What Digital Advertisers Need To Know About China

I have seen firsthand the mind-boggling potential for businesses in China, but also the challenges and differences that make China such a fascinating and complex marketplace to open up in.

There’s no denying that China is a massively important marketplace for global advertisers. Earlier this year, eMarketer predicted ad spend in China would reach $9.29 billion in 2016, making it second only to the U.S. ($21.55 billion) and ahead of the U.K. by over $5 billion.

Indeed, ZenithOptimedia anticipates that with a growth rate 2.4 times faster than the U.S., China will become the top contributor of new ad dollars by 2018, surpassing America for the first time by this measure.

Perhaps it’s no surprise then that Western eyes are focusing squarely on the opportunities afforded by the Asian powerhouse. As part of the team involved in setting up our Chinese-based operations, I have seen firsthand the mind-boggling potential for businesses in China, but also the challenges and differences that make China such a fascinating and complex marketplace to open up in. For any advertiser looking to expand their digital marketing efforts into the Chinese market, these are the things you need to know.

Internet Market Has Evolved In A Parallel Universe

Whether you travel to New York, London, or Paris, you will pretty much recognize the same internet that you know and love where Google dominates search, Facebook stands for social media, and Amazon is the ecommerce king.

With neither Facebook nor Google providing consumer-facing content in China, you have a totally different landscape where native Chinese companies have stepped into their shoes. The big operators—commonly known as BAT—are Baidu for search, Alibaba for ecommerce, and Tencent for social media. These companies may be predominantly China-only organizations, but their importance in China goes far beyond that of their U.S. analogues. It’s hard to go an hour in Beijing without seeing somebody messaging a business colleague via Tencent’s WeChat app or paying a cab fare using AliBaba’s AliPay.

These companies—along with other internet innovators like Sina Weibo, LeTV, and Sohu—address not only the world’s largest group of internet-connected, mobile-first consumers, but provide essential services that meet the unique requirements of the Chinese markets. Contrary to common Western perception, these companies are not copycats or inferior to the Western media brands we recognize.

These brands understand the Chinese market, its culture, and the needs of consumers incredibly well and they can operate at scale. They have therefore evolved differently to fulfill the distinct needs of the Chinese consumer and so are doing the same, but differently. So, for instance, Tencent is not just a social media channel; it is also a platform for gaming, music, and dating, too. This makes it a daunting opponent for non-native brands that will find it harder to get what Chinese consumers want.

The other factor that has been essential in these companies’ success is their understanding of how to work well within the unique regulations set by the Chinese government, which relies on them to effectively manage content and avoid taboo topics. For advertisers, this unique set of media companies means building an entirely different set of programmatic partnerships than those used extensively for the U.S. and Europe.

An Outward-Looking, Fast-Moving Market

While China is hardly the only market dominated by local media and technology companies (Japan and Germany certainly fit that bill), Chinese companies are proving significantly faster in adopting new programmatic technologies than peer companies in similarly consolidated markets.

Unlike in markets like Germany—where companies across the ecosystem express a strong preference for working exclusively with domestic players—China is surprisingly, even exceptionally, open toward partnering with Western technology and software companies. Part of this is simply a function of economics. As the big players in the industry tend to be public (or are planning to go public), they need to keep growth levels up despite the Chinese economic slowdown. As a result, many are actively looking at alternative markets for growth, such as Europe, America, and other Asian countries like Japan and Korea.

For technology companies in these other markets, this could feel like a competitive threat, but, in fact, it can help open the doors to China for them. Chinese firms are looking to work with established names already operating in the markets they are exploring. For companies looking to enter China, this makes it possible to create a two-way transfer of knowledge and a relationship that is mutually beneficial. Given the challenges for Western companies in terms of technology and consumer understanding, the Chinese appetite for openness can be invaluable.

Copyright Crisis And Fraud Factor

A lot of the recent column inches about the digital advertising sector in China have been around the new regulations that have banned foreign news and content from being published. While this clearly is an issue for publishers, it is not so much for advertisers as they can reach the Chinese consumer using organizations operating from within China that provide access to Chinese inventory through local publishers and data partners.

A bigger issue for Western advertisers, by far, is that of copyright compliance; pirated content is a huge problem in China. Local and smaller advertisers may be unconcerned about their ads being shown within pirated content, but for global advertisers from the U.K. or the U.S. where brand safety (and regulatory compliance) is of paramount concern, this has significant negative implications.

Similarly, levels of ad fraud in China are significantly worse than in Western markets, and several reports have identified that the majority of cyberattacks around the world originate from the country.

If brands want to turn the tide away from the fraudsters, they must be much more demanding and challenging in terms of who they buy inventory from and insist on other requirements that have become standard outside China, such as third-party verification. Counteracting fraud is an area where Western technology companies moving into China can help as we have had the benefit of time and experience to build robust anti-fraud capabilities into our systems so that fraud is detected before an impression is bought, rather than detected after the event—and platforms are created with transparency in mind so that fraudsters can’t hide behind an opaque media supply chain. While the wonderfully relaxed and informal nature of business in China is one of its charms (sweatpants and trainers are the order of the day, for instance), a more focused approach to some of these issues would guarantee an even bigger slice of foreign investment in the Chinese digital ad space.