Barriers To Entry Into The Chinese Mobile Market

The Chinese mobile market is recognized as the largest in the world for a good reason. But the uncomfortable truth is that despite a lot happening to open up the Chinese market to overseas companies, it remains a tough proposition for a number of reasons.

By Erick Fang, CEO of Mintegral 2018-12-21

The Chinese mobile market is recognized as the largest in the world for a good reason. The Next Web suggests that practically all China’s 750 million internet users have smartphones. The Straits Times reports that the country’s mobile app market is worth $35 billion. And Newzoo suggests that the Chinese mobile games market will be worth $23 billion in 2018.

These are mouth-watering figures that should whet the appetite of just about any ambitious international business. But the uncomfortable truth is that despite a lot happening to open up the Chinese market to overseas companies, it remains a tough proposition for a number of reasons.

 

Barriers To Entry

There are three major barriers to entry into the Chinese mobile market that businesses of all sizes struggle to overcome.

First, releasing any software into the Chinese market forces businesses to overcome significant legal hurdles to both establish themselves in the market and release products or services.

Thomson Reuters, for example, released a free-to-access legal guide for digital businesses aiming to release in China that showed they have to understand how to navigate their way past a dozen regulatory requirements to get up and running.

Meanwhile, companies looking to distribute video games in China have faced a near-total barrier to release in the past year following a shake-up of the agency responsible for censoring media. This presents a real challenge for even the biggest mobile businesses. Even Tencent, which has become one of the largest video games company in the world, has been affected by its inability to launch new games in its home market.

Secondly, any mobile companies that do overcome the legal challenges must thoroughly localize their services or products to have any chance of succeeding.

And unlike in Europe, where localizing from France to Germany would mostly be left in the hands of translators, localizing for China will include changing business models, linking apps and games with China’s leading social media platforms, and even changing the art or backstory of video game characters to adapt to the market, as evidenced in the mega-hit “Arena of Valor,” which has struggled to replicate its success in China elsewhere.

And finally, mobile companies will still have to overcome big logistical hurdles to ensure their apps or games actually get into the hands of consumers.

Although the Chinese mobile market is huge, it is also thoroughly fragmented. Over 400 app stores serve hundreds of millions of consumers, compared to just the handful used in the U.S. This makes it harder to advertise in China. In order to reach a reasonable cross-section of the population, companies need to advertise in multiple places, meaning added cost and complexity.

Furthermore, China boasts a completely unique social networking environment. While services may seem analogous to their Western counterparts, the likes of Weibo, YoU.K.u and QQ all operate in unique ways. And the biggest social network in China, WeChat, is less a chat app and more the digital extension of Chinese citizens themselves.

As a result, mobile app and game businesses moving into the territory must learn to navigate a unique social and, by extension, advertising landscape. This stacks the cards against new entrants into the market against domestic businesses. This means it is hard to enter the Chinese market without the close support of a local partner, closing off many of the territory’s benefits to the rest of the world.

 

Leaping Over The Barriers?

So the question that most businesses reading this will have is a simple one: How much can the problems outlined above be overcome?

The answer is that there is no clear answer due to so many factors. The legal situation in China, for example, is unlikely to change. App and game businesses will need legal “shepherds” to help them through legal challenges. Mobile game companies, in particular, will need to negotiate past an administration increasingly concerned about the impact of video games on young people in the country.

Similarly, localization will prove challenging to overcome. There are some technological solutions that could help deal with the problems in the market.

Dynamic in-app purchase pricing, third-party mobile payments systems and adaptive advertising services can help companies adapt their business models for the local market. But text and character localization will remain something that requires expert help.

Furthermore, it is becoming easier to deal with China’s fragmented ecosystem with the help of technology because, ironically, that fragmentation allows technical solutions to avoid many of the problems posed to marketers.

Meanwhile, there’s another advertising solution that allows businesses to leverage WeChat to generate installs by pointing users to “mini programs” contained in-app. Acting essentially as streamlined versions of main apps or games, being able to advertise mini programs allows users to try before they install, leveraging China’s unique social market for the benefit of advertisers.

Of course, this doesn’t mean that the distribution challenges end there. Businesses will still need local market experts to help them run social channels in China, localize marketing copy and leverage key local holidays (like Chinese New Year and Single’s Day) to succeed.

But with companies like MyGamez and Flexion also offering intelligent technological solutions to distribution challenges, it suggests that solutions can be found to local market challenges.

 

Come Together

We can say, then, with some confidence that companies looking to release in China will need help. And much of that support will have to come from local market experts who are able to help businesses navigate a complicated legal, logistical and cultural landscape.

While the sector can’t solve all the problems facing businesses entering the territory, it can work together to pool advice, research and create technologies that solve common challenges. And in doing so, it could begin to unlock that massive market value for the whole of the sector.

Whether it’s sharing general legal advice publicly, creating new technology to overcome distribution issues, connecting one another with local contacts or commissioning research into the market, mobile businesses heading into China can ease the way for others.