Is the Indian education market a seam of gold that has was overlooked by education companies in their rush to find fortune in the Middle East and China? Maybe so, and several trends seem to reinforce this argument, including:
- Pearson’s decision to invest heavily in India to test their new B2C business model
- Serious investment in the education market by India and international investors
- The huge expansion of Indian education companies, several of who are likely to become significant players in the international market.
UK educational companies, particularly publishers, have been in India for many years, with operations ranging from wholly owned subsidiaries to 3rd party sales, distribution and support partnerships. While some are undeniably important to their parent entities, few if any were ever seen as strategically vital. Pearson have ‘jumped the shark ‘, and staked the biggest claim that if their Indian B2C strategy proves successful (and I think it will), then this will lead to a seismic shift in the business of education around the world. What Pearson are betting so heavily on is that education companies have to fundamentally shift their business models away from their current over dependency on selling products and services to governments.
Pearson’s strategy has been driven directly by Dame Majorie Scardino, who in 2008 recruited the late C.K. Prahalad, the management professor and author of the seminal text, The Fortune at the Bottom of the Pyramid, onto the company’s board. When Pearson first invested $12.5m in TutorVista in July 2009, it wasn’t seen as a significant deal particularly as it was dwarfed by their previous investment in China, notably Wall Street English ($145m), Dell English and the Learning Education Centre. These deals were in retrospect an early sign of Pearson’s nascent B2C strategy, and while their Chinese assets have performed reasonably, it’s now obvious that Pearson has made a far larger and more fundamental bet with its B2C strategy in India.
For 18 months, I couldn’t work out why Pearson hadn’t done anything with TutorVista, which looked like a niche business whose core market was catering to the children of Indian expats in the US. I thought this deal was an anomaly, the sort that occasionally happens within huge listed conglomerates who are under continual pressure to show analysts that they are growing. Then, boom; in January this year Pearson came out of nowhere with a $127m takeover of TutorVista, and announced their plans to open 100 schools before 2012 in partnership with their new best friends in Indian EDUCOMP (with whom they already had a significant JV, Indiacan, that focuses on the training market). B2C and India are a huge step change for Pearson, but it’s a bet also being made by investors like Sequoia Capital, Matrix Partners, IDFC, Helix, Venture East, Temasek Invstments, Lightspeed Capital, HSBC Private Equity, Gaja and Intel Capital. Together they have invested in education companies ranging from EDUCOMP to Manipal, Everonn, NIIT, Fitjee,ICA, Core Projects & Technology, NavNEET and EdCil.
EDUCOMP are likely to be India’s first $1bn education company. I met Shantanu Prakash, the founder and CEO, and while this may sound outlandish, he struck me quite forcibly as likely to become the Rupert Murdoch of education. Laugh if you like but the comparisons are there. Murdoch may have had a privileged upbringing but he effectively started out in 1949 with one provincial newspaper, the Adelaide News. Even in Australia, where his father had been a major figure in the media for a generation, he was small beer compared to local media dynasties and these were minnows compared to Thomson or the Daily Mail and General Trust. Yet look at News Corp. today, a media colossus, which somewhat ironically, after years of ignoring its own educational assets, has suddenly become very excited about education, paying $360m for Wireless Generation. So while EDUCOMP may be the junior partner to Pearson today, in the future they could well become their biggest rival, or even perhaps their most important acquisition target. When I asked Mr Prakash about the ‘creative tensions’ of EDUCOMP’s partnership with Pearson, he laughed and said it was ‘very healthy for both parties’.
But there was also another important earlier trend that I missed, one I call the ‘outsourced cash flow model’. This is where local companies have built substantial education businesses on the back of the cash flow (and contacts) from outsourcing of educational projects by government in India, particularly at a state level. Now that the market has plenty of capital available, it was interesting to see that this B2B model still features prominently in the plans of many smaller, aspirational Indian education companies.
B2C may the sexy new thing, but I think B2B still has plenty of opportunities, especially if India’s hugely successful BPO sector gets involved. I don’t think it will take long for one or more of them to emerge as the local equivalent of Capita or SERCO.
So why did most international companies, who already operate in India, miss this trend? Partly, I think this is another example of poor corporate intelligence, that is almost a hallmark of many education companies, but it’s also partly a reflection of the paucity of deep understanding and subsequent advice available to UK companies, from organisations such as the British Council and BESA. Commentators like me are equally to blame, we tend to be too focused domestically and don’t spend anywhere near enough time (or money) getting on the ground in these markets. Instead we tend to rely on desk research and the very occasional paid junket, where you are generally expected to write something positive about your sponsor or their event (if you ever want to get asked again).
Education may be more like the 19th century gold rushes than we care to admit. These were a good example (but not the first) of what we now call globalisation, with capital and labour moving rapidly to exploit the latest discovery. However, aside from a lucky few, the best way to make a fortune in a gold rush is not to chase a lucky bonanza, but to supply those chasing the dream. Education companies have also been chasing gold, all the way from Cairo to Rio and back again, but their business model has been B2B, with the gold buried within the vaults of governments. Pearson’s B2C strategy is betting that the future river of gold in the education market will be the spending by students and their families pursuing their educational dreams in a globalised market.