Education in Emerging Markets

Education is only just starting to boom in the emerging markets of the world and has a long, long way to go. Asia’s rapidly growing middle class knows that education is the route to a good job with higher living standards. What is more, they are willing to pay for this education for their children. This contrasts with the West, where the benefits of a good education are no longer as clear as they used to be. These days, in the West, we see high numbers of unemployed graduates encumbered with student debts.

Competition to get in to the top colleges in China is fierce (the final year exam is called the “gaokao”). However, many parents are avoiding this stress by choosing to use foreign schools, which provide a Western alternative form of education. China is currently the main focus for companies operating in this field. This is partly a result of it’s demographics – the median age is 35, compared to 25 in India – and the fact that it is more developed than other emerging markets, in particular with it’s growing middle class.

The top company in this arena is the Chinese, New Oriental Education & Tech Group (NYSE: EDU). It is the biggest supplier of private education in China and also is expanding into higher margin online teaching activities. It says “At New Oriental, our mission is to inspire Chinese students of all ages to improve their lives and expand their horizons through a lifelong commitment to learning. By empowering students to achieve their potential, build self-confidence, and develop a global vision encompassing both traditional Chinese values and modern thinking, New Oriental is committed to training a new generation of business and community leaders.”

Another leader is Pearson (LSE: PSON), the publishing and education company. This is how it describes itself, “Pearson is the world’s leading learning company. We have 36000 people in more than 70 countries, helping people of all ages to make progress in their lives…”

Pearson may well be increasing it’s focus on the education side of it’s business, which already represents about 75% of sales and even more of it’s profits. Indeed, the new CEO, John Fallon, was formerly in charge of the overseas education division. He wants to focus on China, Brazil and India, also on English-speaking countries in, for example, Africa. Technology is key to making these ambitions a reality. An example is the recently launched MX Touch education tablet in India: Pearson launches MX Touch: tablet-based education solution for schools in India.

Acknowledgment: this post draws upon information from a recent article in MoneyWeek on 25 January 2013, “How to profit as Asia’s middle class starts the school run” by James McKeigue.