Education Industry Market Entry and Development in China 2021 危机中诞生的教育新格局
What you need to know for Education Industry Market Entry and Development in China-Current Status and Trends
2021 marks a turning point in the restarting of the world structure, global politics and economy. Companies have been exploring new growth opportunities that triggered in the crisis of Pandemic by reallocating their investments and making transformation. In China, in addition to food & beverage, medical & life sciences, new infrastructure, smart manufacturing, 5G, new energy vehicles, consumer goods, etc., education industry will continue its performance in 2020 as one of the hottest investment market pursuits. Recently, we were approached by entrepreneurs who are seeking advices on how to proceed with the education industry market research, entry and strategic planning.
Digital technology, catalyzed by the pandemic, is advancing at an even faster pace, and making a huge impact on education industry and the society as a whole: it is affecting our economic activities, our political decisions, and human rights. Although there will inevitably be negative effects, in most cases, it brings positive impacts. We've seen how digital technology can be used to spread hatred, biases and false information. Yet, of course, there are good examples such as many lives saved through using the real-time digital transmission of public health information.
As far as the education industry is concerned, on the one hand, if we cannot continue to take advantage of digital technology and educate our children correctly through the Internet, quarantines and prevention policies will certainly affect us with harmful consequences, contrary to our best intentions. On the other hand, as more and more families accept and emphasize online education, we should not forget to address many factors such as: how to leverage the power of digital technology to spread positive influences? What more changes might take place in the education & training industry? What the importance and possibilities of other ways of education could be in the future and how to better seize the opportunities?
Source from：Xinhua Net
Development Status of China's Education Industry during the Pandemic
In 2020, the sudden outbreak of Covid caused many industries to press the "pause button" for a short time, but it brought huge opportunities for online education. According to the "2020 Education Industry Development Report" released by Tianyancha, a well-known platform for companies information query in China, 476,000 new education-related companies were added in the first 10 months, among which 82,000 are new online education companies, accounting for about 17.3% of the total increase in the entire education industry.
Registration number of education and online education companies in China, Jan-Oct 2020
Source: Tianyancha Data Journalism Lab
The report shows that, the total number of companies related to online education in China increased to 700,000 as of October 2020 from 150,000 of a decade ago.
Source: Tianyancha Data Journalism Lab
In terms of geographical distribution, Guangdong province has the largest number of education-related enterprises, with a total of 382,000 followed by Beijing, Jiangsu and Sichuan.
As shown in the chart below, from the perspective of the registered capital, the number of companies with 0-1 million RMB registered capital is the largest group, reaching the amount of 1.13 million among the 4.12 million education companies in China followed by the number of companies with 1-2 million RMB registered capital, reaching the amount of 640,000. This shows an industry structure of “the lower the registered capital, the greater the number of companies”
Industry Structure, companies numbers ranking in terms of registered capital
Source: Tianyancha Data Journalism Lab
What will happen to the Education and Training industry after the outbreak and what Opportunities are there?
Affected by the outbreak, primary and middle schools have scheduled delayed admission and early holidays, the requirements of "Keep up with your studies” have tremendously increased the demand of online education, also the number of platforms users. In order to survive, offline institutions had to expand their capacity to online teaching and the industry is making transformation to the Online-Merge-Offline (OMO) business model.
The current exploration of OMO in China education industry has two focuses: the first is on the operational side, including online customers’ acquisition and services. The second focus is on the teaching side, such as introduction of online & offline integrated courses, interactive games and experiences, etc.
Taking the three online educational institutions invested by Sinovation Ventures: VIPKID, Boxfish, Seven-day Education as examples, the team connects foreign teachers, local teaching assistants, software and hardware in the scenarios that foreign teachers in charge of remote teaching, local assistants responsible for supervision of the interactive atmosphere, using software to correct pronunciation, check homework and tests during the outbreak. As the very positive feedbacks and outcome received, we can clearly picture that OMO model is more and more widely used in the key parts of education.
Further Analysis of the Education and Training Industry from five important Dimensions：
1. Development Trend
The epidemic is a "catalyst", which does not change the development direction of the industry, but triggers the "fast forward key" of the industry development. The penetration of online learning mode has becoming the way of our daily lives. Once students' online learning habits are triggered, it will save a large amount of costs in promotion and customer acquisition for online training organizations. The total amount of online course market will undoubtedly grow rapidly in the future, and the market share of OMO will soar.
2. Empowered by Technology
In addition to the curriculum, content and service, the future competitiveness is empowered by the penetration of technology. There will be more and more institutions labeled with "AI technology", "big data analysis", "streaming media technology" and "RV immersion learning". In the meantime of more discretion required for parents, the value technological empowerment will certainly become a competitive barrier among education institutions.
3. From Users Perspective
The demand for family education that strengthen the parent-child relationship will increase due to the long period of home staying, and the introduction of related courses will be very popular. With China's economic development and the post-80s and 90s generation are gradually becoming parents, more investments and attentions are paid to the overall quality of their children. What lacking now is not learning platforms and live broadcasting tools, but high-quality courses and services that are suitable for their kids.
4. Education Industry Chain
After decades of development, the education industry has gradually become mature. The vertical division of work in the education industry chain will be more refined in the future.
5. Market Segmentation
As early investment has better returns, we see that early childhood education is particularly important. Among the various types of early education, children's art education and training has gradually become the backbone of the industry. The well-designed art programs integrate the elements of games and entertainment, so that children can understand the beauty of art while experiencing the fun classes. It is also one of the best ways for development of their thinking and culture communication. China's art education market is still in the stage of development with huge demand and potentials.
An in-depth Segmentation Analysis of the Education Market Entry -- taking Art Education and Training as an example
As the new vaccine awakens more and more industries, campus life is expected to return to normal in the fall of 2021 gradually, and a new wave of children's art education is approaching.
Before entering the industry, homework needs to be done to understand the key factors such as customer preferences, competitors, potential of getting the market shares & financing, as well as your competitive advantages for the planning of winning strategies and risk prevention.
In 2016, China liberalized its second-child policy, now the new children have reached pre-school age. According to the National Education Development Statistics Bulletin issued by the Ministry of Education on May 20, 2020, the number of kindergarten to junior high school groups in China has been increasing year by year, with the total number of students in 2019 reaching 201.02 million, an increase of 2.3% compared to 2018. We can see that children's art training market base is huge.
In fact, China's art training market has reached 214.96 billion yuan in 2019 and is expected to reach 298.94 billion yuan in 2022, with a three-year compound annual growth rate of 11.6%, according to China Art Education Industry Market Analysis 2020 published by the research institute, Analysys.
2015-2022 China's Education Industry Market Size and Forecast (In 100 million yuan, %)
Data Source from: Analysys and Qianzhan industry research
Children's art training mainly aims at kindergarten, primary and junior high school students to provide educational content and services. At present, there are many kinds of children's art trainings and various types of training institutions in China. Research shows that the proportion of music and art education courses rank for the first and second place in the type of art education that parents want their children to receive with 50.63% and 44.72 %, respectively. Children's drama education accounted for only 6.89%, there is still a lot of room for development.
Statistics on the Proportion of Various Art Education Programs Courses in China (%)
Data Source from: Analysys and Qianzhan industry research
Research also shows that as of July 21, there are four financing events in the field of art education in China, with a total amount of 520 million RMB, and all occurred after round B financing. Among them, Art Education Company, Meishubao has the highest valuation in the field with a valuation of 2.6 billion RMB.
2020 China Art Education Investment Event
Data Source from: ITJUZI, Qianzhan Industry Research
The above disclosure indicate that the industry investment mainly took place at the expansion and maturity stages. With sufficient capital, strong technical and product team, their ability to share the market is even stronger. The investors behind are the internet giants such as Tencent if we take a closer look. What they value is not only the targeted company but also the art training market itself as a big piece of cake. Of course, investors will favor Education companies with outstanding performances.
Therefore, before entering the industry, analysis on trends, political environment, customer needs, competitors, market share potential and other elements, such as how to provide a truly suitable quality content, courses and services, value-creating business models, brand marketing and differentiation strategies is the key to stand out and success.
International Cooperation: Foreign Investment Opportunities and Chinese Enterprises' ‘Going Abroad’ Strategy
With the optimization of the business environment, more and more foreign companies choose to expand their business to China. As early as June 2019, K12 Education Group of the US has announced in Shanghai that it will further invest in China's online education programs through its comprehensive operations and services, continue to promote educational innovation and bring high-quality educational options to Chinese students.
On a global scale, the influx of more than $10 billion investment into the online education industry by the end of 2020 is a rarity in China's business history. In the tier one market, Education institute Yuanfudao has raised fund of more than $3.5 billion, and Zuoyebang has raised $2.35 billion, according to official disclosures. In the secondary market, TAL education group has raised $4.8 billion and Genshuixue has raised $870 million globally.
The 2020 International Digital Education Event (iDEE) officially held in Hangzhou last month. This is a feast of digital trends and innovation, and a collision of insights on future education. 54 overseas institutions among the 116 participants attended the expo, such as the well-known Pearson group from UK, GFM group from Germany, and Softbank Robot from Japan, etc.
At the event site, the smart classrooms attracted a large number of audiences. People can experience high-quality open international education classes through wonderful roadshows presented by PIPER’s "My Creative Box" from US, GFM education group from Germany and Toon Boom Animation group from Canada. Digitalization in the education industry has opened the way to huge development opportunities and enables high-quality education, science and technology innovation projects to interact with capital, innovation parks and school teachers.
Resource from: Xinhuanet
With regard to the current foreign investment policies, two categories have been added to the Directory of Encouraging Industries for Foreign Investment (2020 Edition) released by the National Development and Reform Commission and the Ministry of Commerce at the end of December 2020: "Online education system development & application services" and "non-academic language training institutions" (except for pre-school education, compulsory education, and high school education). It has further expanded the scope of foreign investment in education sector.
Due to the increasingly crowded domestic market, Chinese companies have also adopted the strategy to expand their businesses overseas for new customer base and integrate foreign high-quality resources to form a stronger core competitiveness. On January 3, 2021, Jiayi Education from Jiangsu Province announced 11.7% equity acquisition of EZ Education, a British online education company. Upon completion of this round of acquisitions, Jiayi will hold a total of 33.3% stock rights in EZ Education. As early as 2015, Jiayi education has established a "digital, Internet, international" strategic direction, in addition to EZ education, it has also acquired 11.1% of the equity in the British mathematics online education company Mathigon and the 100% equity of the British high-end international kindergarten company Bambonos.
In any ways, stronger international cooperation in the field of digital education will maximize opportunities and minimize losses. The synergies will help businesses thrive in 2021. We will face either familiar or unpredictable challenges, but as the world unfreezes from the pandemic, we will see the sign of recovery, and lets look forward to the celebration in the summer of 2021.
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