Investors’ priority shifting from ELL to K-12 sector
As China urbanizes and household incomes rise, a vibrant market for education services is emerging. While English language learning (ELL) services have proliferated there in recent years, investors have put more focus on K-12 companies recently. VC investment in China’s K-12 startups has kept its record pace—62% of edtech investment in China went to K-12 companies in the first quarter of 2016. Global education companies like Pearson are aware of this trend and are actively looking for opportunities. Pearson’s substantial experience in China puts it in an especially advantageous position to navigate a B2B K-12 market mostly uncharted by other global vendors.
Note: Other education segments include preschool, English language learning, professional training, STEM & general
China is the second largest revenue driver for Pearson after the US. A very distant second. In 2015 Pearson generated 63% of its sales in the US, and only 6% in Greater China. Given the size difference in the two markets—220 million K-12 students in China vs. 60 million in the US—a substantial revenue increase in China is attainable. China’s untapped B2B K-12 market is becoming increasingly important in light of a more competitive K-12 market in the US with an abundance of new players and services being offered.
New product launch, pilot program, partnerships and acquisition — Pearson’s way
Until now, Pearson has primarily focused on offering ELL services in the Greater China market. But in recent years it has been shifting its attention to the wider K-12 market. The first step was to introduce a STEM program that contains 18 themes. According to a product manager at Pearson, this program will target public K-12 schools, fee-paid supplementary schools, and international schools. The program suite includes textbooks, e-courseware, teacher training materials (online & offline), innovative e-lab-building solutions, and evaluation solutions.
To launch this new STEM suite in September 2015, Pearson formed a partnership with Zhangjiagang Primary School, one of the largest public primary schools in Jiangsu province with a student body of more than 5,000. Pearson’s model school conducted a year-long pilot program in two classes to prove the concept and showcase the materials to Chinese educators. When the experiment ended in May 2016, Pearson organized a public seminar and presented the pilot experience for more than 100 public school teachers across China. Aside from serving a marketing purpose, the pilot program will collect data for further improvement and localization of the program.
STEM has long been a focus for the Chinese government in education. However, the problem-solving skills and creativity considered important in the 21st century have taken an elevated importance in policy discussions surrounding education at the national level. Last year, the Chinese government announced a national initiative supporting “STEAM” education in attempt to revamp its Science, Technology, Engineering, Art and Mathematics teaching.
In response to this new initiative, Pearson introduced a Chinese version of its Scott Foresman Art textbook, marking its first attempt launching a text book specifically catered to K-12 schools in China. This suite of products including teacher training materials will target students aged between 4 to 12 and costs roughly USD 150. To be competitive in China, Pearson significantly lowered the price—the Chinese version is priced at roughly one eighth of the English version, or approximately USD 1250.
Pearson is also trying to deepen its partnerships with public schools to promote its “STEAM” products nationwide. While it already partners with a municipal Ministry of Education to provide ELL textbooks to public schools, it will soon form more partnerships with other MoEs to promote “STEAM” education.
In early 2016 the managing director of Greater China hinted in an interview that Pearson plans to acquire a local e-learning company catering to K-12 schools in order to accelerate growth. Acquiring a Chinese company will ideally help Pearson circumvent policy barriers concerning content distribution and allow it to reach a greater number of K-12 students.
A multifaceted strategy is the key
Pearson’s strategy to grow in China’s K-12 education market is a careful balance of several initiatives. It plans to launch new K-12 services, conduct pilot programs with local schools, form partnerships with local education agencies and acquire a local e-learning company. This all-encompassing strategy covering multiple entry points will increase the likelihood of achieving long-term growth.
A sensible partnership and investment strategy is important for any foreign company to successfully operate in opaque markets such as China’s K-12 content and services, where government support is often a decisive factor for growth. It is usually much harder for a wholly foreign-owned enterprise to get support from officials. The centralized political control of K-12 schools in China has made this market less welcoming than China’s other education segments for global companies in the past, but Pearson hopes its comprehensive strategy will find success where others have failed. Other companies looking into China’s K-12 market will find it necessary to invest in local companies and form partnerships with local education institutions. But choosing the right partners and identifying the right investment targets presents a challenge.
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