Affiliate marketing in China is fraught with challenges. But understanding the landscape in which it operates is a great first step towards breaking into that market.

In recent months, there has been a growing interest in affiliate marketing opportunities in Asia, especially by bigger companies looking to expand their brand into some of Asia's larger markets, such as China.

Ideally, companies prefer to use the affiliate model to generate sales online and pay a commission to the local Asian-based affiliate. Typically though, affiliate marketing in Asia has focused less on sales from the affiliate channel than on lead generation or cost-per-lead (CPL).

CPL performance-based advertising rewards affiliates for referring qualified leads, usually in the form of end users filling out a personal information form as part of an application for a service, product or promotion.

CPL marketing in China is still very much in a nascent state. Some of the bigger companies that have run CPL campaigns in China include Accor, Super 8 Hotel, Procter & Gamble, Grand Hyatt, Learning Anytime Anywhere, TNT and Chivas. 

But what is more interesting than who is on the list is who is off the list -- the number of international firms doing any form of CPL or affiliate marketing in China is extremely small. Here are some of the main reasons why affiliate marketing is still in its infancy in China:

1. The great availability of high quality goods for a cheaper price from a local Chinese producer, which renders foreign brands less attractive. Moreover, the unfavourable currency exchange means that Chinese consumers need to pay more for less than if they buy locally.
2. Foreign producers face major regulatory obstacles to selling in China, not just from the Chinese government, but from each individual province and local authority, making certain products very difficult to bring to market.
3. Generally, pages load more slowly for foreign sites as compared to sites hosted in China, making it more challenging to sell online. Add to this the Great Cyberwall of China (where censors may redirect foreign-based traffic to a local Chinese site), and you have some real risks to cope with.
4. There is little brand awareness. Due to a lack of offline advertising of foreign brands in China, online advertisers have a lot more work to do in raising demand for these products online.

What to expect from an affiliate network infrastructure?
Companies looking to take advantage of the affiliate network should know what to expect from such an arrangement. Understanding the network's infrastructure is a good first step.

Bear in mind that network infrastructures vary from country to country. There are some good affiliate networks you can partner with, depending on the country of your choice. Linkshare, for example, has an extensive network in Japan. In China, however, there are other ad networks that offer a complete package to their clients.

Typically, in month one of working with a network, companies will have identified which type of affiliate sites there are and what ad material will drive user visits and registrations. This is followed by identifying optimisation opportunities to execute in the second month. In addition, the ad network will also summarise affiliate feedback and revise commission rules and incentives based on product sales targets.

Typically, a Chinese network that offers a full-package service like the above will also recruit affiliate websites, develop incentive and punishment rules, motivate affiliate members and guide affiliate members to improve sales skills. Companies can also expect the network to provide an affiliate marketing service, develop incentive rules according to market needs, track and measure affiliate members' performance and users' behaviour, analyse the performance of different ad creative as well as offer industry-specific marketing recommendations.

While taking advantage of the local expertise available, companies should also conduct background checks. A previous client of the intended ad network -- not a competitor -- who is willing to give a reference check on the local ad network, is your best bet. The other thing to bear in mind is to go with a network that has a track record of successful CPL campaigns.

Next week: The myths of CPL marketing in China:

• Cost saving issues
• Personal information and safety
• Quality of leads

William Hamson-Wong is director of Asian marketing of AMWSO. Read full bio.