As China became the second largest economy in the world, it was natural for American companies, including my own, xAd, to be interested in owning a piece of the market in China. With roughly 600M active smartphone users in China, almost 3 times that of North America, and companies such as Apple and General Motors reporting revenue growth there, it made sense for xAd, a mobile location intelligence platform to enter the market.
However, many investors cautioned us against investments in China citing reasons that often drew from unreliable media sources or other investors. At the end of the day, no one knew or understood what being in China meant. Despite resistance, I opted to move into the market in 2014 and after two years have compiled my top 10 business lessons for those interested in doing the same.
- China IS different, your global strategy will not work there — Most western companies fail in China, and this is often the reception when you launch there. From the Chinese standpoint, the odds are stacked against you and you have a high likelihood of failure. Those trying to help you will remind you often that China is DIFFERENT, and it’s best to believe them. Your global strategy playbook must be customized in China.
- Mobile devices have evolved faster in China — Smartphones are a central part of consumers’ lives in China, more so than North America or Europe. Users are frankly “smarter” with their phones — using them as a tool to enhance daily activities. In particular, mobile is a big part of commerce in China. A large number of Chinese consumers use mobile payments to make purchases in store and online, which means big opportunities for marketers.
- Internet giants Baidu, Alibaba and Tencent (BAT) dominate the market — Unlike western companies like Google and Facebook that make acquisitions in their area of expertise and buy the whole company, BAT prefers to buy portions of companies along the value chain. For instance, many of the technology services you’re familiar with in the US such as Uber, Seamless, or Groupon are either owned by or have investments from BAT. Most recently, Alibaba bought a part of Groupon in the US. This strategy has worked quite well for their businesses. However, it’s been hard for investors in the west to value these companies due to their complexities. If you’re a business that’s considering entering the Chinese market, it’s important to figure out where your energy is best spent playing in this highly competitive market.
- China ad tech start-ups are on the rise — Most of the key leaders in those start-ups are from BAT, Google, and Yahoo. These companies have the technology, capital investment, and clients to succeed. They are very aggressive on revenue scale to go IPO and operate on low margins, which makes the market competition fierce. Most of these companies also have excess capital in China. Taking money out of the country is difficult, so money typically gets reinvested in innovation. Companies that focused on the Internet early on are now working on self-driving cars, drones, etc. With the exception of companies like Google, this is less frequent in the west.
- Forget Facebook, WeChat rules in apps — In such a mobile-focused society, it’s no surprise that “hero” apps, i.e. apps with over 100M monthly users is commonplace. To make it in China, an app must cross the 250M user number. One app that’s ruling the space is WeChat. WeChat is no ordinary app either — and it also happens to be owned by the T in BAT. With messaging, mobile payment, and branded channel opportunities, consider WeChat your number one tool in marketing your product or service to prospective clients.
- State-owned mobile operator, China Mobile, is paving the way for mobile surge in China — China Mobile, China’s largest mobile phone operator has been testing pre-5G connections, which could be more than 10 times faster than the current 4G connection. The central government has also said that state-owned mobile network service providers should target to increase speeds for mobile users. The technology and determination could set China’s mobile market growth at an even faster rate as mobile internet speeds improve.
- Piracy is embedded in Chinese markets, but signs show it is beginning to be countered — In China, piracy is commonly referred to as “Shanzhai,” which is related to the imitation and piracy of name brands. According to a report from the Organization for Economic Co-operation and Development (OECD), Asia emerges as the largest source for counterfeit and piracy products with China as the single largest source in its economy.¹ However, there are signals that piracy is beginning to be countered in China. The Chinese government is taking action against pirates and following up with its commitment to a stronger regulation of copyrighting with a new Law for Protection of Rights and Interests of Consumers. I have faith that this market is going to be more mature and more respectful to copyrights and patents. Chinese companies listed in US Exchanges are better partners as they follow IP law.
- There’s an inventory war on mobile display — With ad fraud as a concern, premium mobile inventories in tier I and tier II publisher markets are the hottest battlefield. Big advertisers will leverage their negotiation to buy cheap mobile inventories in tier I and tier II markets as much as they can. Unlike the west, most hero apps (over 100M users) have their own ad exchanges and there is no large third party exchange business.
- You’ve got to wait to get paid — Serving an ad is great, but getting paid commission post campaign is another thing. In China, collection cycles are typically six months or longer, so unlike North America, many sales representatives have to wait until revenue is booked to collect a commission. Furthermore, there are several government regulations on invoicing, which must be understood early on in the process.
- Hiring top talent is difficult, even more than the Bay area — If you’re looking to move to the tech space in China, expect to pay more for talent or miss out on key hires. Compensation for top talent is similar to the west. With a limited supply of personnel in this industry, those who are in the business can demand more.