The “Golden Age” of the Chinese Education Market
The “Golden Age” of the Chinese education market is fast approaching. The huge gap between spending power and the quality of education urge foreign companies to seize a share of this market.
- Chinese government policies reveal its determination to fully support industrialization of the education market. One of the development goals in the 13th Five-Year Plan proposes to provide pre-school education in every community in the country by 2020 while encourage private capital to invest in the education industry.
- Private capital has been flowing into the education industry. In 2015, total investment into the industry more than doubled from the previous year.
- China’s education market is estimated to reach up to RMB3 trillion by 2020, up from RMB 1.6 trillion in 2015, with a compounded annual growth rate of 12.7%. In particular, the training education segment, which includes early childhood education, K12 tutoring and vocational training (both corporate and personal), will be the main driver of growth in the future.
- For early childhood education, thanks to the implementation of the new “Two-Child Policy” by the Chinese government, the market is set to take off with instant new demand. Similarly, the growing number of school-aged children will boost demand for K12 tutoring.
Restrictions and roadblocks
- Education in China as a whole is a highly sensitive sector closely correlated to ideology, the government has put some quite stringent regulations in place limiting foreign investment, particularly in the compulsory education segment.
- The National Development and Reform Commission (NDRC) under the State Council has prescribed several restrictions on China’s education industry. Its Catalogue of Industries for Guiding Foreign Investment (2015 Revised Edition) restricts foreign entities to investment in the non-compulsory education segment including pre-school, high school and tertiary education by way of JVs with Chinese counterparties. While foreign entities are permitted to hold majority ownership, the board of directors and key management positions must be held in majority by Chinese counterparties.
- For non-compulsory education segments, regulations are less restrictive. Foreign capital to investment in vocational education is encourged, including in English language, information technology (IT), sports and accounting. Foreign interests are prohibited from investment in ventures relating to military, police and political education.
Possible foreign entry models
How International Education Brands and investors choose to enter the Chinese education market invariably depends on the level of capital outlay and engagement at their disposal. Typically, there are six potential entry models: self-owned schools, China-foreign cooperative education, franchise, institutional investment and M&A, online education, and education resources input.
Entering the Chinese education market via the franchise model
The Educational Franchise models in China (Both Local and International) mainly focus on early childhood education and English language training. This is often the preferred model of entry as upfront capital outlay as well as ongoing investments are greatly reduced.
Foreign brands entering China must be sensitive to the need to localize their curriculum and offerings in order to increase their adaptability and accelerate expansion.
The problem remains that International Education Franchises may not be able to maintain consistent standards across all franchises and branches, which may lead to deteriorating reputation. In a highly competitive and price sensitive environment like China, Brand Equity and Reputation is the key factor that allows for differentiation.
Stringent and effective operational control on service and quality delivery is the biggest challenge for most foreign brands entering the China market.
A good balance of International best practices brought about through foreign brands must be combined with excellent localized operational development for foreign franchises to succeed in China. As globalization accelerates, more and more Chinese parents hope to nurture Global citizens, infusing their children with a sense of internationalized thinking and awareness. Compared to local educational brands, International Education brands are very appealing. Education brand with strong offerings, clear differentiators and offering future generation teaching concepts and pedagogy should consider a strategy for entering China whilst the door of opportunity to this Golden land is wide open.
Astreem has been working to effectively forge collaborations between Singapore education franchises with Chinese Investors, schools and franchisees to bring the education in Chinese to the next level, whilst accelerating the growth of the Singapore brands.
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