Recent international events may have caused a brief hiccup in international confidence, but China is still the world’s most rapidly growing digital advertising market, and one that international ad tech companies are keen to gain a footing in. In this piece, Michael Hudes, executive vice president, YuMe (pictured), discusses the ad tech opportunity presented by early consumer adoption of new technology, differences in regulations and culture, and how international ad tech companies can best navigate this high-value market.

Over USD$30bn will be spent on digital advertising in China this year, according to eMarketer – hardly surprising in a country with over 630 million internet users, each of whom own an average of three connected devices, and spend just under two and a half hours a day online via mobile devices in 2015, according to Global Web Index. The digital video market is especially strong – with Chinese consumers particularly likely to use the internet for entertainment – and almost 440 million people watch online video.

The Chinese are also early adopters of emerging consumer technology. Almost one-fifth (18%) of the population already own a smartwatch, compared to the global average of 11%; 14% own a smart wristband, compared to 11% globally; and almost half (45%) own a smart TV, compared to a global average of 34%. The Chinese are also more likely to purchase goods online, with 75% reporting buying at least one item online in the last month compared to a global average of 65%. (Global Web Index).

The attraction of China to international ad tech providers is clear, but succeeding in its digital world is notoriously tricky. So what challenges will European- and American-headquartered technology companies face in entering the Chinese ad tech market, and how can they be overcome?

A key observation for YuMe, a global audience technology company powered by data-driven insights and multi-platform expertise – having launched our video advertising operations in China this year – is the unique character of the Chinese ad tech landscape, which is largely controlled by the supply side, in contrast to western models where the demand side takes the lead. While international publishers such as Facebook and YouTube are insignificant in China, large local publishers such as Tencent, Baidu, and TaoBao dominate the ecosystem. Most have built their own proprietary ad exchanges, while others have developed one-stop services. Tencent provides a good example with its Tencent Ad Exchange and Tango DSP. The net result is these publishers control the majority of premium inventory, making it a scarce commodity. Data is also limited, as privacy concerns lead publishers to guard their first-party data carefully. Overall this means international companies looking to enter the Chinese market need to establish strong media and data partnerships before they set out. They also need to focus on industry education and publicising the benefits of transparency in pricing and performance in a relatively new ad tech market.

Understanding how Chinese viewpoints differ from those in the US or Europe is also key in successfully integrating into the Chinese market. Issues such as viewability do not currently have the same prominence in China, with a lack of demand for verification from advertisers and a feeling from publishers that this type of regulation would threaten their business model. On the other hand, Chinese regulations require publisher authorisation of any creative messaging displayed on their websites prior to placement – a significant difference from western models. While development, such as the formation of the IAB China, and the recent launch of Neilsen’s Digital Ad Ratings may go some way to standardising industry best practises and accountability across western and Chinese markets, international companies still need to be aware of differences in priorities and perspectives.

In addition to challenges that relate specifically to the ad tech market, companies must also consider and make allowance for general cultural differences. Language and communication is a major factor – with subtle misunderstandings common – and business negotiations require a high level of linguistic competency on both sides. Administration and bureaucracy is often long winded and labour intensive – so sufficient resources need to be allocated. Chinese employees are used to a hierarchical approach and require clear instruction in how to achieve their goals rather than being left to use their own initiative – a challenge for many western managers. The sheer size of the country and regional variations in development mean that a one-size-fits-all approach is rarely effective.

Chinese business culture is unique and western companies must adapt their approach accordingly – showing patience and flexibility throughout. For example, relationship building – known in China as guanxi – is an unhurried process and longstanding business relationships are cultivated through traditional social events as well as business meetings. This makes it important for American or European companies to create partnerships with local businesses that understand the Chinese culture and already have strong relationships, as well as taking the time to build relationships themselves.

While the potential challenges are far from insignificant, they shouldn’t dissuade international ad tech providers from entering China. The market is expanding rapidly, publishers are beginning to open up their inventories, and opportunities to drive the development of Chinese digital advertising abound. As long as companies take the time to understand the unique character of the Chinese ad tech landscape, and are prepared to adapt to business and cultural difference, China is still a land of unlimited possibility.