As China’s domestic market continues to develop, many of the country’s internet giants are beginning to look elsewhere for future growth prospects. As growth slows and the market becomes saturated, companies including Tencent, Alibaba, and many others are eyeing not just Southeast Asia, but also Israel, the US, and the EU.

To learn more, we talked with Hagai Tal, CEO of Tel Aviv-based mobile advertising company Taptica. He has invested, led and developed companies for growth, continued investment, and IPO/disposal, including Kontera, Amadesa, Payoneer, BlueSnap (formerly Plimus), and Spark Networks (NYSE: LOV). He is a Fellow of the third class of the Middle East Leadership Initiative of The Aspen Institute and a member of the Aspen Global Leadership Network.

How active are you in China?

We have an office in Beijing with around 10 people already. We are serving clients like Cheetah Mobile, Tencent and other big guys, like Alibaba. We help them first of all to find a channel for us to form a relationship with customers outside of China. So our biggest asset value will be helping those companies to figure out what to do when it comes to companies in the West. Sometimes we get involved in the content as well.

But the majority of our help is to help them to figure out which market is the right market for them. The Chinese market is an interest for us because we see the mobile proliferation in China. We see companies in China that have a lot of potential to grow.

Hagai Tal, CEO of Taptica

Hagai Tal, CEO of Taptica

In recent years, most of them are trying to grow outside of China, either through just distributing their content or buying companies outside of China. So we’re seeing a lot of activity coming from the Chinese market. And I have to say that in the recent years, also there’s some sort of matureness in the Chinese market, where in the past it was more a jungle, you know, everyone was trying to do different things. Now it’s becoming much more organized and there are more standards.

And there’s much more interaction between China and Western countries, so also the way of doing business and communication between both sides are becoming better and better. Payment terms are better, legal stuff is becoming easier to run.

What do you think is driving this shift?

Most of the companies we are dealing with are public. So I think the public market already gave them a high valuation and they’re all trying to find ways to continue to increase the growth or the keep the growth they have. They all understand that it’s probably outside of China that will be the best way for them to do it.

They all seem to hire people who have the language, buy companies who can give them the bridge to get those countries invested in money in order to try to market their products and fit their product to different market. When we go to the contracts, we see a lot of people knocking on the door and asking questions about how to get to users outside of China.

How is the Chinese focus on revenue growth affecting the global markets?

There are different ways of different stock markets around the world. You know, there’s NASDAQ everyone is looking at. We are a public company on London stock exchange. There’s also Chinese companies going public in China. Currently, there’s sort of an arbitrage between the valuation the company gets in different markets and different markets have different ways to measure a company. In London, if you have the EBITDA, then you can get the valuation whereas in China if you have the net profit, you can get the valuation. So there’s a big focus on the net profit.

Now, at the same time, the net profit of many companies, especially those in the gaming sector, in China is very high. It’s much higher than other places. So there is an arbitrage between the different markets. It means that on the mobile client, China is very high to companies in my space, that if we get approached by companies from China, we need to adapt or we need to see the same way that the Chinese are looking into the companies. And they do look at the net profit and because of that, we need to think about how to present the company in the net profit as well.

The Chinese, because of what we mentioned before, they need to keep the growth that they have. They need to buy companies. They need, if a Western company wants to be bought by the Chinese, they need to understand how the Chinese are looking into it. They can’t just compare with the EBITDA where they do it in London Stock Exchange, they have to look at the net profit.

It’s not so bad because the Chinese are looking at cash. Really how much money you’re generating, where the rest of the players are looking at the stories around it and the future potential.

How do you think this will affect companies that are attracting Chinese-led investment?

They’re not just looking for companies to buy, they’re also looking for management or people who can manage for them.

They’re not necessarily coming into the company and saying, “We know how to do it better than you, you’ve got to do whatever we tell you.” They see it a different way, they say, “We don’t understand all this. We want you to continue running the business.”

They want the management to stick around, they build the contracts around the composition of the management if they stick around. They have no interest in getting involved in the daily running of the business.

What about innovation? Will Chinese ownership affect the innovation of these companies?

I don’t think that statement is relevant anymore to the future. I think the Chinese are becoming innovators. You know, I saw these new bike-rental companies. I think this is great. This is innovation. I think the Chinese maybe have been copying in the past few years, but I think in the recent year or two, the Chinese have become more innovative.

You know, for us, we can’t be innovative only for the people who live in Israel because the market is too small. But for the Chinese, they don’t need to go so far. They need to look at their local history they have. And then if you look at the mobile devices in China, it’s innovative already. You know, I’ve gone to the conferences, I do think there’s been design in China already happening.

The culture gap between China and the west is getting smaller and smaller and we’ll see much more innovative people. I see Chinese starting to grow mostly in the US. They come back now to China. They can be a good group of people that can lead innovation in China.

What about problems in communication? Do you see that as a possible stumbling block?

In ten years’ time, we’re all going to be on the same standard. Whoever is not operating on the same standard will be left behind. Because Chinese companies need to compete globally, and not just with other Chinese companies, they will have to change how they communicate.