When you look at household spending in China, the fact that families spend 30% of their annual income on education for their child jumps out at you. If you plan to do business in China, it certainly wouldn’t hurt to be an education company focused on children. The industry is also one of the least restricted by the government and so very easy to get the necessary approvals.
When you hear 30% of the family income, that’s extended family as well. So usually both parents and both sets of grandparents are contributing to that child’s future through education. Chinese culture has always placed a strong emphasis on learning and formal schooling in particular. From this business opportunity standpoint, there is a lot of potential for profit. On the other hand, it’s also extremely competitive, with more competition than you can even keep track of. So what opportunities exist for Western educational businesses?
No Joy in Learning
We can explore this by first gaining some insight into our customers. A typical question asked in many beginning children’s English language courses is, “What do you do in your free time?” The answer that most Chinese children give is that they don’t have free time. They aren’t joking or exaggerating. The average Chinese child may go to school from 7:30 am to 5:30 pm and then have 2 hours of homework per night. Extra time on evenings or weekends will be spent in a plethora of additional learning environments, English, music, and chess being some of the top among them.
Many parents that grew up in that environment themselves grew up to resent it. They often want something different for their child. At the same time, the social pressure to compete is tremendous and parents will still enroll their children in the same number of extracurricular learning activities.
The difference is that they hope their child can find joy in those activities, a joy they see as missing from their own childhoods. The compromise is looking towards Western education that is considered to be more play-based and focused on additional skills such as socializing and creativity.
A Move to the West
For this reason, Western educational businesses have skyrocketed in the market, especially in the big cities. My previous article on Disney English is an example of this, but you can find numerous examples without looking too hard. Maybe it’s an international school that promotes a US or British curriculum, maybe it’s a parent-child class that teachers English through yoga, maybe it’s an early MBA program.
Often, just stating that you’re using this or that Western method is enough to start drawing in families as clients. And it’s common in China to do a minimum of a 1-year contract for any educational program, all paid up front, no payment plans here. That means the cash flow issues that exist in many US educational businesses don’t exist in China. You have the cash on hand; plus, refunds are not standard practice, so you can count on that income to be stable throughout the year.
Results are Still King
Similar to their upper-income counterparts in the US, Chinese parents may seek a fun, play-based learning environment, but results are still the bottom-line. The entire point is for their child to get a leg up on the competition. If they don’t see their child making the break-neck progress they expect, they may pull their child. Chinese parent expectations can be very demanding, some might even say unrealistic at times.
This can be very hard for a play-based program where results are much more qualitative than quantitative. Realistically speaking, a true play-based program lacking in linear structure and defined assessments will not carry much weight with most Chinese parents past the first 3 months. To retain children in the program, they will have to show tracked results and marked improvement. Keep in mind that New Oriental, a test-prep school, is still dominating the market, which goes to show that tradition can often trump personal preference.
There is opportunity everywhere within the children’s education sector. There is already a ton of competition in the market, but parents are very willing to try new approaches stemming from the West that promise learning and fun combined. The quality of that competition also varies greatly, so it may not be as challenging as it appears at first. For any early childhood company wishing to do business in China, it’s definitely worth exploring.
Casey W. Xiao-Morris is a veteran China Business Consultant at Leverage China, LLC., helping her clients succeed in China’s market. Casey can be reached at cxmorris@LeverageChina.com.