools in developing countries. Just as these efforts were beginning to show some results, however, Microsoft faced a new threat to its global market position – open-source software. Open-source operating system software, such as Linux, gives governments and businesses in developing countries a way to avoid paying any server software licensing fees to Microsoft. In 2000, the Brazilian state of Penambuco became the first government entity to pass a law that requires the use of open-source software on all computers used for state business. Shortly thereafter, the Brazilian state of Rio Grande do Sul passed a similar law that requires the use of open-source software in all of the state’s offices and in all privately operated utilities. In 2003, IBM realized the potential for open-source consulting business in the country and opened several centers for the development of Linux-based application software in Brazil....
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