Business Group Vice-Chaired by Bob Iger Views China With 'Tempered Optimism' (Survey)

Bob Iger Headshot - P 2013
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Bob Iger Headshot - P 2013

The U.S.-China Business Council sees rising costs and nagging intellectual property issues dampening enthusiasm among U.S. studios and corporations in China.

Corporate America views the current business environment in China with "tempered optimism," according to the annual survey conducted by the U.S.-China Business Council (USCBC), a nonprofit trade group vice-chaired by Walt Disney Company Chairman Bob Iger.

Slowing economic growth, rising costs, and persistent, unaddressed operating challenges in China continue to weigh on sentiment in what is now the world's second-biggest film market.

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On the positive side, more than 90 percent of survey respondents reported that their China operations are profitable, the highest percentage reported since the USCBC began surveying its membership of 219 firms.

The survey comes as Hollywood studios are sending senior execs to China on a regular basis to try and take advantage of the booming market.

Iger was named vice chair of the council earlier this year, a reflection of the growing importance of China to the entertainment industry, and Disney is involved in numerous projects in China. Other blue-chip corporations that are members of the USCBC include Apple Inc, Gap, Coca-Cola and Caterpillar, and of the 110 respondents in the survey, 60 percent were manufacturers and 40 percent were services companies.

Of major concern to U.S. corporations, and a factor with serious implications for the entertainment business, is intellectual property rights enforcement. With illegal downloads and pirate DVDs continuing to dominate the non-theatrical market, the issue remains a major source of ire for the industry. 

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Some 98 percent of respondents still say IPR enforcement is a concern for them.

A shifting IPR landscape and continued issues with enforcement have led a majority of respondents to state that IPR protection has gone "unchanged" from a year ago, the report said.

Protecting trade secrets remains the top priority for companies, with a record high number of respondents -- 40 percent -- citing trade secrets as the IP ?of greatest concern. "However, ensuring appropriate enforcement of trade secret rights is highly complex, and requires numerous protections and enforcement mechanisms that China’s legal system may still be in the process of fully developing" the report said.

Over a quarter of respondents said that the legal framework remained insufficient to fully prosecute a trade secrets case.

The report called for a tougher deterrent to piracy.

"China should continue its work in this area by improving the protection of trade secrets, restricting the use of compulsory licenses, and removing market access barriers to products, such as imported films, so that the absence of legitimate products does not incentivize the production and sale of counterfeits," it said.

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Of the respondents, 96 percent said that China is still among their top five global investment priorities, although the number that said it was their top priority declined from 22 percent a year earlier to 15 percent now.

The survey reveals how corporations feel they need to be in China, and could still make money here, despite an increasingly difficult operating environment.

Just over half of the survey respondents plan to commit more resources to China in the next year, down from 67 percent in the 2012 survey.

The number one challenge facing the industry is the rising costs, and especially the cost of labor, which has risen from last year when it was just fourth in the list of concerns.

Problems with licensing occur at the central, provincial and local levels and affect almost every aspect of doing business in China. Licensing issues often overlap with other issues in the top 10, including uneven regulatory implementation.

Also problematic is the lack of national treatment and insufficient transparency in government rule drafting and decision making.

Respondents expressed concern about the advantages given to Chinese firms -- both state-owned enterprises (SOEs) and private companies -- which are denied to most foreign companies.

Competition is also intensifying. Most multinational companies in China contend with other foreign competitors as well as both state-owned and private Chinese companies.

Also, this year’s survey mentioned emerging challenges, such as cybersecurity, that affect a wide variety of companies. Progress on this issue will require government-to-government discussions and action, the survey said.