Education Week - December 11, 2013 - 16

INDUSTRY & INNOVATION > Tracking business trends and emerging models in K-12
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China's Economic Growth Fuels a Diverse K-12 Marketplace
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businesses, with a few dozen employees,
but also such major companies
as Pearson, which employs an
estimated 6,000 people in China.
Other education companies also
recognize China's potential and are
determined to establish a presence
in the world's most populous country,
which has 1.35 billion people.
"We've got a lot of really great
initiatives going on in China,"
said Mark Dorman, the president
of McGraw-Hill Education's international
division. The company's
work there is near the "core of our
international strategy," he added,
though the New York City-based
publisher recognizes it is not alone
in that assessment.
"There's no secret that China is a
big, exciting market," Mr. Dorman
said. "We're not the only ones who
think that."
At the same time, U.S. and other
Western companies and entrepreneurs
say doing business in China
requires them to navigate complicated
terrain, full of hurdles that,
depending on what they're selling,
can include having to secure approval
from various levels of government
or guard against piracy of
software.
College-Prep Market
The attractiveness of China's education
market, and the likelihood
that it will continue to grow, comes
across in an array of research and
data that speak to the country's demand
for school services and technology,
and the ability of its citizens
to spend money on those things.
China's appetite for mobile-learning
devices, self-paced e-learning
products, and digital English-language
acquisition is expected to increase
steadily over the next three
or four years, according to Ambient
Insight, a market-research company
based in the Seattle area. Revenues
for mobile-learning companies in the
Chinese market were $490 million in
2012, but are expected to quadruple
to $1.9 billion by 2017, powered by
the "explosive growth" in mobile Web
access, the company projects.
China has more than 590 million
Internet users, about 40 percent of
the country's population, up from
420 million three years ago, according
to Chinese government estimates.
The United States, by comparison,
has an estimated 245 million Web
users-though they make up a
much higher portion of its population,
roughly 80 percent.
Demand for higher education, especially
American-style postsecondary
study, has also risen sharply over
time-a trend that in turn is driving
a desire for a better education that
cascades down to families of students
in secondary school and lower grades.
A report released this year by the
Institute of International Education,
a nonprofit group in New York City
that promotes exchanges across
countries and cultures said China
is by far the largest nation of origin
of foreign students in U.S. postsecondary
institutions. It sent 236,000
students to those schools during the
2012-13 academic year, up 21 percent
over the previous year.
American institutions' use of
third-party agents to recruit students
has come under criticism
from those who say those efforts
result in too many students coming
to the United States ill-prepared
for the academic and financial demands
of U.S. colleges. Those observers
suspect that colleges are
recruiting Chinese students primarily
for financial reasons, not a
desire to bring cultural diversity to
their campuses.
Chinese secondary students' college
ambitions have long been deter-
"
Schoolwires, which serves about
1,600 school districts in the United
States, is just beginning to build
its brand in China, he noted. Since
it started selling its products relatively
recently, it has signed up
less than 10 school and district clients,
most of them in the country's
wealthier and more developed eastern
regions, such as the Jiangsu
province and Beijing.
"We are optimistic, but we are also
cautious," Mr. Zhou said. "We're new
to the market."
Buying Chinese Companies
Some education companies have
established or expanded their presence
in the Chinese market after purchasing
companies there. Two years
ago, Pearson bought a Chinese-based
and work in assessment aligned to
curriculum.
In many cases, the need for foreign
entities to secure permission
from Chinese government agencies
such as the Ministry of Education is
greater when companies are trying
to do business within the government-run
system than when they
are operating in the private market,
a number of company officials said.
China's government-run schools
are part of a landscape that "takes a
while to navigate," said Mr. O'Grady.
Selling products in the private market
is typically "much more of a retail
business," he said.
Dan Harris, a Seattle lawyer
whose firm advises U.S. education
companies doing business in China,
said setting up operations there
typically requires a U.S. company to
Communist central government has
a well-documented record of suppressing
free speech and censoring
products it regards as threatening.
Even if U.S. education companies'
work in China does not intersect
directly with concerns about basic
civic freedoms, there is reason to
question whether the products
they sell will benefit anyone other
than China's moneyed class, said
Leo Casey, the executive director
of the Albert Shanker Institute, a
Washington nonprofit group that
supports the labor rights of Chinese
teachers.
"The inequalities are so great," Mr.
We've got a lot of really great initiatives going on in China.
There's no secret that China is a big, exciting market.
We're not the only ones who think that."
MARK DORMAN
President, International Division, McGraw-Hill Education
mined by their performance on the
Gaokao, the nation's postsecondaryentrance
exam. But as wealth and
opportunities to study abroad have
increased, many families have demanded
lessons to supplement the
Chinese curriculum to prepare those
students to leave China, said Eddie
West, the director of international
initiatives for the National Association
for College Admission Counseling,
in Arlington, Va. U.S.-based
companies and those from other
countries, he said, are scrambling to
provide that academic preparation.
Those programs are geared to
"students who are saying no to the
Gaokao," Mr. West said.
But the strength of the Chinese
market has also drawn U.S.-based
companies with other, very different
interests, such as Schoolwires,
which provides platforms for Web
content management and online
learning for teachers and students.
Schoolwires, which is based in
State College, Pa., first set up an
office in Beijing four years ago as
a research and development center
to serve the U.S. market, reasoning
that China was not ready for its
products, said Lin Zhou, the company's
vice president of platform
delivery and Asian operations.
But the company's perspective
changed as the school landscape
quickly evolved, particularly as
access to broadband technology
increased in major cities and the
Chinese government took steps to
expand the number of computing
devices in schools, said Mr. Zhou.
He is a native of Jiangxi province
who attended graduate school in the
United States.
16 | EDUCATION WEEK | December 11, 2013 | www.edweek.org
company, Global Education and
Technology Group, for $155 million.
Global Education focuses on preparation
for English-language tests
such as the Test of English as a Foreign
Language, an exam commonly
used as a factor in admission to U.S.
universities, as well as for tests for
occupations.
Today, that program has 687,000
enrollees, and it operates out of
about 20 Chinese cities, said Brendan
O'Grady, a spokesman for Pearson's
international division.
Several factors are driving the
interest in those education services,
including the overall desire by people
in China to learn English and a belief
in its "connection to employability,"
he explained.
Pearson operates in 70 countries
and has 45,000 employees, the biggest
share of whom work in the United
States, with the second-largest share
based in China. The London-based
company's work in China also includes
English-language instruction
and K-12 and college textbooks and
other materials, Mr. O'Grady said.
Much of the demand for foreign
education products and services
in China, as in other parts of Asia,
comes not from government-run
school systems, but from a large
"shadow, private system" supported
by parents seeking supplemental tutoring
and other services they believe
will give their children a leg up, said
Mr. Dorman of McGraw-Hill.
McGraw-Hill's interests in China
are broad. They include a joint venture
with a China-based company
to provide after-school education;
an effort to provide digital learning
to Chinese children ages 2 to 6;
form a separate company, arrange
a process to pay employees and
taxes, rent space, and register trademarks-steps
that can consume a
lot of time and money.
Still, Mr. Harris said, his clients
tell him education services in China
are "booming through the roof."
Curbs on Speech
Many researchers and other observers
have noted the strong emphasis
that families in China place
on their children's education, and
their conviction that it is crucial to
those children's future success. Demand
for American education products
and services in China also can
be traced to a tendency throughout
Chinese society to regard the country's
own education system with a
highly critical eye, said Alan Ginsburg,
a former director of policy and
program studies at the U.S. Department
of Education.
That perspective is shaped by the
dominant role that tests play in determining
Chinese students' prospects,
and the belief that the U.S.
system encourages more creativity
and critical thinking than the Chinese
system, he said.
Many people in China believe that
"American kids can think and apply
what they know," said Mr. Ginsburg,
who also formerly chaired the
human-resource-development group
in the Asian Pacific Economic Cooperation,
a coalition that promotes
economic development, trade, and
investment across the Pacific Rim.
Some Western companies have
been criticized over the years for
doing business in China, where the
Casey said. "I sincerely doubt [the
educational benefits] will get beyond
the urban, eastern-seaboard schools
that have a great deal more money."
In addition, some U.S. companies
attempting to sell products in
China, particularly software, have
found that the interest in their
goods has spawned efforts to steal
ideas in ways that violate intellectual-property
rights.
Protection of Property
A report released last year by
the Business Software Alliance, in
a Washington-based group, found
that China had one of the highest
piracy rates of 20 nations the organization
studied.
The report's analysis is based on
an estimate of a comparsion of the
commercial value of unlicensed software,
and licensed software, being
sold in various countries. China's piracy
rate stands at 77 percent, and
the value of those illegal software
products is nearly $9 billion, a value
much higher than the legal market
for those products, at $3 billion.
The piracy rate in the United
States, by contrast, is 19 percent, and
the value of legal software sales, $41
billion, dwarfs the illicit market, the
report found.
Mr. Harris, the Seattle lawyer,
cited several factors as contributing
to high piracy in China, including
an abundance of manufacturers capable
of making illegal materials, the
overall power exerted by businesses
involved in counterfeiting goods, public
apathy about the problem, and the
overall lack of risk faced by those engaged
in piracy.
Even so, conditions for preventing
piracy in China have improved
somewhat over time. He added that
American education software businesses
that are vigilant about taking
legal and technological steps to protect
their intellectual property can
reap big rewards.
"Smart companies can thrive in
China," he said, if they know the
landscape and can keep thieves
merely "nibbling at the edges."
Coverage of entrepreneurship and
innovation in education and school design
is supported in part by a grant from
the Carnegie Corporation of New York.
Education Week retains sole editorial
control over the content of this coverage.
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Education Week - December 11, 2013

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