Strict regulations push China’s K-12 edtech companies to look abroad

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The recent tightenings on China’s K-12 after-school tutoring have pushed players in the sector to find a way out.

Gaotu, formerly known as GSX, cut off its preschool learning business and placed a bet on adults. Dali Education, the edtech brand under Byte Dance, was said to pivot its class delivery form to an AI-based asynchronous video class.

Amid strict regulations, some edtech companies are also looking to tap into overseas markets. However, it should be clear that they would have to face huge challenges from policy, economy, and localization.

Global edtech market is expected to grow to US$404 billion in 2025

The Covid-19 pandemic has accelerated digital learning across the world, with the search volume on online education and related terms soared by 30% to 50%.

Yeahmobi, an intelligent marketing service provider in China, estimates that the total spending on education and training will reach US$7.3 trillion by 2025. The global edtech market is expected to grow at a compound annual growth rate of 16.3% to US$404 billion in 2025.

“Edtech has an enormous potential over a long term, with China, the United States, Europe, and India the main markets that attract venture funding,” Guo Li, who heads Yeahmobi’s operations on going abroad, said to JMDedu. The difference between these markets is that capital usually goes to higher education, corporate training, and lifelong learning in developed countries while going to the K-12 sector in developing countries.

India, the United States, and Southeast Asia are the three markets that need much attention, said Wang Daoxin, vice president of investment at Danhe Capital.

He added, India has a high market concentration, and its economy is on the rise. People in the country are more willing to pay for education. For the United States, investors prefer pitches that target businesses in recent years, but there is still a demand from consumers. Southeast Asia, which has a lot in common with China in culture and languages, has a large youth population.

Taking India as an example, he added that on-campus services and infrastructure are difficult to meet students’ needs, so supplemental learning services currently dominate India’s education market.

He said India’s education market size stands at RMB15 billion yuan, which is about one-sixth of China’s. There are about 260 million school-age children in the country, and among which 70 to 80 million participate in off-campus training, with the participation rate ranging from 25% to 30%.

Byju’s, an edtech unicorn in India, now leads the market, but small and medium-sized institutions still have 70% — 80% of the market share. Due to the low penetration of online education, Indian still has room for massive growth, said Wang.

Aware of challenges

As after-school tutoring is faced with stricter regulatory rules, China’s K-12 players are seeking to expand their global presence. However, these companies also need to become more aware of challenges posed by differences in political system and economy, along with difficulty in localization.

Language learning program is often the first option that China’s edtech companies would choose when entering other markets.

JMDedu learned that Yuanfudao is now considering expanding international markets. Actually, the unicorn is among the early companies that open up the Indian market by setting up two companies called Yuanyin and Yuanzhu.

Youdao, a US-listed edtech company under NetEase, entered India by launching U-Dictionary in 2016. VIPKID, a language learning platform connecting students with teachers from North America and other regions, launched Lingo Bus in 2017 to help children aged three to five learn Chinese.

Generally speaking, countries with a large population and high premium markets usually have greater demand for language education. India, the United States, Brazil, Japan, and Indonesia are among the top five in search volume.

In the Chinese language learning market, the most searched users are from the United States, the Philippines, Malaysia, India, and Singapore.

“There is indeed a big market for Chinese learning, but compared with English, the demand for it is invisible,” said Byron, Manager of Key Account and Government and Public Sector at Google. “ If you just focus on offering Chinese tutoring, you may miss out on meeting other needs. “

Threats not only come from limited demand but also diplomatic relations between two countries, which could occasionally be a fatal risk factor.

Li Xiao, the current head of overseas business at Palfish, shared his experience. He started to provide civil servants training services in India around 2019. The program then witnessed “crazy growth” in users for a while as the pandemic began, but finally had to be stopped due to the change in China-India relations and the inconvenience brought by entry restrictions and quarantine regulations.

Sometimes a trivial problem can be a hindrance, such as a situation where glue or markers in a STEAM product toolkit could not be cleared for export, said he.

Moreover, how to localize offerings for a new market is another hard task. Localization is the only road leading to sustainable growth. “Localization on both product and content is needed to integrate into local markets, which should be supported by a local market-focused team,” said Li Xiao.

China has been the largest exporter of goods in the world. Will education become another prominent goods in addition to consumer electronics, data processing technologies, clothing, other textiles, optical gear, and medical equipment? There is still a long way to go.

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