Category Archives : Education

On-Request partnership seen as critical to informing international strategy

Our client, a leading provider of education software, is a large and established company  tasked with keeping and preserving market share, mitigating threats from emerging competition and discovering new sources of organic growth. With fast-paced innovation in their industry and the ubiquitous nature of information available to understand market trends, our clients find it difficult to get a clear understanding of the competitive landscape in the market segments they want to compete in. Under our On-Request market intelligence partnership, we are uniquely positioned to provide customized market intelligence in an ongoing fashion to support decision making in their Strategy team and the business units they support.

Client Situation:

We work with the Vice President of Strategy at a leading vendor of Learning Management Systems (LMS) who required a greater understanding of an important market segment: the corporate learning and learning management space. While the company had found tremendous success acquiring and retaining its customers in higher education and K-12 segments, it had not yet been able to crack the corporate market. To help develop the right mix of features in its product offering and create the optimal value proposition within this segment, our client asked us to provide insight into the market for these products. Specifically, they needed clarity about the overall size of the market opportunity for corporate training products in a variety of industry verticals, to identify both the major and emerging players operating in those spaces, and understand more about key trends as they are playing out in the market.

Working under a hypothesis that changing customer needs and the evolution of industry standard technologies would create opportunities for new product features or positioning, we collaborated with them to understand which key intelligence questions needed answers and set out to craft a customized research plan to address them.

Scope:

We collaborated on a customized study to enhance their understanding of this market. The purpose of this customized study was to:

  • Size the market for corporate learning and learning management products in the United States and globally
  • Provide insight into key trends such as technological innovation, use cases and implementation issues which affect the space
  • Identify the major and emerging players in corporate learning and learning management and provide answers to the key intelligence questions our client needed visibility on

Impact:

Providing a more holistic and up-to-date view of the fast-moving cLMS market gave our client’s Strategy team a framework with which to view its competitors’ offerings. In addition to identifying and profiling key market trends to help with product planning, we provided analysis on where the competition was weak. Because our competitor research was aimed squarely at analyzing the strengths and weaknesses of major competitors and emerging players, it was a valuable tool to identify service gaps or whitespace to exploit. This analytical framework proved valuable to the product strategy team as they made decisions to re-position the company in the corporate market segment.

At its completion, the client’s team made the decision to engage in additional follow-up research aiming to dig deeper into specific needs, pain points and requirements among corporate customers in select industry segments. As a valuable added benefit, the On-Request partnership makes it possible for our client’s strategy team to get the external market insight they need in a flexible manner, without the need for time-consuming procurement processes for each ask.

For more information about how we help our client within our On-Request partnership model or to learn more about the types of research output provided to our clients, please contact us at info@emerging-strategy.com 


China’s craze for Common Core-aligned curricula

Chinese students are coming to American schools to study in large numbers, but aside from the burgeoning communities of Chinese students found on university campuses, there is now a growing number of Chinese students attending high schools and even primary schools in America. At the same time, more young students engage with Chinese supplementary schools, on- or off-line, offering “American primary school curricula” in China. Schools that advertise their “CCSS-aligned curriculum” to Chinese parents have gained traction in recent years, particularly online-only supplementary schools that offer English-medium subject-based instruction directly to consumers.

What drives the fast-growing Chinese online language education market? What are opportunities that foreign education companies should see and seize? This article will answer these questions by revealing recent trends, examining the unique characteristics of this market and looking ahead to potential growth drivers and opportunities in 2018 and beyond.

Not your grandmother’s cram school

The booming market is primarily driven by the education consumption needs of Chinese parents, which are evolving rapidly. As millennials become parents of K-8 students, their perceptions of quality and value in English education generally and online education specifically are influencing the market in a major way. Attitudes toward education among millennials in China are conceptually different from those of their elders. Not only are millennials more willing to purchase online education products, but they also put more value on spoken English, creativity, experiential learning and other learning experiences deemed to be lacking in the Chinese system.

To meet the demand of these millennial parents, companies from across China’s education industry spectrum began offering live online classes primarily focusing on improving English speaking skills a couple years ago. These companies included not only traditional supplementary schools such as New Oriental (sub-brand Donut’s English), and TAL Education Group (sub-brand Le Waijiao), but also newer online-only platforms offering MOOCs, tutor-matching and even live-streaming services. At the same time, several more startup companies, whose founders are also millennials, have emerged. One prominent example is VIPKID, which is a platform for connecting K-12 Chinese students with native English speakers for one-to-one online language lessons. It was launched in 2015 and has more than 100,000 fee-paying students as of April 2017.

Companies like VIPKID, which connect foreign teachers and Chinese kids learning English, have gained tremendous traction in the last two years. There are a couple main reasons for this success. On one hand, the supply of foreign teachers, particularly teachers who are native English speakers, is scarce in most parts of China – there are over 100,000 foreign teachers teaching English in China, 30% of which are hired through official channels. On the other hand, demand is vast – there are 40 million students in China’s K-12 segment who are taking after-class English courses and their overwhelming preference if for courses taught by foreign teachers. Such demand and supply imbalance represents clear opportunity for internet companies who can match Chinese children and foreign teachers without having to secure visas for the teachers.

“Learn what the American kids learn at home”

Amid the growth stage of China’s market for live online English courses, the selling points of many companies are similar – speaking English with foreign teachers from home. However, companies entering the market today gain little competitive advantage by offering similar products as their competitors. Therefore, differentiation is a top priority for new entrants and the most notable differentiator in today’s market is the focus on high-quality curricula.

In 2017, many big online education companies launched sub-brands to offer live online English classes targeting K-8 students. They include; 17zuoye, which recently launched UStalk, offering one-on-one live online English classes taught by teachers from North America; TutorABC (formerly known as VIPABC), a big online school that launched VIPjr; and Abc360, one of the forerunners of live online English course providers, also launched a sub-brand called Landi English. Abc360’s CEO has even expressed that the company will deemphasize their adult business and focus on K-8 business going forward due to the bright prospects of the K-8 consumer-facing market.

Aside from the fact that these new initiatives are all attempting to carve out a slice of the K-8 consumer-facing education market is the fact that these sub-brands all promote American CCSS-aligned curricula. The popularity of American CCSS-aligned curriculum is a byproduct of the influx of Chinese students into American schools, often occurring at earlier and earlier ages. Per data from the Department of Homeland Security, the numbers of students studying in primary and secondary schools in the United States, while still a fraction of the post-high school student total, have shown higher growth rates than those post-high school student totals historically. For families who want their children to be prepared to succeed in U.S. universities by getting them used to the learning style and language, supplementary online education is the next best option.

 

Source: Department of Homeland Security Student Exchange Visa Information System, 2017 Emerging Strategy analysis

 Partnership activity among American and Chinese education companies rises

As major companies in the market keep growing, they tend to establish partnerships with well-known global education brands to strengthen their competitiveness and establish footholds. In 2017, several major online schools have partnered with international education companies. This July, TutorABC entered into a partnership with ETS. The Chinese company will start to distribute TOEIC and develop test-prep products for TOEIC, a business English assessment product from ETS. In the same month, DadaEnglish formed a content partnership with Pearson.

As of now, it seems the partnerships are limited to distribution agreements for educational content and tests. Going forward, it is expected that there will be more partnership activity between Chinese online education companies and established foreign brands, and these partnerships will be devised in different ways. Besides importing original content, some ambitious schools may want to co-develop content with foreign publishers. There may also be opportunities for partnerships regarding teacher training, student/teacher exchange, edtech development, etc.

Looking ahead in 2017 and into 2018, the market continues to enjoy its growth stage. Many schools are eager to adopt American curriculum or “CCSS- aligned curriculum” to appeal to Chinese millennial parents. Simultaneously, the concept of “learning what American kids learn from your home” is gaining traction rapidly. As the demand for consumer-facing online delivery of American K-12 curriculum continues to boom, we expect to see more partnerships between Chinese online education companies and foreign established education brands in the coming year. Original content from American providers is a differentiator for Chinese schools and technology companies, one that they are banking on as the market matures. Contrary to popular conceptions of doing business in China, the active engagement between Chinese and American education companies doesn’t appear to be fading away anytime soon.

To find out more about China’s burgeoning education market and how Emerging Strategy can provide insight that helps decision makers make the right moves in international markets, please reach out to our team at info@emerging-strategy.com to schedule an introductory discussion.

 


Case Study: International market entry analysis for top education content provider

Emerging Strategy works with a top education company serving more than 50 million students in more than 150 countries. Our client sees the On-Request market intelligence partnership as critical in informing its international strategy with fact-based, data-oriented insight on market opportunities. 

Client Situation:

Our client has historically taken an opportunistic approach towards non-U.S. markets. With the company’s Board and its CEO seeking international expansion, the International Markets team has elected to obtain market intelligence from its On-Request partnership with Emerging Strategy to vet and prioritize markets to focus its investments into areas of best fit and highest potential.

Although the company often gained an initial foothold in emerging markets by responding to strong demand for high quality content, it has become a top priority to continue growing its business in key non-U.S. markets. To confidently meet the expectations of its board and CEO, the International Markets team needed market intelligence to play a central role in long-term strategic decision-making, such as prioritizing the markets that the company chooses to play in, and the investments that it makes.

The Vice President for International Markets quickly realized that given his team’s limited internal capacity for conducting the international market intelligence required to drive revenue growth, a long-term engagement with an external partner such as Emerging Strategy could systematically and objectively analyze markets, and help achieve its global growth imperative.

Solution:

Emerging Strategy’s On-Request partnership is an ideal solution for the team because the continuous access to timely and well-structured top-down market intelligence enables it to identify promising markets, make flexible pivots in research scope on the fly, and get quality insight into any number of emerging markets, before committing more significant internal and external resources in vetting those markets and developing a comprehensive go-to-market strategy.

We initiated the partnership by jointly developing a list of research projects that would run for the first several months, focused on examining various market segments in countries of interest, with each project running a few weeks in length. The client’s management actively participates and provides feedback and direction. Emerging Strategy works directly with the Vice President for International Markets, who in turn shares our intelligence and his recommendations with his CEO, the global sales organization, and company personnel in global markets.

Results:

Market intelligence through our On-Request partnership is helping the team to create a long-term strategy for global expansion, and eventually it will be used to craft a “go-to-market” strategy for each market segment within each country, to meet the company’s financial objectives for its non-U.S. business.

Examples of projects:

  • Market landscape of specific market segments, filling gaps in existing intelligence
  • Estimation of the addressable market size of relevant markets segments
  • Competitor profiles and market share, through a rigorous modeling approach leveraging publicly available data
  • Analysis of the regulatory environment for specific product lines, including recent regulatory changes

This systematic process represents a shift in culture for the client’s International Markets team, but the team’s Vice President is happy about what the On-Request partnership has produced. During a recent conversation he told us, “Look, I have no difficulty giving hard news to consulting firms.  But you guys: the work you do, the scope of the work, timeliness, and the quality of delivery – I can’t say enough. If I had a colleague who asked for a firm, I would recommend you.”  


Getting personalized learning right in Asia: Q&A with David Joo, Co-CEO of Korean adaptive learning company Knowre

Getting personalized learning right in Asia: Q&A with David Joo, Co-CEO of Korean adaptive learning company Knowre

Companies providing education technology products such as personalized learning platforms face a unique set of obstacles working globally. We had the pleasure to get some first hand insight into this topic from David Joo, CEO of Knowre, an ed-tech provider offering adaptive learning math products in the United States, South Korea and other international markets. He will be participating in a SxSW panel discussion “Winning the Asian EdTech Market”, moderated by Emerging Strategy Director, Satoko Okamoto on March 8.

Emerging Strategy: Product localization is often a hurdle for US companies and ed-tech providers expanding into other geographies. Tell us a little about your company and the what challenges you’ve faced bringing a program from South Korea to the US?

David Joo: Knowre is an education technology company focused on delivering a personalized learning experience to students around the globe.  At our core, we are a technology company that has built two primary technologies.  First, the ability to identify why a student answered any math question incorrectly – pinpointing each individual student’s unique learning gaps.  Second, an algorithm that leverages that data to deliver a personalized curriculum to fill those gaps.  We integrate our technology with our curriculum to provide a comprehensive learning solution for students, teachers and parents.

Although our roots as a company are as an after school math academy in Korea, the first market we tackled as a product was the US.  This idea of product localization is one of the most fundamental issues that companies, and in particular ed-tech companies, must overcome.  While “x” equals “x” across the globe, there are not only stark pedagogical differences, but also operational ones.  Education is global, but educating is local.

ES: What are the top product localization issues facing US ed-tech companies launching their products in Asia?

DJ: Although Knowre operates in several spheres within education, our primary vertical is the private, after school supplemental education market.  While it goes without saying that understanding your market is absolutely critical, you need to also tailor your product to fit the nuances and needs of each region.

In the spheres where we operate, the top localization issues are rooted in understanding the operations behind how the product is going to be used, not just differences in language.  As an example, Chinese students attend learning centers on the weekend, as opposed to the US and Korea where they attend largely during the week.  Also, in Korea many students are expected to stay later than the scheduled time, which is possible because students as young as 3rd grade will walk home from the learning center.  Whereas, in the US, most students are picked up by their parents.

Curriculum-based products also come with additional challenges.  Underlying the operational understanding of the different markets is, of course, pedagogy.  Not just scope and sequence, but the way that students are taught to answer questions can be entirely different across different regions.  This nuance needs to be very clear to stake holders – that the local approach to education is properly represented in the product.

ES: What do you think is the future of personalized learning with such rapidly evolving technology such as artificial intelligence, augmented reality and the internet of things?

DJ: Very simply, I would say that the future of personalized learning is more and better personalization.  At Knowre, we take a fundamental view that no matter what the technology is (and I’d say that this outlook is sustainable for the next 3-5 years), that technology must be integrated with a teacher.  We do not believe that technology can be a replacement to great teachers; we believe technology can make great teachers even greater.  As technology evolves and improves, it will be able to replace much of the “traditional” work that a teacher would take on, allowing them to spend more time performing higher level teaching/learning functions with their students.

I believe the next phase in personalized learning will be when technologies are not only able to deliver the right content to a student, but also to deliver it in the “right” modality.  Whether that may be a VR experience, a hands-on-project, or just a paragraph to read or to listen to, the technology will be able to curate both the content and modality by which that content is delivered in order to have the greatest impact on that student’s learning.  Once again, the technology’s goal is to free up the teacher from doing this curation and analysis, to providing learning environments that touch on deeper aspects of developing the student.

ES: There is a lot of optimism about what is possible with personalized learning specifically and ed-tech more broadly, but there is always a gap between what is technically possible and what is realistic for schools in South Korea and in the US. What challenges has Knowre faced providing its adaptive math programs to schools around the world?

DJ: I think the one thing that really needs to be clear as the industry discusses “ed-tech” is product type.  Currently, I see a distinct chasm between platform products (focused on attendance, behavior, or communication) and curricular products.  While the adoption of platform products in classrooms has become somewhat more commonplace with schools much more open to trying new tools, the paradigm for curricular product acquisition and evaluation really hasn’t shifted dramatically from textbooks.  Until we see an inflection in the speed of ed-tech adoption within schools, these products will only slowly gain traction.

How that inflection point comes about will be dictated very much by perceptions in the market.  Shifts in buying norms from large one-time purchases to subscription purchases will need to occur; this idea of “one solution to rule them all” will need to change as administrations face teachers that use different products within a particular institution; and teachers will need to become more accustomed to using multiple products within their own classrooms.  Although the velocity of change is not where we would desire, we are, of course, seeing this shift in specific schools, teachers, and administrators who are actively innovating the approach to acquiring and using curriculum-based ed-tech in their classrooms.

For more insight into opportunities for education technology providers in Asia, download our complimentary report on China K-12 market entry strategies for international education companies.


China’s new private education law pulls schools out of legal grey zone

This article was first featured in the Emerging Strategy Education Monthly. Sign up here for rich insight into the education business in the U.S. and around the world.

The Chinese private education sector has been booming. The number of private schools nearly doubled between 2005 and 2015 from 86,000 to 163,000, according to the Ministry of Education. However, the legal designation for all of China’s private schools has always been non-profit, as profit-seeking education entities were not legally allowed. The amendment to China’s law governing private education passed in early November 2016 has now made profit-seeking schools legally allowed in China for the first time. The opportunity for education organizations to legally operate profit-seeking schools for the first time is just one of the opportunities these regulatory changes pose.

On November 7th, China’s National People’s Congress passed an amendment to the “Promotion of Private Education Law”, which will come into effect on September 1, 2017. According to the the amendment, private schools shall be categorized as non-profit and for-profit and the two types of private schools shall be regulated separately. This is big news for private education organizations in China. The law allows private schools, excluding schools that offer “compulsory education” such as private primary schools and middle schools, to designate themselves as for-profit entities. Under the revised regulations, these newly legal profit-seeking schools will realize a few specific benefits:

Full autonomy in tuition fee setting

For-profit schools will have full autonomy in setting their tuition fees without any intervention from the government. Before the amendment, the government had to be informed about any tuition fee changes or approve them in some cases. This is particularly welcome news for some high-end private schools that want to further differentiate themselves in the market.

Stronger protection for asset ownership

As for-profit private schools will be subject to the corporate law, which protects the assets of business owners, for-profit school owners will be able to own the school assets legally after paying taxes. Before the amendment was passed, private school owners had no right to dispose of school assets once schools stopped running.

Going public without legal barriers

Before the amendment was passed, it was extremely difficult for private schools to have access to the financial market due to various restrictions imposed on non-profit schools. In order to bypass the restrictions, some private schools had to list themselves in overseas markets and transfer the profits to their overseas investors through financial vehicles such as “Variable Interest Entities” (VIE). However, going forward the longstanding legal barriers to go public will be lifted. Shareholders of the for-profit schools will now be able to obtain dividends legally. Many private schools are expected to be listed on the domestic stock market as a result of these regulatory changes.

Both for-profit and non-profit schools will face challenges and risks from the new law

Although there are clear benefits for private school operators resulting from this new amendment, some legal barriers may persist for private schools that offer both compulsory and non-compulsory education, such as schools that offer classes from grade 1-12. If they would like to go public, they would have to separate their for-profit and non-profit units and list only the entities offering education that is legally allow to be for-profit, such as pre-K or grades 9-12.

Another likely negative impact on profit-seeking schools will be the loss of preferential policies that private non-profit schools have long enjoyed. Many private non-profit schools have been receiving government subsidies in the form of cheap land or tax benefits. Although it is up to local jurisdictions to implement the law, and the details of the implementation laws have yet to be released, it is expected that for-profit schools would see government subsidies and other incentives reduced. Many schools, once they designate themselves as for-profit, may face abrupt cost increases, which will impact their bottom lines. However, as for-profit schools will have autonomy to adjust tuition fees at their discretion, some schools may find that the rising costs can be offset by tuition fee increases in the long term.

The choice posed by this amendment raises questions for many schools. Although those that must remain non-profit or those that choose to do will enjoy the same preferential policies as public schools, they will find it more difficult to give their shareholders any form of financial return going forward due to the cancellation of the “reasonable rate of return” policy.

This policy was legalized in 2002 and was intended to give financial incentives for non-profit school owners. However, in order to be eligible to receive funding from some local governments, most private schools actually never took advantage of their right to generate a “reasonable rate of return”. Although by giving up “reasonable rate of return”, some school shareholders were still able to gain “grey income” through various financial vehicles or complicated transactions. Whether the government will tighten regulations on those financial vehicles or not is not yet clear.

Further growth and consolidation of the private education market is expected

Overall, the amendment provides clarity in longstanding grey areas such as who are the legal persons of private schools and who own the schools’ assets etc. Although the private education market will be more regulated, the clarity of regulations may make investors feel more confident in entering this market than before. We expect that a deeper participation of capital markets will help to drive further growth and consolidation of the private education market in China. Possibly the biggest winners from these regulatory changes are those schools offering supplementary, non-degree education, since they do not offer compulsory education the amendment will have minimum negative impact on them.

For additional insight into China’s private education market, download our full report Opportunities for Private Education in Emerging Markets


Malaysia government policy driving rapid growth of private and international school enrollment

 

Malaysia’s growth of private school enrollment in the past decade is striking. It grew from less than 1% in 2002 to 15% in 2013, and is expected to continue rising. This rapid growth is driven by the soaring demand for private and international schools catering to the needs of urban middle classes. With one million students enrolling in private K-12 schools and only 142 international schools present, there appears to be a significant down market opportunity for international schools, particularly for those that have the capability to offer international curricula and programs that meet the needs of local families, such as additional religious instruction.

The rise of international schools in Malaysia is being driven by government efforts to reform education. Since the government considers international schools an engine of economic transformation, it removed the limits on foreign ownership of international schools, introduced tax incentives, and removed the 40% enrollment cap for Malaysian students. Furthermore, in order to transform Malaysia into an educational hub, the government has invested in large-scale projects such as The New Kuala Lumpur Education City. Prestigious international schools have been invited to open locations, which will likely raise the number of Malaysian students enrolling in international schools. As a result, the speed at which international schools have opened new schools has more than doubled since 2010. The country added 4.6 schools per year on average between 2000 and 2009 (26 schools in 2000 to 67 schools in 2009). But between 2009 and 2016, it has added 10.7 schools per year (for a total of 142 schools in 2016). Local students are becoming the majority at international schools in Malaysia for the first time.

 

screenshot-2016-09-13-16-57-59

Source: UNESCO Institute of Statistics, Emerging Strategy Analysis

Another factor contributing to the growth of Malaysia’s private education sector is the strong traction that private religious schools have achieved in recent years. In 2005 there were 20 private religious primary schools and 15 such secondary schools. Within a decade the numbers grew to 43 primary schools and 74 secondary schools. Many such schools offer instruction in English, and some offer international curricula such as Cambridge International Examinations (CIE), in addition to religious teaching. While tuition varies within each school category, private religious schools tend to charge lower tuition than international schools, which attracts parents who are concerned about poor quality and a lack of moral education found in public schools. Malaysia’s low score in the 2012 PISA cycle further motivated middle class families to send their children to private religious schools.

It is expected that the privatization of K-12 schools in Malaysia will further deepen and the number of private schools offering extra international programs, particularly in large cities such as Kuala Lumpur, is likely to rise. Enrollment of local Malaysian students in down market private K-12 schools is also expected to rise, as the dip in oil & gas prices has prompted a significant drop in enrollment at high end international schools among expatriate families who are pulling up roots in response to layoffs in the energy sector.

The growth of private schooling in emerging markets is a direct response from rising middle classes to their governments’ failure to provide quality education for the 21st century economy, and this trend is likely to continue. Malaysia has supported international schools in order to propel economic growth, and many operators have already gone down market to enroll a substantial number of local children in low-cost schools. A careful consideration of curricula offerings is important for schools hoping to expand in Malaysia. For instance, programs that offer both international programs and subjects matching local preferences such as religious instruction may be necessary to attract new students. For international schools looking for growth opportunities, Malaysia’s rapidly growing local private K-12 education space warrants a closer look.

This article is an excerpt from Emerging Strategy’s report Opportunities in Private Education: China, India, Indonesia, Malaysia and the UAE

 


China’s K-12 market is a newfound focus of product development and investment from top international companies

This article was originally published on LinkedIn Pulse by Adil Husain, Managing Director at Emerging Strategy. Our full report is available for complimentary download.

Why is China’s K-12 market garnering the attention of the likes of Sony and Lego, not to mention the usual suspects such as Pearson, Blackboard and other large education firms? One obvious reason is the enormous potential market size there. In 2014 there were 200 million students in K-12 institutions with an estimated market size of USD 40 billion. Compare that with a mere 62 million students enrolled in K-12 education the United States—though it is worth noting that per capita spending on education in China is still less than in the US.  In addition to the obvious economic trends of mass urbanization and rising incomes across the country, a closer look at political and social factors makes it clear that changes are under way in the K-12 system there that international firms would be wise to keep tabs on.

English language learning is no longer the only game in town for international vendors. Customer bases in saturated urban markets with increasingly fierce competition from local schools, not to mention well-funded online providers such as VIP Kid, are now showing signs of erosion for large international companies like EF English First and Pearson. As a result, the attention of these companies and of investors is shifting to China’s K-12 market. Of the 33 venture capital deals involving Chinese ed-tech companies in Q1 2016, just 12 were targeted to companies focusing on K-12. But those 12 deals accounted for 62% of all funding.

VC Investment in Chinese Edtech Companies

Source: JMDedu

Much of this newfound interest may be tied to policy developments. China’s recent National Five-Year Plan has singled out education technology as a key area for development. The plan calls for a “market competition + government subsidy” system to support digitization in schools. There are new policies in place to support a more “well-rounded” STEAM (Science, Technology, Engineering, Arts, and Mathematics) education in place of previously favored STEM education. The effect of these new policies is that schools are now requiring mandatory class hours that cover subjects outside of the core curriculum, the National Curriculum Standard (NCS). K-12 schools in China are responding to these new policies—and to the demands of many parents in big urban markets like Shanghai who have grown disillusioned with the intense focus on “exam culture”—by branching out into new subjects. An array of would be suitors as diverse as Sony, Lego and Pearson are developing products to take advantage of the demand for curricula and materials for teaching about modern technologies such as coding and robotics. In fact, Pearson is rolling out its largest effort in China’s K-12 market to date this fall with a 100% localized suite of STEM courses.

China’s tiny portion of private K-12 institutions is also due to expand, a welcome development for companies marketing “international” curricula and products there. These types of institutions are moving beyond the narrow niche of international schools for foreign children to serve new customer segments such as middle-class Chinese families due to increasing demand from parents, but also due to supportive policy from China’s government. A draft law allowing for-profit operation of private K-12 schools enrolling Chinese students is set to go into effect in the near future, which will certainly lead to more schools in first- and second-tier cities offering international curricula as a selling point. The demand for this type of education is higher than ever. Many parents of the booming upper-middle class fret over getting their children into competitive universities abroad, and this trend is not likely to reverse itself anytime soon.

If international companies contemplating a move into China’s market from afar read the tea leaves they will discover that there are opportunities to meet the needs of the world’s largest single market of K-12 students with new and innovative products. Investing in as complex a market as China surely presents risks, but international companies operating there now are aligning their business strategies with the political and social trends present in today’s market and finding new growth sources for their products. Forming partnerships, courting investment and investing in or acquiring local companies are well-trodden paths that pioneering firms have taken into the Middle Kingdom. The flourishing ed-tech scene there has produced a new crop of companies touting extensive networks of students, teachers and schools and forging relationships with companies like these has long been central to market entry strategies for international firms. Looking ahead, there is likely to be more involvement from international companies in China’s K-12 education space. As is the case in most lucrative markets, the companies who come out on top will almost certainly be the ones which have the best market intelligence they can act on.

For a more in-depth look at China’s K-12 market, our full report is available for complimentary download.

Screenshot 2016-09-07 18.29.32

 

 


A Smart Growth Strategy in China’s K-12 Market: The Case of Pearson

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.

VC Investment in Chinese Edtech CompaniesThe average size of K-12 edtech VC deals was nearly triple the size of other edtech VC deals

Note: Other education segments include preschool, English language learning, professional training, STEM & general

Source: JMDedu

 

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.

RELATED: Market Entry Strategies for Private K-12 School Service Providers in China

 

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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