Is China still a good option for overseas education companies to enter?
Going abroad has become one of the options for Chinese education companies to seek opportunities. But for overseas companies who plan to expand into China, it seems that huge traction of the land is turning into great uncertainty.
Since 2001 when China joined WTO, an array of overseas education companies, including those that provide early childhood education, language learning, STEAM, international education, and publications, have begun their operations in China.
However, as wide-ranging regulations on academic tutoring to K-9 students in China announced in July, domestic and foreign investors have already retreated from the area, and foreign companies who are targeting the market would wait and look around.
“Many foreign education companies still don’t have a clear understanding about the situation in the market,” a person familiar with overseas education companies told JMD.
A gold mine for global expansion
Since China launched reform and opening-up in 1978, the country with huge untapped potential has been a gold mine for foreign companies.
As China became a member of WTO in 2001, there emerged two trends of landing a job in foreign companies and studying abroad, bringing a strong demand for learning English. English learning providers such as Education First (Sweden), Wallstreet English (Italy), and Berlitz (U.S.) started to open offline tutoring centers for professionals and college students from around 2000.
Meanwhile, traditional educational publishers like Pearson, McGraw Hill, and Scholastic entered the market as people in China were eager to access authentic and quality English learning content and resources.
During this period, Chinese families have become more aware of scientific parenting methods. China, where early childhood education was still in the initial stage, introduced relatively mature brands from Europe, North America, and Japan. HEI Schools, MyGym, Gymboree, Romp n’Roll, and Copel are some of these providers.
Fast forward to around 2010, as three top MOOC platforms were born in the United States, China’s online education industry began to flourish. More overseas companies that integrate education and technology regarded China as an indispensable piece in their international growth picture.
Coursera, Udacity, and edX all entered China. From around 2014, which is acknowledged as “the Year of Genesis” for online education in China, the concept of STEAM was exported to China. CodeMonkey (Israel), CodeCombat and Roblox (U.S.), Lego (Denmark), Minecraft (Sweden Mojang Studios, which was acquired by Microsoft), as well as Sony (Japan), have made their entry to China through first-mover advantage.
Language learning startups focusing on gamification, personalization, and online learning community also planned to acquire more Chinese learners. Lingumi, Memrise, and Busuu from the U.K., as well as Duolingo and Age of Learning from the U.S., are among these companies.
Renaissance Learning, MetaMetrics’ Lexile Framework for Reading, and Reading A-Z partnered with international schools and English tutoring providers in China to offer solutions on leveled reading.
When it comes to the intersection of overseas and China, international education has to be mentioned. As China is recognized as one of the biggest sources of international students, the demand for increasing language proficiency and attending exams from these students attracted ETS, College Board, IB, Pearson, and Duolingo to hold tests in China.
Industry leaders beyond the education sector such as Microsoft, HP, and Intel also launched devices for students in China by leveraging their strength in software and hardware.
According to a report named Online Education and Edtech Opportunities in China published by Austrade in 2017, foreign online education providers generally operate in China in one of four ways:
- Offering the solution within China by
- Establishing a WFOE
- Establishing a joint venture in China
- Partnering with a China-based company
- Offering the service directly from overseas.
Pearson Education Ltd. entered China as a WFOE, and EF set up a joint venture in Shanghai in 2003.
Game and coding platforms tended to find a local partner. CodeCombat and Minecraft partnered with NetEase, one of the leading internet companies in China, to launch in China. Roblox joined hands with Tencent. Lego is represented by NetEase and Tencent.
The fourth way was selected by Drops, a language app under Kahoot!. The platform provides services directly from overseas, even though it has rolled out the Simplified Chinese version.
Another way that many companies currently adopt is setting up offices. Duolingo landed in China in 2019 by opening an office in Beijing.
These companies usually adopt B2C, B2B, or B2B2C models. Individual customers include learners and parents, and business users include international schools, domestic education companies, as well as government bodies and public schools in China.
A major difference exists in the partnership with governments and public schools. It is bottom-up in the U.S., but top-down in China, Nick Winter, Code Combat founder, told JMD in an interview in 2017.
Despite the difference and fierce competition, a company that is able to sign up with schools and governments will access a large number of users and then have a steady income. Sony launched KOOV to Chinese K-12 public schools. STEM company Twig has jointly launched programs with several schools in China since 2020.
Is the market still a good option?
The regulations announced in July have an impact on both domestic and foreign companies that provide online tutoring and offline academic tutoring to preschoolers, as well as those that offer tutoring on academic subjects, especially English, to K-9 students. In addition, the partnership with adversely impacted domestic education companies is affected.
The regulatory environment in China, a concern that previous reports on entering the market must mention, becomes a factor that needs more careful consideration when the policy was released.
Following the retreat of investors, companies who had intended to expand the business to China would wait and see. “Many foreign education companies still don’t have a clear understanding about the situation in the market,” said a person who is familiar with foreign education companies. “They think there are too many uncertainties.”
Even so, China is still an attractive area for global expansion. “Our future plans definitely include further expansion in markets in the Asia Pacific as well as China more particularly,” Kahoot! CEO Eilert Hanoa told JMD in March.
According to Q2 2021 report, Kahoot! has launched the app and live game in Japanese in the Asia Pacific region, and is launching in Arabic and simplified Chinese second half of 2021.
“We know there were a lot of changes going on with Chinese policy, but it is a very important market for us,” Michael Chasen, Class Technologies founder & CEO, said. “In particular, Mandarin is a global language even outside of China, and it is very high on our list of localization.”
“We are working to make interactive content a global standard and that includes Asia as well,” Conchi Ruiz Cabello, Country Manager USA at Genially, told JMD. “Our expansion plan is ambitious, and we are positive we will connect with the Chinese market when the time comes.”
As SaaS products that are designed to meet the universal demand such as gamification, online learning, and interaction, Kahoot!, Class Technologies, and Genially are able to gain users from different sectors. And they don’t provide specific content, so they have the edge for global expansion.
SaaS platforms in other countries are also growing their global footprint. ClassIn, an online classroom platform in China, has already been on its road to global growth. It has served 20 million teachers and students across 150 countries as of 2020.
Teachmint, an online teaching platform in India, said it is well-positioned to scale offering globally when it raised $78 million in October. “We don’t create content, so the product is geography agnostic,” Mihir Gupta, co-founder & CEO of Teachmint, said in an interview with TechCrunch in July.
It is still unknown that whether such foreign companies would enter China successfully. But what we can say for sure is foreign companies that already have business in China will confront more rivals across segments where a lot of domestic companies are shifting focus towards, such as STEAM, quality-oriented education, and partnering with schools to provide on-campus after-school tutoring and activities.