China’s after-school tutoring industry is ripe for overseas expansion owing to surging demand
Recently, China’s large players in after-school tutoring market have unveiled their plan to open learning centers outside the country, marking an attempt of this industry’s overseas expansion. The rising number of Chinese students studying abroad spark surge in demand for education service like this.
On September 6th, the NY-listed TAL Education Group, one of the largest after-school tutoring providers in China, announced that it will open its first overseas tutoring center in Silicon Valley through its WeChat official account. Operated under its K12 tutoring brand Think Academy, TAL will start an online math class in mid-October targeting elementary school students also plans to open offline classes next year at the new center.
And a few days later, on September 9th, Zhuge Academy, the international subsidiary of Lanxum providing “Big Chinese Learning” tutoring service, also officially started its business in Silicon Valley. US has become the second country on Lanxum’s overseas layout after Canada.
The right time for education companies to go global
Tapping into overseas markets for new opportunities and diverse revenue streams is not something new to Chinese enterprises that there are lots of successful cases we can think of such as Cheetah Mobile(NYSE: CMCM), Xiaomi and Huawei. From manufacturing to communications, from Internet Finance to e-cigarettes industry, overseas markets have even become the more prominent growth space for some companies.
However, overseas expansion entails the company’s great effort to meet the needs of local consumers. The product or technology as the core does not need to be significantly changed whereas adapting operational process to the target market is crucial. That being said, growing global may not seem to be a productive strategy for education companies because their business development is easy to be influenced by different cultures and learning conditions. Due to the exam-oriented attribute of education system in China, previous Chinese companies that have made attempts on overseas expansion are almost hardware and nursery service providers, and some of them have indeed made substantial growth.
For example, the educational business revenue of Netdragon Websoft, a Chinese company that develops multiplayer online games and mobile applications massively, reached RMB 1.049 billion (USD 146.7 million) in the first half of this year, and the STEAM education enterprise Makeblock hit RMB 2.5 billion valuation (USD 349.65 million). The former is focused on education informatization, relying on the acquisition of listed companies in the UK to vie for market share, and the latter provides robotic hardware whose advantage lies in China’s leading manufacturing and supply chain in the world.
While for K12 after-school tutoring companies, overseas business expansion means restart. They may have to rebuild the product from 0 to 1. The requirements for national college entrance examination (Gaokao) may vary from region to region, so even penetrating other provinces in China is associated with localization barrier. Overseas markets with more prominent differences in educational environment and mindset are undoubtedly less friendly to China’s K12 educational business operators.
Nevertheless, as long as education is still playing the role of talent selection and test score is still referred to as a major standard for further studies worldwide, the overseas market is unlikely to completely shut the door to after-school tutoring business. The key actually lies in whether the potential market size is worth investing and whether the input-output ratio is cost-effective.
Take Zhuge Academy in Silicon Valley as an example, “Big Chinese Learning” refers to a new subject-based learning mindset and advocates a comprehensive Chinese language training combining both liberal arts teaching and exam-oriented model, thus Lanxum’s business exactly meets the rising demand of school-aged Chinese children’s native language and culture learning.
According to US demographic data in 2018, California’s Chinese population has exceeded 1.8 million, and San Francisco is one of the cities with the highest density of overseas Chinese with a population of around 200,000. Compared to the Chinese market where the number of students enrolled in Lanxum’s courses was 68,000 in H1 2019 with the cash flow of RMB 230 million (USD32.17 million). We can simply do the math that if there are 40,000 K12 stage Chinese students in San Francisco and 5% of them sign up for the “Big Chinese Learning” course, the market of this city alone can even achieve approximately 10% of Lanxum’s annual revenue in China.
Therefore, it is not difficult to understand why TAL and Lanxum have begun and accelerated their overseas push. Now, it is the right time for China’s education companies to tap into the overseas market with their content and services edges.
“New wine in old bottles”: relying on the current system to localize
TAL and Lanxum’s overseas market adaption and performance does not raise much concern in the industry. After all, amid the fierce competition in China’s K12 tutoring market, the two companies have already established a complete system of operating, teaching and research training as well as campus management. The only thing they need to pay attention is shifting export strategy and adapting their products to the local students’ learning conditions for gaining market acceptance.
Targeting the math contests in primary and secondary schools by providing courses taught by English, TAL’s Silicon Valley center is still relying on the promotion of “star teachers”, curriculum design and high-end services. The difference is that “the Silicon Valley center has conducted a comprehensive survey of K-12 mathematics textbooks and learning system in the US and has summed up a knowledge structure suitable for American students through the in-depth research on the test questions of AMC, Math League and Mathcounts.”
Lanxum also released its international version of “Big Chinese Learning” curriculum design on September 9th, incorporating the basic needs of overseas Chinese students in literacy and writing. Moreover, the curriculum highlights the reading ability, guiding students to study Chinese history and culture, Chinese classical and contemporary literature, and the worldwide classic literature, at the meantime, training students’ oral skills. As for the teaching model, Zhuge Academy in San Francisco will adopt the combination of face-to-face and dual-teacher system.
The export of Chinese teaching and training experience is not only for the new market share but also for brand exposure. The rising tutoring demand for overseas Chinese family and the accumulation of these two K12 education giants in content and services will enable investors in the US stock to gain new insights on Chinese education concept stocks.
Where there is talent selection through education, there will an after-school tutoring market fueled up. Where there are demands of training institutions, there definitely will be Chinese players.