HellerResults

K-12 China: In-The-Trenches

This final article on China brings together the experience of almost a dozen organizations doing business in this fast-growing and exotic K-12 education market frontier. It follows two previous columns on the increasing globalization of the world’s K-12 markets, Around the World in a Day: Business Models There Lend Insight Here and California and Texas Flagging? Why Some Are Targeting China, inspired by the recent International Markets Forum (IMF). To put this in a more realistic perspective, I reached out for in-the-trenches feedback from 11 industry executives with solid global credentials: Abhinav Mital of The Parthenon Group (India), Zou Jing of First Decision Education Group (China), Charles Callis of Waterford Research Institute (U.S.), Alexander Kondakov of Izdatelstvo Prosveshchenie (Russia), Simmy Ziv-el of ETS (U.S.), David Langridge of Microsoft (U.K.), Rafal Romejko of Young Digital Planet (Poland), Peter Schneider of ict Maven Group (U.S.), Emma Rogers of Little Bridge World (U.K.), Michael Patterson of Avant Assessment (U.S.), and Charlene Gaynor of The Association of Educational Publishers (U.S.). See if your preconceptions aren’t swayed by what they have to say.

Growth of the Private English Education Market

Abhinav Mital, Senior Principal at The Parthenon Group, a colleague of Karan Khemka, Head, International Education Practice, The Parthenon Group, also based in Mumbai, whose insights were featured in the previous two articles, provided me with market data conveying the importance of the growing private English education market in China, highlighting its two most important segments— the private international and bilingual schools markets.

  • International schools cater to expat students only and therefore operate at high fee levels (about 20,000 U.S. dollars per year—one of the highest in the region).
  • Bilingual schools, in contrast, provide Chinese students the opportunity to study in an enhanced English environment while still following the national curriculum. The bilingual or “dual curriculum” segment is quite fascinating as it mostly comprises traditional schools that have adapted to the Chinese parents’ growing need for an international education. These schools allow the students to graduate with an American, Canadian, Australian, or British certification with the sole purpose of preparing students to secure admissions in universities abroad. While the fee levels are not as high as for international schools (typically around 10,000 U.S. dollars per year), they are still far more expensive than the average private school. The government has taken note of this changing need and is experimenting with a public-private model to deliver international curricula in senior grades. Select prestigious public schools have introduced an international section in partnership with a private provider charging competing fees.
  • Together these segments represent a 1.5 billion U.S. dollar market growing at 8% to 10% annually in revenue.
  • More than 100,000 students are enrolled across some 130 such schools in the major cities of China.

Mital concluded, “It’s still the early days for the bilingual segment, but given the 30% year-over-year growth in Chinese students going abroad for higher education, there is strong likelihood that the segment will develop further with more interesting models coming up.”

Platform, Government Access, Investment, and Long-Term Perspective

Ms. Zou Jing, Chairman and CEO of First Decision Education Group, a member of the IMF’s “Users’ Perspective: What Our Schools Need and Why” panel, moderated by Peter Schneider, reinforced Khemka’s theme. Ms. Zou, who likes to be called “Jing,” and her husband, Brad Reinert, founded First Decision Education Group in Beijing, China, in 2002, a few years after returning from study and work in the U.K., when they sought a high-quality bilingual school while planning for their own family. First Decision’s companies now provide early childhood education programs (including operating the largest private preschool in Beijing), bilingual curricula, and extracurricular activities in four schools for some 5,000 children aged two to eighteen years. They also offer professional development for educators, having provided courses for over 2,000 Chinese teachers to date of English as a second language. Jing also serves as Executive Director of the China Non-Government Education Association, which represents over 80,000 kindergartens across China, and as Vice President of the Beijing Head Masters’ Association, a group with over 1,500 headmasters.

According to Jing, there are 577,000 schools in China, of which some 17%, 100,000, are private. It is in the private sector that both entrepreneuring and the use of foreign products and services predominate. The private sector is dominated by preschools, some 82,000 of them (additionally there are 51,600 public preschools). The rest of the private market includes 5,000 elementary schools, 6,900 middle and high schools, 634 colleges and 3,200 vocational schools. China has about 140 million preschool-age children, of which 52 million are urban. Only 23 million of them attend preschool, 8.6 million in private schools and 13.4 million in public schools. Urban families alone spend an estimated 50 billion U.S. dollars annually for their children’s preschool education; that industry employs 1.3 million educators (private 700,000, public 600,000).

Looking at preschools’ primary needs, hence important areas of opportunity for international firms, Jing listed English curricula, teacher training, and multi-cultural products and services. For a foreign educational venture to work in China, she said, it must succeed in four areas: platform, government access, investment, and long-term perspective.

About “platform” Jing explained, “It is vital for any organization coming to China to invest substantially in the arduous process of understanding the market and finding the right domestic partner, who must own a minimum of 51% of the enterprise. Foreign organizations sending teams of executives to visit a Chinese partner a few times a year almost never works.” On a lighthearted but serious note, she added, “I’ve seen too many firms sending visiting teams, parachuting into their Chinese ventures for brief stints. They love the corporate hospitality and the Chinese food, but the business rarely works.”

She continued, “Secondly, nothing in China of any size or significance happens without government access. Small businesses are possible, but medium to large companies can benefit (or be hindered) by government assistance. Whether we agree or disagree, the fact remains that there is one company in China, which is the Chinese government. While it is serious about achieving the benefits of a market economy, it still retains ultimate control. To highlight her point, she explained that the China Non-Government Education Association, for which she serves as Executive Director, is, in fact, a government entity. Government is invaluable in networking and helping businesses to succeed, and they set the rules; e.g., the requirement that the domestic partner own 51%.”

Regarding investment, Jing explained, “This is also essential, though it’s not necessarily monetary investment that matters but technical strength, branding, and other proprietary knowledge. The market needs to understand, through awareness and differentiation, what makes an organization, its brand, products, or services unique, creating a culturally relevant and compelling value proposition.”

Finally, “Organizations must have a long-term approach to China. The Chinese market is competitive and full of complexities. It requires time, money, and effort to help the domestic market get to know and feel comfortable with new entrants and for business relationships to mature. Doing business in China is more like a marriage, not dating. It takes time for people to get to know one another and build trust.” 

An Aggregation of Many Geographic Markets and Segments

Charles Callis, VP Business Development/International at Waterford Research Institute, an IMFHotspots: Around the World in 60 Minutes” panelist, related his experience doing business in China. Waterford, a non-profit research institute, sees its mission as “providing every child the finest education possible through the development of high-quality educational models, programs, and software.” Despite its non-profit structure, Waterford is committed to “marketing” internationally, and Callis is one of the principal agents of that endeavor. Highlights of his presentation included:

  • The China Ed market mustn’t be viewed as a single market but as an aggregation of many geographic markets and segments in both the public and private domains. China is a very large ed tech market with all the indicators moving in the right direction for the adoption of digital learning, but it is not helpful to see China in simplistic terms. Break it down into measurable segments.
  • While public schools represent the biggest numbers, they are decentralized when purchasing digital curriculum, and a vendor can face a maze-like array of requirements.
  • For companies with appropriate products, the private training market, though fragmented, projected to exceed 100 billion U.S. dollars by 2013, is very large and offers fewer barriers to entry.
  • China’s burgeoning middle class, driven by the high aspirations of Chinese parents and the “one-child” policy, are avid consumers of private education.
  • Waterford’s entry strategy has been to choose a market segment that offers significant revenue opportunity with a minimum viable product (MVP), in other words, allowing it to enter with essentially no product adaptations. Product adaptations will come later as Waterford better understands the market. Given the firm’s English-as-a-foreign-language product strength, it identified the after-school EFL market for
    school-age children, valued at over 2 billion U.S. dollars annually at the time, as its target.
  • To satisfy the Chinese partner requirement, Waterford identified a large publicly traded (in the U.S.) partner in the segment, Xindongfang, known in the West as New Oriental Education & Technology Group (for more on the firm, see my View From the Catbird Seat presentation from EdNET 2011 and California and Texas Flagging? Why Some Are Targeting China). Reaching out to and building the relationship with New Oriental took years.
  • Since then Waterford continues to work at identifying additional segments for MVP candidates and additional partners.

A Perspective From Russia’s Largest K-12 Education Publisher

Alexander Kondakov, CEO of Izdatelstvo Prosveshchenie, who spoke at the IMF, told me, “The Chinese education market is of interest to us in Russia, too, especially taking into account the traditional ties between the two educational systems, which still remain even though they’ve been seriously damaged over the past 20 years. The Chinese market is, undoubtedly, one of the most appealing markets for education publishers. In recent years, China has not only made economic and technological breakthroughs—many observers don’t realize these were preceded by breakthroughs in their educational system. It is important to note the recent appearance of a great number of private schools and parents’ exceptional willingness to spend quite a lot of money for education. Bilingual schools are of great interest for international companies and those who hope to work for or with them. This is also reflected in China’s fast-growing market for continuous education connected to the implementation of modern IT systems and technologies in general. Each area presents challenging but significant opportunities for educational publishing.”

English Language Assessment’s Unique Value Proposition

“Three major trends make China an attractive market for ETS,” said Simmy Ziv-el, Sr. Director of Business Innovation & Growth of ETS, “namely the exponential growth of the for-profit K-12 industry; a concomitant growth in the number of Chinese students studying in, and aspiring to study, in the more than 130 countries that accept the TOEFL® test; and the growth of the technology infrastructure in the public education sector. Within all of these, stakeholders want to know “are my kids making progress by global measures?” While branded learning content providers have to compete with Open Educational Resources and a plethora of offerings that are harder to differentiate from one another, the reverse is true for assessments. In English Language Assessment, the TOEFL® brand is the most widely known and respected in the world, and these trends therefore create huge opportunities for TOEFL-branded products to become the lifelong framework for English Language Learning and globally benchmarked progress.” This may sound “ETS-specific,” he added, “but there is a general point for our industry to factor in when deciding to enter and be in the China K-12 market for the long haul: you must be able to provide value that can’t be replicated locally. Google, Facebook, and innumerable other U.S. IP creators now have huge local competitors in China, but globally recognized assessments that cannot be created locally will grow as the global education market and global economy continue to grow. That is our sustainable differentiator in China. All companies considering China must find theirs.”

Nourishing Global Partner Channels

In the world of IT for education, few if any companies can match Microsoft’s global footprint. When I spoke to David Langridge, Worldwide Education Senior Partner Development Director, Publishers and Content Solution Partners, Worldwide Microsoft Education Industry Group of Microsoft, he explained their substantial commitment globally, and particularly in China, this way, “Education, as Nelson Mandela said, is the great engine of personal development. We believe an excellent education is a basic right and a socioeconomic and workforce imperative. To this end, China has made remarkable achievements in its economic, political, and cultural aspects over recent years. More significantly, China’s economy has seen vigorous development, which needs a wide range of talents to support and fuel this growth. Education, one of the most strategic industries, has immense and noticeable advantages in talent development and societal progress. Microsoft Corporation, as an IT industry leader, believes that technology can economically accelerate insight and impact at scale. As an outstanding application player and with its Partner channel, it is experienced, resourceful, and competitive in the education sector, providing all in education with key technologies that help drive the personal development needed. Therefore, we see huge continued focus on China, especially from the education perspective.” For more on Microsoft’s international education market activities, see Antony Salcito’s blog and Edventures site. Salcito is Vice President of Education for Microsoft’s Worldwide Public Sector organization.

The View From Young Digital Planet: Reaching Over 40 Countries on Five Continents From Poland

Young Digital Planet, a part of the Sanoma Corporation, one of Europe’s leading media and educational publishing groups, represents the digital side of Sanoma’s publishing. Based in Poland, Young Digital Planet is an ICT partner for leading national textbook publishers and educational institutions and operates in over 40 countries across five continents. Rafal Romejko, International Sales Director at Young Digital Planet, has plenty of international frequent flier points under his belt and a healthy respect for building trust with international partners. About China he told me, “Many companies are attracted by the size and potential of the Chinese market. Even if you capture a small share of the education market, the numbers can be huge. Although it typically takes a lot of time and effort to build a relationship in order to conduct business in China, we have found the effort to be well worth it. I think the most critical factor to success in the Chinese market is to build trust and good relationships with your potential partners. Written contracts are often perceived as not as important or as binding as personal connections and networking. Like other industries in China, I can’t emphasize enough the importance of building trust with your local partners as the foundation for long-term success in the education market in China. Whether you’re a publisher of digital products or more traditional print products, if you’re new to the Chinese education market, you need to be both patient and diligent. Even when compared with the complexities of the education market in the U.S. and other countries, the process for successfully getting your products to market in China can be challenging, take more time, and require you to think very differently about your business models and practices.”

The Global Financial Crisis: Education Rearranging the Old Order

Peter Schneider, CEO of ict Maven Group, provides ICT consulting and business development services to education companies and government agencies around the world, noted, “As I travel around the world, I have noticed interesting perspectives stemming from the global financial crisis. Countries like China see an opportunity to leapfrog their existing world status by transitioning from dependence on natural resources and human capital to a knowledge-based economy. These countries are letting ‘developed’ societies innovate and make mistakes, so they have a roadmap of what is successful and what is not. They are making large investments in areas that are maximizing what I like to call their ‘Return on Achievement.’ Those who provide resources that are pedagogically sound and proven to increase attainment in the developed world will do well in markets serious about creating a knowledge-based economy.”

Preparation, Partnerships, and Patience

Emma Rogers, CEO of Little Bridge World, a U.K. educational software firm based in London, told me, “In addition to the U.K. schools market, we’re selling in over 25 countries worldwide. We’re beginning to make some steps into the Chinese markets and are finding it intriguing. Preparation, Partnerships, and Patience seem to be the three P’s that characterize what’s required when entering this fascinating territory. Trust is all-important, along with a willingness to invest in the relationships, on a personal as well as financial level. Forget your preconceptions—China is both a rapidly changing and multi-faceted place to do business!”

You Can’t Just Translate

Michael Patterson, CEO/President of Avant Assessment, a firm which had its inception at the University of Oregon’s Center for Applied Second Language Studies (CASLS) to deliver competency-based tools to world language educators, commented, “I find that today’s world is ‘both/and’ rather than ‘either/or.’ Texas, Florida, California, and all states count very importantly to us. The U.S. market is still our foundation. AND China, the Middle East, and other exotic markets are important because they are sending tens of thousands of students (China sends 160,000 each year) to these and other states every year to participate in U.S.-based education and culture. Additionally, the U.S. is sending similar numbers of students to study abroad with increasing numbers going to Asia and the Middle East. As a language company, we know that the ability to thrive in school or work in a foreign country is tied to knowledge of the culture along with command and skill of the language. We find that a presence in the target language countries is essential to incorporating culture with language. Authentic material developed by natives for natives of a language is a hallmark of our work. It is insufficient to simply translate instructional material from one language to another. The foreign market needs are different due to culture, history, and current events. A presence in target language countries is necessary for us to create the quality of products we offer. Additionally, the inculcation and exchange of language and culture opens exciting and large markets, which adds to the richness of life along with the increase in revenues and profits.”

Texas, Florida, California, and China

Charlene Gaynor, CEO of The Association of Educational Publishers, summed things up nicely for me. “Traditional wisdom has it that only the big guys can afford an international marketing strategy. The fact is that for years small to mid-size educational product companies have used international book fairs to add 5% to 15% to their bottom lines. Recently, that number has grown as high as 35%. Many such companies cut their teeth on smaller Asian markets like Korea and Singapore. But in a highly complicated market like China, the business principles would remain the same: Find the segment that matches your product and find a domestic partner you can trust.”

Thirty or 40 years ago few of us would have imagined that these four markets for K-12 educational products might ever be mentioned in the same breath. As the folks who contributed to this series will attest, global markets including China are at an important inflection point. I am reminded of the trajectory of educational technology in the U.S. from the 1980s until today: There have been pitfalls aplenty, but no one in educational publishing today would want to be without a solid foothold in digital media. Don’t let this latest wave get by without at least a toe in the water.

Note: The IMF, chaired by me, was the pre-conference day for the Content in Context (CIC) Conference, co-organized by AEP and AAP. You can get some idea of the international attendance at the IMF by scanning here (though this list covers all of the CIC-related events, not just the IMF) and of IMF’s programming here.

Separately, if you believe getting technology into students’ hands, with proper support, is a critical enabler for advancing education in the U.S., lend your voice to the growing number of education and policy stakeholders subscribing to the new AORTA Digital Education Manifesto and endorse it as I have.

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Dr. Nelson Heller is President of The HellerResults Group, a global strategic consultancy serving business and non-profits seeking growth opportunities in the education market. He’s the founder of The Heller Reports newsletters and EdNET: The Educational Networking Conference, both started in 1989. The EdNET News Alert, successor to The Heller Reports publications and now published by MDR, reaches over 31,000 education executives worldwide every week and features a regular column from The HellerResults Group each month. He co-organized and chaired the International Markets Forum (IMF), the pre-conference day for the Content in Context (CIC) Conference, co-produced by AEP and AAP. You can learn more about Nelson and his industry leadership at The HellerResults Group. If you need strategic insight, business partners, international connections, stronger boards, keynoters, or entrepreneurial savvy and want the insight of 30 years at the business and technology crossroads of the education market, you can reach Nelson at 858-720-1914, by email at nelson@hellerresults.com, and on Twitter @NelsonHeller.