ipsef kl 2012_ k12 south east asia-seizing the opportunity for british schools opening campuses...

7/31/2019 IPSEF KL 2012_ K12 South East Asia-Seizing the Opportunity for British Schools Opening Campuses Abroad

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Parthenon PerspectivesBoston

London

Mumbai

San Franci

K-12 Southeast Asia: Seizing the

Opportunity for British Schools

Opening Campuses Abroad

Prepared for

www.p a r th e n o n .co m


2/16

On-the-Ground Education Sector Projects Completed by Parthenon

About The Parthenon Group

Parthenons Global Education Presence

About The Parthenon Groups Education PracticeThe Parthenon Group is a leading advisory firm focused on strategy consulting, with offices in Boston, London, Mumbai

and San Francisco. Parthenons Education Practice is the largest advisory team to focus on the education sector, both

for-profit and non-profit/government. Parthenon has 40 professionals focused on advising the MENA and Asian education

sectors. The Education Practice is a leading advisor to the global education industry with clients across diverse sectors

that include publishing, primary and secondary education, higher education, consumer education, vocational education

corporate training, governments, foundations, NGOs, and other non-profit organizations. Parthenon completes more than

150 education projects per year in over 60 countries globally.

Boston London Mumbai San Francisco


3/16

Parthenon PerspectivesK-12 Southeast Asia: Seizing the Opportunity for British Schools Opening Campuses Abroad www.parthenon.com

1

Executive SummaryParthenons research shows there is a strong link between a countrys tertiary

enrolment ratio and economic strength. While the education sector in Southeast Asia

is growing, the tertiary enrolment ratio is likely to increase further as income per capita

increases. This indicates that the Southeast Asian countries are still in their nascent

stages of education development, and as a result, a significant investment in education

infrastructure is required for these countries to reach international benchmarks. Eventhough British brand schools are an increasing phenomenon outside the UK, evidence

suggests that they have a mixed record of success in executing these initiatives. This

report identifies the critical success factors required to tap into these opportunities.

In order to establish a successful branch campus abroad, it is crucial to set and achieve

realistic enrolment targets by:

Evaluating the target population (expats and affluent locals)

Addressing the level of incremental market demand available in the local market,

given competition and student or parent preferences

MethodologyThe Parthenon Group followed a bottom-up approach to collect data at the school level and referred to published

information from government sources to corroborate our findings and results. Our research for primary and

secondary education sectors comprised of more than 300 international curriculum schools across Southeast Asia,

which enrol more than 150K children.


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2

Economic Strength Is Closely Linked to a Countrys Enrolment Ratio

Tertiary Gross Enrolment Ratio (GER) vs. PPP Adjusted GNI Per Capita

Note: UNESCOs Gross Enrolment ratio ISCED 5 and 6. This ratio is calculated using the number of pupils enroled in International Standard Classification of Education (ISCED) level 5 and 6 repre

senting stages of tertiary education, regardless of age, expressed as a percentage of the population in the five-year age group following on from the secondary school leaving age

Parthenons research shows there is a strong link between a countrys tertiary enrolment ratio and economic strength

While the education sector in Southeast Asia is growing, the tertiary enrolment ratio is likely to increase further as

income per capita increases. This indicates that the Southeast Asian countries are still in their nascent stages of education

development, and as a result, a significant investment in education infrastructure is required for these countries to

reach international benchmarks. In order to develop globally competitive economies, the Southeast Asian region should

consider the development of education infrastructure as a long-term sustained imperative. Significant investment in K-12

education now will help in preventing a potential tertiary education gap and employment gap in the future.

In addition to being a strategic imperative, K-12 schools are good investment opportunities for the private sector as they

have five investor friendly characteristics which are rarely found together in one business:

Long-TermRevenueVisibility

High Barriersto Entry

DemandGreater Than

Supply

Prices RisingHigher Than

Inflation

NegativeWorkingCapital

K-12 9 9Depends on

Catchment Area 9 9

0

20

40

60

80

100%

0 20,000 40,000 60,000

Ukraine

Israel

Finland

Belarus

Australia

Algeria

PPP adjusted GNI per Capita

EnrolmentRatio

Philippines

Vietnam

Myanmar

Laos

Singapore

Uzbekistan

Uruguay

United States

United Republic of Tanzania

UK

Turkey

Tunisia

Thailand

Tajikistan

Switzerland

SwedenSpain

Slovenia

Slovakia

Russian Federation

Romania

Republic of Moldova

Republic of Korea

Portugal

Poland

Pakistan

Norway

NewZealand

Netherlands

Nepal

Morocco

Mongolia

Mexico

Malaysia

Madagascar

Macao, China

Lithuania

Lebanon

Latvia

Kazakhstan

Jordan

Japan

ItalyIreland

IndonesiaIndia

IcelandHungary

Hong Kong (China), SAR

Guatemala

Greece

Ghana

Georgia

France

Ethiopia

Estonia

El Salvador

Denmark

Czech Republic

Cyprus

Croatia

Colombia

China

Chile

CapeVerde

Cambodia

Burundi

Burkina Faso

Bulgaria

BruneiDarussalam

Brazil

Bhutan

Belgium

Bangladesh

Azerbaijan

Austria

Armenia

R2 = 61%

Southeast Asia

Other


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3

Rise of Household Income and Affordability in Southeast AsiaOver the past few decades, the Southeast Asian countries have gone through significant economic and social change.

For outside investors, the Southeast Asian countries have become attractive investment opportunities. From within

these countries, household income has rapidly risen, enabling families to afford a higher quality of living. Countries in the

Southeast Asian region have identified education as an enabler to transform their economies and achieve sustainable long-

term growth.

Abdullah Ahmad Badawi, former Malaysian Prime Minister, believes: To develop the human capital, we want our

citizens to be fully equipped with knowledge, practice good moral values, have a broad mind, love the country, and possess

the physical and spiritual strength.

Education has a crucial role in this evolution and will create the necessary workforce for newly developed industries

The Southeast Asian education sector has gone through important structural changes and is expected to grow strongly,

creating a significant opportunity for investors. Drivers of growth include increase in average household income

increase in inflow of FDI, increased demand for English, and increased demand for better infrastructure and quality

of education.

Premium K-12 International Curriculum Revenue Size and Growth

Above 25%

20% 24%

15% 19%

10% 14%

Vietnam, US$0.2B

India

US$0.4B

ThailandUS$0.5B

ChinaUS$1.7B

SingaporeUS$0.7B

Malaysia, US$0.3B

Indonesia, US$0.2B

Parthenons research of Southeast Asian countries shows rapid enrolment growth of international curriculum schools

ranging from overall 3-18% enrolment growth by country.

This report focuses on opportunities and challenges in K-12 education in Kuala Lumpur and Bangkok as they are both

relatively large markets. The fast international curricula enrolment growth levels of the former (~8% at ~$220M) and the

mature international curricula enrolment growth levels of the latter (~3% at ~$380M) make these markets interesting case

studies for investors in education.


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4

Bangkok Is a Mature Market for International SchoolsThe international school market in Bangkok is estimated to be worth ~US$380M, and enrolment has grown at 2.8% per annum

which is relatively slow compared to markets in other Southeast Asian countries. Local students currently make up 50% o

the international school population, and their share is growing faster than the expatriates segment of the K-12 school marke

International School Enrolment in Bangkok by Nationality, 2008-2011

Source: Parthenon Schools Survey

The growth of international schools in Bangkok is influenced by the following factors:

Increasing affluence of Thai nationals: A 2% increase in annual household income has led to an incremental

enrolment of 3.6% for local students in international schools, predominantly in the budget segment (international

schools charging less than US$6K annual tuition fee).

Growing expat enrolment in international schools: The expat enrolment in international schools for Bangkok has

grown at 1.9% per year. This is an outcome of the slow growth in the real FDI stock for Bangkok which has only grown

at 2% from 2008-2011.

Opportunity for differentiation to drive enrolment and school stature: Premium international schools in Bangkok

have 4.5 years of capacity given current utilization and enrolment growth rates, unlike Ho Chi Minh City (already at

capacity) and Kuala Lumpur (one year of current capacity remaining). Schools that differentiate themselves based onacademic rigor, athletics, community values, or the environment could attract a niche segment of parents and grow

their enrolment faster while attracting a motivated set of students.

0

10

20

30

40K

2008

30.5K

2011

Expatriates

Thai

Nationals

33.1K

3.6%

1.9%

('08-'11)2.3%

CAGR


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5

The International School Market in Kuala Lumpur Is Growing FastThe international school market in Kuala Lumpur is estimated to be ~US$220M and growing at 8.1% per annum. The tota

enrolment in international schools for Kuala Lumpur comprises 85% of the total expatriate enrolment in Malaysia.

International School Enrolment in Kuala Lumpur/Greater Kuala Lumpur

by Nationality, 2008-2011

Source: Parthenon Schools Survey

With 16 schools added to the market from 2005-2010, the growth of the international schools is driven by:

Increasing affluence of Malaysian nationals: The annual increase of 2.5% in local household income has made

it possible for more Malaysians to attend international schools, especially in the mid-priced segment (international

schools with price points between US$6K-15K). This together with an increased demand for English language

education has led to a 9% growth in the enrolment of Malaysian students in international schools.

Influx of expatriates: Foreign investment (measured in real FDI stock) has been growing at 8% per year, resulting in

a growing expatriate population in Malaysia. Even though the number of expatriate students is growing slower than

the share of local students, expatriates still make up ~60% of the total incremental enrolment in international schools

between 2008-2011.

0

10

20

30K

2008

17.6K

2011

Expatriates

MalaysianNationals

22.2K

7.6%

9.0%

('08-'11)8.1%

CAGR


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6

A Worldwide Assessment of Performance of British Brand Schools Abroad SuggestsSignificant Potential

Enrolment in Kuala Lumpur and Bangkok by Curriculum, 2011

*Note: The only British + IB school recently opened

The British curriculum and mixed British curriculum combined make ~70% and ~40% of total international enrolment in

Kuala Lumpur and Bangkok, respectively. Investors should explore investment opportunities and trends within this segment

Through its worldwide research, Parthenon has identified and developed insights into the burgeoning trend of British

schools opening campuses abroad. For the last 13 years, British schools have been opening branch campuses abroad to

serve a growing expatriate population and affluent local students. Currently, there are 18 branch campuses of British

schools across 8 countries enroling 12 thousand students. These 18 campuses have a combined turnover of ~US$275M

growing by 15% a year.

With the establishment of Shrewsbury, Harrow, and Bromsgrove schools, Bangkok has benefited from the ongoing trend of

prestige British schools opening campuses abroad. Although Kuala Lumpur does not have any branch campuses of British

schools, the fast enrolment growth of British curriculum schools and plans for Epsom to open a campus this year in Kuala

Lumpur suggest a strong partnership opportunity with British schools.

0

20

40

60

80

100%

Kuala Lumpur

British

American + IB

Other

IB

22.3K

Bangkok

American

British + IB

British

Other

American + IB

IB

33.2K

British + IB

15+%

10 14%

5 9%

0 4%


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7

Enrolment in Branch Campuses of British Schools Across the World, 2011

Source: ISC Research Ltd; Parthenon research and analysis

Other than Epsom, Marlborough, Harrow, and Dulwich have also confirmed that they are opening new campuses abroad.

School City Year

Harrow Hong Kong 2012

Epsom Kuala Lumpur 2012

Marlborough Iskandar 2012

Dulwich Abu Dhabi 2012

The assumption of many British school brands is that their reputation will result in parents switching children from loca

schools or existing international schools. A related assumption is that economic growth in emerging economies will generate

sufficient demand from expatriates and wealthy locals to fill the school. The experience of British schools abroad so far, in

some cases, has challenged these assumptions given the mixed record of success. These experiences provide insights into

how investors in Kuala Lumpur and Bangkok can approach and seize the opportunity of the ongoing trend of British schools

opening campuses abroad.

Meeting Targets and Protecting the BrandOf the 18 operational branch campuses of British school brands, 9 are more than 4 years old and of those only 3 have

reached capacity utilization on built capacity of more than 70%. Of all 18 branch campuses, only 3 met or beat their

first year enrolment targets, despite British branch campuses outperfoming the largest competitor in each market

0

20

40

60

80

100%

China

Dulwich (Zuhai)Wellington(Tian jin)

Harrow (Beijing)

Dulwich (Suzhou)

Dulwich (Shanghai)

Dulwich (Beijing)

4.2K

Thailand

Bromsgrove(Bangkok)

Harrow(Bangkok)

Shrewsbury(Bangkok)

2.9K

UAE

Brighton

(Abu Dhabi)

Repton(Dubai)

2.6K

South

Korea

NorthLondon

Collegiate(Jeju)

Dulwich(Seoul)

0.8K

Kazakhstan

Haileybu

ry

(Astana

)

Haileybury(Almaty)

0.8K

Qatar

0.3K

Sherborne(Qatar)

Nigeria

Buckswood

Montenegro

KnightsbridgeSchool(Tivat)

Total =

11.7K


10/16


8

Capacity Utilization and First-Year Enrolment Targets at Branch Campuses of British Schools

Source: Parthenon research and analysis

Given the high cost of capital in emerging markets, missing enrolment targets in early years can significantly lower

the return on capital and feasibility of the project. Realizing less than 70% utilization by year 4 of operations usually

results in a lower than planned return on capital, which can force investors to generate incremental cash flow by cutting

operating costs such as teacher salaries and facilities maintenance, which in turn will impact quality.

Typical Project IRR of Branch Campus of British SchoolBased on Year 4 Utilization on Built Capacity (Illustrative)


Incorrectly estimating enrolment potential can threaten the feasibility and quality of the branch campus, diluting the value

of the brand, and defeating the rationale for expanding abroad.

At present many British schools do not conduct a data-driven feasibility analysis to quantify potential demand, relying

instead on anecdotal data or reassurance from local investors that the market can support the school.

0

10

20

30%

30% CapacityUtilization

10%


17%


21%


26%

2 4 2 1Performance ofBranch Campuses

Threshold IRR Expected inDeveloping Countries

0

20

40

60

80

100%

Capacity Utilizationfor Schools of

4 or More YearsSince Start

Less than70%

CapacityUtilization

70%+Capacity

Utilization

9

Years SinceBranch

CampusFounded

4+ YearsOld

Less than 4Years Old

18

FirstYear

EnrolmentTarget

MissedTarget

Met orExceeded

Target

18

MissedFirst YearEnrolment

Target

Missed by30%+

Missed by15-30%

15


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9

Drivers of Enrolment at British Branch Campuses~85% of enrolment in British branch campuses are children of expatriates. This of course differs by market, and in mature

markets such as Bangkok, locals can account for up to ~70% of total enrolment in British branch campuses. In countries

such as China, schools have to rely on the expatriate population in order to scale up.

&OSPMNFOUBU#SBODI$BNQVTFTPG#SJUJTI4DIPPMT&YQBUSJBUFTWT"GnVFOU-PDBMTCZ$JUZ


As the typical expatriate rotation is 4 years, 25% of the expatriate student base churns each year. The result is that

in a market such as Bangkok with a total 2010 enrolment of ~32,300 and ~30% as expats in premium international schools

(including British branch campuses) the annual number of students looking for seats is a combination of incremental market

demand (in Bangkok demand growth is ~900 expatriate children per year) and 25% of the existing expatriate student base

The result is that ~3,300 students are up for grabs each year. Many branch campuses are opened with the assumptionthat they can enrol a large percentage of both incremental market demand and churn in the underlying student base.

Incremental Market Demand and Expatriate Churn in Bangkok, 2010-2011

Note: Market is defined as >US$10


0

20

40

60

80

100%

Beijing

100%

Tianjin

100%

Shanghai

100%

AbuDhabi

100%

Dubai

100%

Astana

100%

Almaty

100%

Bangkok

AffluentLocals

Expa

triates

100%

0

10

20

30

40K

2010

Total

Enro

lment

32.3K

ExpatriatesLeavingBangkok

-2.4K

New ExpatriatesArriving

in Bangkok

2.4K

IncrementalMarket

Demand

0.9K

2011

33.1K

Churn in the MarketIncremental Market Demand

Addressableby New Market

Entrant


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10

The data demonstrates that every branch campus has enroled a subset of incremental market demand. However

there has not been a precedent where a branch campus has enroled more students than incremental market growth

As a result, there is no demonstrated success of accessing student churn resulting in declining enrolment of competing

schools.

However, in most cases branch campuses of British schools have been able to add more incremental enrolment than the

largest competitor in the market, suggesting that British brands have value with parents in these markets and can attract

more incremental enrolment than a generic international brand. For example, Wellington College in Tianjin has been able to

attract 200 students in its first year of operation, which is the highest number of incremental students added in that market

in that year (compared to 130 incremental students of the largest competitor).

Incremental Market Demand vs. Growth of Branch Campus of British School by City, 2010-2011

Note: Incremental growth for Bangkok includes Bromsgrove, Shrewsbury, and Harrow; capacity utilization for the three schools is ~90%


Understanding the role of market size and growth on enrolment potential is important as markets have different growth

rates and existing enrolment levels. In order to establish a successful branch campus abroad, it is important to evaluate the

target population (expats and affluent locals) and what incremental market demand is available given competition.

0

250

500

750

1,000

1,250

Abu Dhabi

1,100

550

Bangkok

900

100

Shanghai

650

180

Tianjin

550

200

Beijing

380

100

Incremental Market Demand

Growth of Branch Campusof British School


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11

Importance of Quantifying Market and School Enrolment PotentialSometimes the market potential can be deceptive. For example, in a country like India with 290 million children of school-

going age, there are only 8,000 students enroled in premium international schools, 6,000 of which are children of expat

parents. Premium international schools in India are not running at high utilization, indicating oversupply in the market

Enrolment of Premium International Schools in India, 2010


A city such as Bangkok can dwarf the whole of India in terms of the number of students enroled in premium international

private schools at comparable price points (above US$10K per annum) and demonstrates higher growth.

Enrolment at Premium International Schools Above US$10K in India and Bangkok, 2011

Investors need a rigorous approach to diligencing the market and understanding its potential in detail. Parthenon has

developed a proprietary framework that estimates market potential at the catchment level.

0

20

40

60

80

100%

ByLocation

Urban

Rural

290M

By Type ofOwnership

Private

PrivateAided

Govern-ment

51M

By PricePoint

$500-$1K

Lessthan$500

14M

ByCurriculum

International

Indian

310K

By PricePoint

>US$10K

$5K-$10K

$1K-$5K

128K

ByNationality

Expat

AffluentLocal

8K>US$1K

0

5

10

15

20K

All of Indi a

8K

Bangkok

20K


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12

Approach to K-12 Investments

K-12: Success in Schools Depends on Local Supply and Demand

K-12 education is a local catchment business. Unlike higher education, where students often move to another city to go to

college, K-12 students will travel within their neighborhood or city to go to school. Parthenon research shows that besides

location, price point, curriculum, and scale will largely determine the economic viability of the school.

Parthenon Proprietary K-12 Micro Market Analysis FrameworkParthenon has a proprietary approach to estimate market potential at the catchment level. This exercise analyzes potentia

investment targets and new investment opportunities in K-12, as shown below.

Analysis of the local catchment area can inform investors about the size of local demand (that is, how many children in the

catchment area can afford a schools tuition fees), identify your competitors and give insight to the optimal capacity of the

school. In the early planning stage, investors need to test assumptions on school rollout, price points, and scale, or they

might end up having a school that does not run at full capacity or is financially unstable.

Approach to Investments K-12Parthenon Approach

Revenue

Market Size Fee GrowthPotential

CatchmentEnrolment Potential

School Enrol-ment Potential

Scale Potentialof School

CatchmentArea Analysis

CompetitionBenchmarking

Define Market &Competition

Key Outputs

KeyConsiderations

Enrolment numbers

Tuition Fees

Grades

Curriculum

Facilities andinfrastructurecompared tocompetitors

Parent satisfaction

Drive times toschool and parentpreferences

Income distribution ofsettlement population

Vacant seats atcompetitor schools

Expected share offorecast demand

0

20

40

60

80

100%

City A

Target School

OutsideCity A

School 1

Facilities

School 2

TargetSchool

School 3


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13

Karan Khemka

Partner and Head of the Emerging Markets Education Practice

[email protected]

Ashwin Assomull

Partner

[email protected]

Abhinav Mital

Senior Principal

[email protected]

Amit Garga

Senior Principal

[email protected]

Danish Kamal Faruqui

Principal

[email protected]

Ayush Mathur

Principal

[email protected]

Akshay Rathod

Associate

[email protected]

For further information, please contact Parthenons Emerging Markets Education Team

Follow us on Twitter for regular updates on events, research, and reports

@edupractice

@karan_khemka

Report Development By:


16/16

The Parthenon Groups Emerging Markets Education Practice

1015 Raheja Chambers,

Free Press Journal Marg,

Nariman Point, Mumbai 400 021

India

+91 22 6744 2500

For more information about The Parthenon Group

and the work we do, please visit:

www.parthenon.com

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