[This post is written by our guest editors, Marc Violo (mviolo@mac.com) who has been based in China since 2008 and been working on a variety digital projects with Tencent,  Edvaldo Acir (edvaldoacir@uol.com.br) who is a digital marketing management consultant and Brazil IAB’s Director of the AdNetworks Committee, and Andre Bodowski (bodowski@yahoo.com), a digital marketing professional based in New York and São Paulo.]

Brazil and China represent the economic power hubs of their respective regions, and despite different languages, cultures, political and economic systems, there are many similarities when it comes to their Internet markets. Companies considering investing in these two BRIC economies should know that profitable opportunities are plentiful, even though many large Internet firms have already established themselves and now hold important market share. A direct comparison based on strategic Internet figures should assist with the investment analysis and decisions.

The year 2011 ends with Brazil surpassing the U.K. to become the world’s 6th largest economy. The Brazilian Internet market is now 74 million strong according to Ibope/Nielsen Research Center, and as a result Brazil is attracting investments from major global firms. Recent arrivals such as Facebook, Netflix, and Amazon are fighting for market share against companies that entered the Brazilian market a few years ago: Google, Yahoo and Microsoft. And all compete with home-grown market pioneers UOL, Globo.com, IG, and Terra Networks.

Even though China’s online population is the largest in the world with over 457 million netizens (Incitez.com), foreign companies have shown their fair share of fiascoes. Global giants such as Ebay, Google, and more recently Groupon, as well as smaller ventures have all faced tremendous difficulties developing sustainable business models in China. It should be noted that in order to be successful in China’s web space, companies must go local: hire local talents throughout the hierarchy, design localized business strategies, and avoid forcefully imposing to the Chinese market the same models that have been successful in the home country or in other subsidiaries.

Ad Spending

The IAB (Interactive Advertising Bureau) in Brazil has recently presented an extensive study on the current state of online advertising spending, adding new criteria and expanding the scope of previous studies. In the past, the IAB considered only spending data from display media. Now it also includes spending in the major search engines in Brazil: Ask, Bing, Google, and Yahoo. Because search engines do not report their data to the organization, the Brazil IAB creates spending estimates which are the result of surveys with Brazilian ad agencies and advertisers. In addition, the Brazil IAB analyses investment guidelines and data from markets similar to Brazil.

The new study indicates that roughly 50% of online advertising spending in Brazil is invested in search, while display represents the other half. The study forecasts online ad spending in Brazil to reach $3.1 billion in 2011, a 10% share of the total advertising market in the country, with an expected growth rate of 25% compared to 2010.

Compared to the Brazilian internet advertising market, the Chinese search engines are known for unclear display advertising pricing policies which don’t make them the first choice of advertisers. Showing much better growth potential is mobile advertising. With 303 million mobile internet users or 66% of its connected population, advertisers are increasingly reaching out to ad networks to develop mobile digital advertising strategies. Of recent investments in this market, InMobi, one of the leading global ad networks, have started heavily investing in China and opening offices there to compete against strong local players such as MadHouse.

Digital Divide

Social inequality is also traceable in the digital world both in Brazil and China. In Brazil, among the poorest 10% only 0.6% have Internet access. Among the richest 10%, 56.3% are online. In reginal terms, Internet access in the South (25.6%) and Southeast (26.6%) contrasts clearly with the North (12%) and Northeast (11.9%) according to research conducted by Ibope/Nielsen. This gap is clearly less perceivable in China, where Tier 1 cities like Shanghai or Beijing, have over 34% of its population online, while in less developed cities (Tier 3) have a 28% internet penetration rate (Incitez.com).

When it comes to social networking, the most noticeable trend in both countries is their growing addiction to micro-blogging. According to Mercopress, Brazil still sits in the top three countries with the highest Twitter penetration (24%) and China proves to have the fastest growing micro-blogging sphere of all times. Introduced in August 2009 by Sina, one of China’s leading information portals, the Twitter like “Weibo”, is already used by 24% of Tier one citizens, which represents 250 million users according to CIC a local leading business intelligence provider. Weibo, quickly went from being perceived as a copycat product to an innovative one and is now an inspiration for Twitter, for third party, video or image integration.

There is also consensus in the industry that the economy in Brazil will continue to grow despite the Euro zone problems and the slow growth in the U.S. In addition, online ad spending is expected to skyrocket because of the 2014 FIFA World Cup of Soccer and the 2016 Summer Olympics – both of which will be hosted by Brazil. Expect new and important digital players coming Latin America’s largest economy in 2012.

China’s numbers speak for themselves, investment opportunities are plenty. Developing e-businesses for example, as according to Dong Baoqing, deputy director of the Ministry of Industry and Information Technology’s promotion department, “the sales volume of China’s e-commerce will annually grow at least 32 percent year-on-year from 2011 to 2015. We estimate a transaction volume of 18 trillion yuan ($2.8 trillion) in 2015.” However, one will have to thoroughly study and understand the market before succeding in establishing a profitable enterprise in China. As an old Chinese proverb says ru xiang sui su (入乡随俗), when in Rome, do as Romans do, and this is definitely applicable in both countries.

[Image courtesy of democraciapolitica]

TechNode Guest Editors represent the best our community has to offer: insight and perspective on how technology is affecting business and culture in China

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