Its sheer market size presents tremendous growth opportunities for the ad tech community, but China is fraught with bureaucracy and complex business operations that require local knowledge to manoeuvre successfully.

Several foreign ad tech companies have attempted to launch in the Asian economic powerhouse only to fall back after realising they underestimated the intricacy of the local market, observes Rohit Kumar, Asia-Pacific managing director of Sociomantic Labs. Competition also is incredibly tough, he says, stressing the need to acquire local knowledge and build a local team.

In this Q&A with ExchangeWire, Kumar discusses Sociomantic's strategy in China and Asia-Pacific, and urges advertisers in the region to have more realistic expectations.

ExchangeWire: Sociomantic opened its first China office in Shanghai in July. Where are you seeing growth opportunities for programmatic there?

Rohit Kumar: China's programmatic market stands at USD$1.6bn in 2015 and is expected to grow to USD$4.5bn in 2017. It's a huge market. As a global brand in this space, Sociomantic is well positioned to benefit from the scale and advertisers' growing appetite for reliable and performance-based programmatic display technology.

The Chinese government also has been pushing the 'go-out' strategy to encourage local enterprises to venture into global markets. To execute overseas marketing strategies, local companies are keen to work with ad tech companies that are able to offer best-in-class tech, global reach, and local service. Sociomantic China has seen early success in this area.

What is proving to be a challenge and how are you breaking down the barriers?

Display advertising in China is fiercely competitive. There are close to 100 local DSPs and the industry is clearly at a stage of consolidation. Culture and language are the common barriers for foreign companies.

We have a team on the ground in China comprising 30 local employees – and still growing – from leadership all the way down to operational levels. We also operate in two cities, Shanghai and Beijing.

Rohit Kumar

Also, in a highly competitive market like China, price wars are common. Many local DSPs are funded by venture capital and prioritise volume over margin. This means some DSPs are willing to run loss-making campaigns just to keep big name advertisers. We don't play that game. Sociomantic differentiates itself through its technology, local data partnerships, and service.

Lastly, the great China firewall has proved to be a challenge for many IT companies that operate servers not located in China. In order to compete in RTB auctions, it is necessary to have servers in the country to address latency requirements and certain technical specifications.

Part of our commitment to this market is investment in a complete technical infrastructure in the Chinese mainland.

Does Sociomantic own this infrastructure in China?

We would rather not comment on the specifics as it concerns our competitive advantage.

Local partnerships are important in China where there are restrictions around foreign operations. How is Sociomantic set up in Shanghai and who is your local partner?

Contrary to what many people may believe, there aren't many restrictions on pure-play programmatic tech companies so far. The likes of Google, Facebook, and Twitter don't count in this case because they also operate in the sensitive information sharing space.

Having said that, Sociomantic's parent company, Dunnhumby, has been operating in China for many years and has built strong relationships with big global brands and stated-owned enterprises in China. This has been a huge asset for us as we leverage the experience and network of Dunnhumby in the Chinese market.

So, you're operating under Dunnhumby in China? Does Dunnhumby have a local partner in the country?

Sociomantic was acquired by Dunnhumby in April 2014 and has been a wholly-owned subsidiary of Dunnhumby since. At the same time, Sociomantic's Shanghai office is registered as a local entity.

What's your growth strategy for the country, and where are the funds for this coming from?

China is a focus market for us and we are committed to it. Our strategy is clear: hire top local talent and give them the flexibility to tackle this unique market. At this initial phase, we are focused on local advertisers that have ambitions of running marketing campaigns outside China. We will also work directly with mid- to large-sized local advertisers running performance-based programmatic campaigns in the country. We are currently in the process of building a team to work with international and local agencies to reach more advertisers in their networks.

How has the Dunnhumby merger impacted Sociomantic's overall roadmap and growth strategy for Asia?

We opened seven offices in Asia-Pacific over the past two years. We have always looked at growth with an opportunity-led approach and work hard to realise the full potential of each opportunity via a localisation strategy. This is further supported by Dunnhumby, as it provides local support in markets where we do not yet have an office, such as Malaysia and Thailand.

Our Singapore office is the region's headquarters and functions as a hub for operations in Southeast Asia. China is our focus at the moment and our local team is working hard to nurture this huge market.

What are marketers in the region asking for, in terms of ad tech capabilities and tools, that is still a challenge to provide?

There are some advertisers in certain Asia-Pacific markets that set impossible targets for success, influenced by misguided expectations they have of ad tech. For example, they tend to forget that performance of campaigns vary according to many factors, such as available amount of data and duration of campaigns.

Ad tech is constantly innovating and evolving according to advertisers' needs, such as in the mobile space, but advertisers should also be fair to ad tech partners by setting realistic expectations. Again, this is a matter of ongoing education in the industry.

Some marketers have noted the complexity of programmatic and managing cross-platform marketing. How should the industry address this?

The industry as a whole has a collective responsibility towards educating the markets on the capabilities and limitations of programmatic, as well as best practices in managing cross-platform marketing.

Programmatic is driven by data, so it shares the same limitations as the data that advertisers have – which is to say, every campaign is unique because the data that powers it is unique. It is difficult to compare the results of two campaigns that use data of varying scales. Programmatic also involves machine-learning, and this takes time to develop as the algorithm finds a pattern from the vast amount of data points before media-buying is optimised.

Sociomantic cares deeply about creating value for our clients and invests significant amount of time in breaking down programmatic advertising for them. However, we have met advertisers that use the complexity of programmatic as a reason to avoid tapping it as part of their marketing strategies.

Our response to that is this: The ad tech ecosystem, especially here in Asia-Pacific, is a vibrant one with different vendors serving various marketing objectives, for example, branding versus retargeting. Advertisers should not shortchange themselves by avoiding programmatic altogether. Instead, they have the liberty to choose the duration of test window and marketing aspect with which they're willing to experiment with programmatic and give it a chance.

And what do you see as best practices for managing cross-platform marketing in Asia-Pacific?

Use device-agnostic ad formats, such as HTML5 banners, and move away from the last-click attribution model to better represent the customer journey across multiple platforms and devices.

Working with end-to-end solution partners that can help advertisers across the full funnel and across multiple devices also will make advertisers' lives easier.

What are some misconceptions the ad tech industry has about the Asia-Pacific market that you would like to address?

This may sound like a given, but Asia is not a single country! It is astonishing how often industry players forget that and, as a result, under-appreciate the diversity within the region. For example, two markets may share similar conditions in technical infrastructures, but the culture in client servicing may be worlds apart. The supply ecosystem is also far from established in markets outside of Singapore.

China, for one, appears attractive to many investors and businesses including ad tech players, due to the sheer size of the market. Yet, again, it is under-appreciated just how much bureaucracy and how complicated technical operations there can be.

What are some of these bureaucracy-related issues that have proven to be barriers to the Chinese ad tech market?

There are not barriers per se, but some companies may underestimate some corporate necessities when setting up shop in China. For example, multiple licenses need to be obtained before any sale of services is possible. It is more challenging for businesses to set up in China compared to other markets such as Singapore, where businesses can be set up in just one day.

Competition also is especially tough when dealing with local advertisers and solution providers. This is why many Western ad tech companies launch in China only to back down after just months to reevaluate their strategies in the face of such complexities.

With regards to your point about "complicated technical operations" in the country, are you referring to the firewall? Or are there other challenges in this aspect, such as the IT infrastructure in China? And why is it tough dealing with local advertisers and solution providers?

The local marketplace is crowded with local DSPs and there is a tendency for local advertisers to equate programmatic simply with performance, leading to unrealistic expectations that need to be managed.

China also is known for its unique culture and programmatic landscape, so there is little guarantee for any company that copy-and-paste strategies from other markets and expect to succeed.

Sociomantic always opts to localise our offerings and, in the case of China, we saw an opportunity that is definitely worth investing the time and effort to set up local operations.