OF

Stratgic ManagementON

TOPIC- PORTER’S FIVE FORCES OF MODEL ON EDUCATION SECTOR

SUBMITTED TO:- SUBMITTED BY:-

Ms.Jaspreet Kaur GAURAV GUPTA

CLASS:-M.B.A 4th

Roll No- B-35

SECTION: - 1802

Acknowledgement

First of all I would like to take this opportunity to thank the Lovely

University for having (Strategic Management) as a part of the M.B.A 4th

Sem .

Many people have influenced the shape and content of this term paper,

and many supported me through it. I express my sincere gratitude to

Ms.Jaspreet Kaur for assigning me a Term Paper on “Apply the

Porter’s five forces model on Education industry and analyse the

attractiveness of the industry for investment purpose”.

This is an interesting and exhaustive subject.

she has been an inspiration and role model for this topic. Her guidance

and active support has made it possible to complete the assignment.

I also would like to thank my Friends who have helped and encouraged

me throughout the working of the term paper.

Last but not the least I would like to thank the Almighty for always helping me.

Gaurav Gupta

TABLE OF CONTENT

i) Topic ii) Introductioniii) Education in Post-Independence India: Some

Milestonesiv) Challenges in Education Sectorv) Objectives of educationvi) Mission/Vision of Education industryvii) Swot analysis of education industryviii) Porter’s five forces modelix) Overall Higher Education Industry Assessmentx) Current Impressions of the Higher Education

Industryxi) Attractiveness of Indian Education Industryxii) Education Industry to be a beneficiary of the new

“served from India”xiii) Biblograply

Introduction:

The Education sector in India

One area that will hopefully receive immediate attention from a government that has been rescued from opposition within its ranks is Education. The Right to Education bill that was drafted in 2005 has not been passed and all discussion on the role of the private sector in Education had been scuttled. Therefore it was heartening to note that immediately after the vote of confidence; the HRD ministry started talking of going to Parliament to initiate some critical reforms in the education sector. The other area that is important is the deregulation of the University sector and allowing foreign and private participation in colleges and universities. The HRD Ministry has again started talking about deregulating and relicensing higher education in line with the recommendations made by the Knowledge Commission. There is little time this Parliament has and therefore it would be great if it could initiate these reforms quickly.

Education in India has suffered from severe problems. It has always been seen as an elitist sector and the poor were always left out. Even now, there are thousands of village without access to schools. Even if there are schools, they are meant to provide students to Universities, where the elite go to. Technical and vocational education was ignored as that was not an area where the elite sector would go to. Also, education was considered an area where the government would have complete ownership and control. While commercialization was considered desirable in other sectors, it was not simply seen as an option in education, and in similar ways in the health sector. Both these sectors suffer as they only provide access to the rich and the urban India. But in this column we shall not discuss the health sector. As a result what happened was that very few schools and colleges were opened and because the sector was completely run by the government, the people it could recruit as faculty were usually of poor quality. The better faculty were few and far between and more as exceptions. Even now the problem is acute as is reflected in the more than 40 per cent vacancies that exist in our premier colleges like the Indian Institutes of Technology and the Engineering colleges.

Education in Post-Independence India: Some Milestones

(1947) India achieves Independence

(1948-49) University Education Commission constituted; gives Report

(1950) India becomes a Republic.  Free and compulsory education enshrined as one of the

Directive Principles of State Policy in the new Constitution

(1951) Decennial Census yields a Literacy Rate (5+) of 18.3% (overall), 8.9% (female)

(1952-53) Secondary Education Commission constituted; gives Report

(1956) University Grants Commission (UGC) established by Act of Parliament

(1958) Second IIT established at Mumbai 1959 Third and Fourth IITs established at Kanpur and Chennai, respectively

(1961) Institutes of Technology Act passed by Parliament to provide a common legal

framework for all IITs

(1963) Fifth IIT established at Delhi

(1964-66) Education Commission constituted; gives Report

(1968) First National Policy on Education (NPE) adopted, in the light of the recommendations

of the Education Commission

(1963) Third IIM established at Banglore

(1975) Integrated Child Development Services (ICDS) Scheme launched to provide for

holistic development of children up to the age of six years

(1976) “Education” from being a “State” subject to a “Concurrent”

(1984) Fourth IIM established at Lucknow

(1985) Indira Gandhi National Open University (IGNOU) established by an Act of

Parliament

(1986) New National Policy on Education (NPE) adopted 

(1987-88) All India Council of Technical Education (AICTE) vested with statutory status by

an Act of Parliament

(1992) NPE, 1986, revised, based on a review by the Acharya Ramamurti Committee

(1993) National Council of Teacher Education (NCTE) vested with statutory status by an Act

of Parliament

(1994) District Primary Education Programme (DPEP) launched to universalize primary

education in selected districts  

    National Assessment and Accreditation Council (NAAC) established by UGC

(with headquarters at Bangalore ) to assess and accredit institutions of higher education

    National Board of Accreditation (NAB) established by AICTE to periodically

evaluate technical institutions and programmes

    Sixth IIT established at Guwahati

(1995) Centrally-assisted Mid-Day Meal scheme launched in government and semi-government

primary schools all over the country, with central assistance by way of free food grains

(1996) Fifth IIM established at Kozhikode 1998 Sixth IIM established at Indore

(2001)Sarva Shiksha Abhiyan (SSA) launched to universalize elementary education of good

quality all over the country

University of Roorkee converted into (the seventh) IIT

(2002) Constitution amended to make Free and Compulsory Education, a Fundamental Right

(yet to be brought into force)

(2003) 17 Regional Colleges of Engineering converted into National Institutes of Technology,

fully funded by the Central Government

(2004)  Education Cess levied for raising additional finance needed to fulfill Government’s

commitment to universalize quality basic education

(2005) National Commission for Minority Educational Institutions established by Act of Parliament

(2006) Two Indian Institutes of Science Education & Research (IISERs) established at

Kolkata and Pune, respectively

(2007) The National Institutes of Technology (NITs) brought under a common

statutory framework by establishing NIT Act.

India's education sector in (2009)

New Delhi: With the advent of a new year, a look back to the previous year - 2009 is imperative taking into consideration the important developments being undertaken in the education sector of India. Among those to hit the headlines the most in 2009, were the Central Board of Secondary Education (CBSE) Class 10 Board examinations becoming optional; the appointment of India's new HRD Minister Kapil Sibal (who took over from Arjun Singh) and the Common Admission Test (CAT) getting marred by technical glitches.

Challenges in Education Sector

Current Scenario in India

• World’ well known higher education institutions

• Challenge of maintaining quality of education in primary and secondary schools, vocational studies, distance education

• New emerging professions (like BPOs, clinical research, aviation, travel, tourism etc.)

• Rough estimate of approx 8.8 lakhs elementary schools

• 3-4 lakhs upper primary schools

• 1.46 lakhs secondary and senior secondary schools

• Around 7.7 lakhs ISO 9000 certified schools and 1.1 lakhs

ISO 14000 certified schools all over the world ????

• Hubs of excellence but no synergy

Need for Improvement in Quality in Schools

• Foundation for all further learning

• National Policy on Education - emphasizes the importance of giving special attention to quality aspects of primary education:

Improved quality of school provision Focus on learning outcomes Teacher Capacity Building

• President’s address to QCI during the 2nd National Quality Conclave to formulate a quality accreditation system standard for schools and also develop a rating system for verifying the level of adherence.

• QCI developed a standard of educational quality management system with inputs from educationists, administrators, quality experts and interested parties including parents.

OBJECTIVES OF EDUCATION

Individual Development

Developing physical and mental faculties Acquiring the capacities of understanding, appreciation and expression through word and

act, are the fundamental aims of education

Aim of education should be to make children self- confident and self dependent, and to make them strong physically and mentally

Education is meant to develop every child's character, personality and culture and as much knowledge as the child can assimilate not merely memorize.

Social and National Development

Social, aim of education in equally important because an individual lives in society and has his obligations towards his nation.

There is a realization that, "The present education system does riot yield required results mainly because it is divorced from the real social content and social goals".

Social Transformation

Education should not merely equip an individual to adjust with society to its customs and conventions, but it should enable him to bring desirable changes in the society.

It has been, therefore, suggested that, "Every educational institution from secondary school to university college should be developed to become an agency of change...."

However, it is essential that we should be quite clear about the purpose of change.

Value Education

Education is a methodical effort towards learning basic facts about humanity. And the core idea behind value education is to cultivate essential values in the students so that the civilization that teaches us to manage complexities can be sustained and further developed.

It begins at home and it is continued in schools. Everyone accepts certain things in his/her life through various mediums like society or government.

Value education is important to help everyone in improving the value system that he/she holds and put them to use.

Everyone has understood their values in life they can examine and control the various choices they make in their life.

One has to frequently uphold the various types of values in his life such as cultural

values, universal values, personal values and social values.

Thus, value education is always essential to shape one's life and to give him an opportunity of performing himself on the global stage.

The need for value education among the parents, children, teachers etc, is constantly increasing as we continue to witness increasing violent activities, behavioral disorder, lack of unity in the society etc.

The family system in India has a long tradition of imparting value education. But with the progress of modernity and fast changing role of the parents it has not been very easy for the parents to impart relevant values in their wards.

Therefore many institutes today conduct various value education programs that are addressed to rising problems of the modern society.

These programs concentrate on the development of the children, young adults etc. focusing on areas like happiness, humility, cooperation, honesty, simplicity, love, unity, peace etc.

Mission/Vision of Education industry:

Mission

To establish technology incubation centre, software development park & entrepreneurship cell training facility

To strengthen the linkages with industries, professional societies, accrediting bodies and statutory authorities and share common goals and responsibilities

To establish campus for international students in academic collaboration with globally acclaimed premier institutions

To provide the state-of-art facilities for all facets of professional training To improve the work culture and develop congenial organizational set-up.

Vision

To be a provider of globally-competitive Proficient Professionals. To nurture and sustain academic excellence, programmed to promote innovation,

scholarship and abilities to analyze, experiment and synthesize. To foster academic-industry/professional synergies and to forge strategic alliances for

greater upward mobility. Impart need-based education and create an ethos for research of relevance. Contribute to social & industrial development of the region.

SWOT ANALYSIS OF EDUCATION INDUSTRY:

Strengths:

1. The agency has an experienced and dedicated workforce

2. There is a good training program for new employees

3. Senior management is committed to workforce planning

4. Human resource staff are easy to work with and willing to try new recruitment ideas

5. 50% of the staff hold a professional certification

Weaknesses:

1. Over 50% of the managers and supervisors are eligible for retirement

2. The agency does not offer a mentoring program

3. The agency lacks the technology tools to be more efficient

4. Procedural manuals need to be updated

5. The current workforce is not very racial/ethnic diverse

Opportunities (external)

1. New information technology tools can provide quicker data sharing between agencies and client information retrieval

2. There are job sharing opportunities with other agencies

3. A large number of retired baby boomers are considering returning to the workforce on a part-time basis

4. Federal and state agencies have expressed interest in merging services

5. Universities are looking for internship opportunities for their students

Threats (external)

1. The demand for workers in the field exceeds the supply of potential workers

2. There is less federal money available for training grants

3. Budget and full-time positions have been limited by the legislature

4. Educational institutions are reducing the number of courses offered in this field

5. The number of residential treatment centres has been declining steadily

Current Impressions of the Higher Education Industry

The Carol Keese story is an example of current trends prevalent within the higher education industry. It is common knowledge that demand for higher education has increased significantly over the last decade. There is a Baby Boom Bubble in progress. The Baby Boomer’s children are now going to college, along with a greater diversity of students including adults, women, part-time students, commuters, international students and minorities such as Hispanics and Afro- Americans. These demographics have pushed demand for public higher education beyond most practical capacity limits (Stamats, Inc., 2007). New information technologies, outsourcing pressures, and specific skill set deficient, all contribute this rising demand (Shareowners, 2004). The for-profit sector has noticed these trends and marketed to individual such as Carol Keese, seeing very profitable growth opportunities targeting adults, women and part-time students. An additional interesting observation that is somewhat masked, is a trend of declining enrolment in full time residential undergraduate and graduate programs (Breneman, D., et. al., 2006). These trends, on the surface, might sound contradictory to the casual observer. How can residential or traditional student enrollment be decreasing while total demand for higher education has outpaced supply? The for-profit sector has recognized these market changes and developed business strategies to take advantage of them, by offering numerous programs targeted at profitable niche markets. This increases supply, but concurrently, small private liberal arts colleges are closing their doors at an alarming rate, decreasing supply and leaving the public universities to act as a supplier of last resort (Van der Werf, M., 1999). One could argue that non-profit universities are keenly aware of these trends and have formally incorporated them into their long range planning, but are not changing their current business models and marketing strategies. Why you may ask? They do not have to, because they are “producing” at capacity.

Laureate Education, Inc. (www.laureate-inc.com), a leading for-profit provider of higher education, predicts all industry members stand to gain over the long run because demand for higher education will continue to increase. Laureate bases their prediction on a growing youth population, a growing middle class that understands that education is the key to social mobility, and global industry’s demand for a technically educated work force. Following that same line of thought, Richard S. Ruch, says in his book, Higher Ed, Inc., “the combination of public andcorporate dissatisfaction with traditional education, favorable demographic trends, and the infusion of a new kind of endowment – private investment capital – into the for-profit segment suggests that the for-profits will probably continue to take an increasing share of the education market” (Ruch, 2001).

PORTER’S FIVE FORCES OF MODEL ON EDUCATION INDUSTRY

Although probably one of the most widely taught frameworks for industry analysis, Porter’s Five Forces still rarely leaves the business school domain and thus the need for the rather lengthy discussion. Each of the five forces will be applied to the specifics of the higher education industry.

The threat of the entry of new competitors

Public universities and colleges are usually very large organizations with extensive administrative operations, pervasive facilities and grounds, invaluable brands and a alumni base that can have a legacy well over a hundred years old. These characteristics, the capital and endowments required to support these long-term assets, including land grant entitlements, almost per se define large economies of scale, which certainly represent formidable barriers to entry.Federal and state governments also regulate the establishment of publicly supported schools based on policy needs and budget constraints.While public sources of student loans continue to decline, one unintended consequence is mounting barriers to entry as related to the for-profit sector. Approximately 93 percent of for profit institutions’ cash flow consists of tuition and fees. The crucial point is 64 percent of the tuition and fees consist of federally backed student loans. Please review Exhibit 1 in the appendix for details. As the federal backed student loan industry continues to spiral towards

crisis, for-profit higher education firms have noticed weaker earnings, sporadic enrolment drops, and falling stock prices, all of which signal extreme caution to any potential new entrant (Value Line, 2008). An additional barrier to entry, although tangential, is the existence of intellectual property and technology transfer offices within most university systems. These offices protect and monetize university research, which represents addition cash flow, and benefit from existing economies of scale and departmental synergies. Probably one of the most controversial barriers to entry into specific areas of higher education is the requirements and restrictions imposed by accrediting associations. These organizations, while promoting curriculum standards, affinity group branding and visible education outcome metrics, also cleverly protect the incumbent members with an “accredited by” license. The success and reputations of business schools, medical colleges and law schools are critically interwoven with certification and accreditation (see www.aacsb.edu for example). Surprisingly, incumbent universities control most accreditation boards. An example of the control that an industry managed accreditation board has is where the Association to Advance Collegiate Schools of Business, the most influential business school accreditation board, will not accredit the business school of the University of Phoenix.

The intensity of competitive rivalry

The Indian higher education industry includes approximately 4000 degree granting colleges and universities. The adjacent pie chart illustrates the industry breakdown by sector. Although, higher education may appear fragmented with over 4000 competing entities, the industry is actually quite concentrated due to over 50 percent of the approximately 17.7 million students being enrolled in only 400 of these colleges or universities. The resulting consequence of this enrolment pattern is that 10 percent of the industry has over 50 percent of the market share (Hoovers, 2008). In 2007, the industry’s combined revenue was approximately $200 billion (Hoovers, 2008). Although the for-profit sector only earned $13 billion, this sector represents the fastest growing segment of higher education and revenues for the top 10 for-profit universities are predicted to double over the next five years (Gallagher, 2004). This growth trend appears to be long term and predictable, with 17.7 million students currently enrolled in U.S. universities, and projected to grow to 19.5 million by 2014 (Gilde, 2007). As demand for Indian higher education escalates, state supported universities and community colleges will most likely cap enrollments with the forprofit sector quickly responding to the increased demand with a corresponding increase in supply. The for-profit segment is much more flexible, agile to market conditions, and eager to accept change than the traditional state supported universities, essentially due to its governance structure (Ruch, 2001). Generally, organizations within the higher education industry have an exceedingly high fixed cost to total cost ratio. This financial structure requires these organizations to operate at full or near capacity, as measured by enrolment, to have a chance of realizing competitive economies of scale. The for-profit segment is an exception here. Most of these organizations lease classroom space, do not provide residential accommodations, have limited resources, and do not provide tenure tracks for faculty employees, so consequently, have substantially lower fixed costs.

The bargaining power of customers (buyers)

With roughly 17.5 million currently enrolled students in higher education institutions in the India, without any specific target groups representing a majority market share, buyers are fragmented and diffused across the market. This buyer characteristic limits the effective power any one specific student may have in terms of negotiating tuition rates, admission requirements and other amenities. There is one acceptation to this observation. Public and private universities are targeting and aggressively recruiting the standout 15-25 percent of high school classes with the predictable, but unintended consequence of giving this market segment generous power to choose their options and to negotiate. In today’s information age, the contents of an undergraduate record of course descriptions is only a mouse click away. School search and evaluation data is a frictionless, symmetrical and essentially free process. Of course, this not was always the case. Twenty years ago, a high school student had to patiently wait weeks to receive an university record by mail to assist with college evaluations. It is axiomatic that the more information a buyer has, the more balanced the transaction or exchange will be. Two additional components that influence the degree of buyer power are the rate of growth for the specific industry and the strategic value of the buyer to the industry as a whole. A growing market diminishes buyer power relative to a market with an average growth rate and along that same argument, the more distributed buyers are over a given geographic location, the less power they accrue (Walker, 2004).

The bargaining power of suppliers

The degrees of supplier concentration and supplier importance, in respect to the higher education industry are essentially the same side of the economic coin. If there are few suppliers to an industry and these suppliers sell an essential component or service to the industry, then supplier power will be high relative to other industries. A classic example of this principle is the Industry Rivalry Barriers to Entry Suppliers Buyers Substitutes clout and influence Intel has over the personal computer manufacturing industry. There are effectively only two CPU manufacturers supplying the most important component to the industry. Within the higher education industry, there are numerous suppliers of a variety of products and services, fragmented across the industry. Even highly regarded textbook publishers, clamor for faculty time and compete for each text approval and unit sold. Universities and colleges frequently represent large stable contracts to vendors, so the ensuing competition for bids among these vendors is typically frenzied. Based on the observation of numerous vendors selling essentially generic products and services, and low motivation by these suppliers to vertically integrate into higher education “delivery,” suppliers’ ability to influence the industry is low.

Threat of Product or Service Substitution

At first, one may think that the options or alternatives related to earning a college degree or obtaining additional higher education would be constrained by location, level of income or

possibly cultural influences. Although possibly true 20 years ago, these limitations to higher education are significantly less relevant today. At present, the variety of educational “products” is extensive and continues to increase as influenced by the exponential advances in information technology. Classic economic theory classifies information technology as product compliment, because the existence of the product or service augments the features and benefits of an incumbent’s product offering.An additional economic process that measures the threat of substitution is the availability of price-performing product alternatives. As an example, most state supported universities within a specific state have similar tuition rates and largely, the state tuition structure is equivalent for potential students. Thus, it essentially costs the same to attend Management Institute and State University as to attend the University of Delhi. Potential students or even transfer students could view these two universities as proxies (Heaven forbid!).Switching costs between products and services are a concrete aspect of the abstract concept of product substitution. As an example, the process of transferring between universities or colleges is relatively fluid within the India. More specifically, moving between one business school and another is an example where the tangible and intangible switching costs are low because of the availability of compatible curriculums. Obviously, one could get caught in the details of transfer credits, course descriptions, and degree requirements, but as compared to the cumbersome tasks of transferring to a new school in the India (the positive benefits of the Bologna Process aside), India students probably only have a slight emotional cost involved. Not to over generalizing but, younger adults are more disposed to change than older adults. Youth brings out the attitude of “what do I have to lose” as contrasted to the “anchors of age” associated with older adults. It is not a stretch to conclude that younger adults have a higher propensity to substitute than older adults do, within the same population of higher education students. Of course, these examples are hypothetical and best measured by transfer rates and graduation rates. Price points widely differ between the public, private and for-profit higher education segments. For-profit universities deliberately price their degree programs between the public and private tuition schedules. In economic terms, the for-profit sector overall, prices at the price elastic point of the higher education demand curve. However, this strategy does have some weaknesses, including the unintended consequence of effectively minimizing switching cost between a public university and a for-profit institution. In addition, since for-profit tuitions are high relative to public universities, the student is already price conditioned which makes transferring to a more expensive private school a realistic option. The overall assessment of the threat to substitute is high and not beneficial to the industry incumbent.

Overall Higher Education Industry Assessment

From the perspective of a higher education industry incumbent, a synthesis of Porter’s Five Forces is invaluable in gaining and maintaining an overall strategic plan. The analysis helps managers have a wider competitive horizon than a day-to-day myopic operational outlook. According to Michael Porter, “the extended rivalry that results from all five forces defines an industry’s structure and shapes the nature of competitive interaction within an industry” (Porter, 2008). Industry outsiders, attempting to determine the probabilities of a successful move into the industry, can also use this synthesis. As illustrated in the adjacent diagram, industry rivalry is

moderate meaning it represents a worry or nuisance to industry members. This moderate assessment is the result of the tradeoff between the disadvantages of industry fragmentation with the accruing benefits of a growth industry. The barriers to entry such as high capital and high fixed cost are quite high and act as the strongest protecting force for the higher education industry. Low supplier power, based on low concentration and fragmentation, is also beneficial to industry incumbents. The threat of substitution is high with numerous forms of higher education and from the incumbent’s perspective; it probably represents the most adversarial force to incumbents. Buyer power is neutral, which on the surface appears to be relatively benign, but buyer power is growing at a much higher rate as compared to the remaining competitive forces and over the long term will probably become the most threatening economic force for incumbents to monitor. From the preceding industry analysis, based on the Porter’s Five Force framework, the overall assessment of the higher education industry for both the incumbents and potential entrants is neutral. While the overall higher education industry analysis may seem ambiguous and not of standout significance, by being in the middle of the competitive road, most industry strategist would argue that industries with a neutral competitive assessment represent some of the greatest challenges to managers. There are no clear road signs to follow while navigating the ever changing direction to sustainability and profits.

Current Impressions of the Higher Education Industry

The Carol Keese story is an example of current trends prevalent within the higher education industry. It is common knowledge that demand for higher education has increased significantly over the last decade. There is a Baby Boom Bubble in progress. The Baby Boomer’s children are now going to college, along with a greater diversity of students including adults, women, part-time students, commuters, international students and minorities such as Hispanics and Afro- Americans. These demographics have pushed demand for public higher education beyond most practical capacity limits (Stamats, Inc., 2007). New information technologies, outsourcing pressures, and specific skill set deficient, all contribute this rising demand (Shareowners, 2004). The for-profit sector has noticed these trends and marketed to individual such as Carol Keese, seeing very profitable growth opportunities targeting adults, women and part-time students. An additional interesting observation that is somewhat masked, is a trend of declining enrollment in

full time residential undergraduate and graduate programs (Breneman, D., et. al., 2006). These trends, on the surface, might sound contradictory to the casual observer. How can residential or traditional student enrollment be decreasing while total demand for higher education has outpaced supply? The for-profit sector has recognized these market changes and developed business strategies to take advantage of them, by offering numerous programs targeted at profitable niche markets. This increases supply, but concurrently, small private liberal arts colleges are closing their doors at an alarming rate, decreasing supply and leaving the public universities to act as a supplier of last resort (Van der Werf, M., 1999). One could argue that non-profit universities are keenly aware of these trends and have formally incorporated them into their long range planning, but are not changing their current business models and marketing strategies. Why you may ask? They do not have to, because they are “producing” at capacity. Laureate Education, Inc. (www.laureate-inc.com), a leading for-profit provider of higher education, predicts all industry members stand to gain over the long run because demand for higher education will continue to increase. Laureate bases their prediction on a growing youth population, a growing middle class that understands that education is the key to social mobility, and global industry’s demand for a technically educated work force. Following that same line of thought, Richard S. Ruch, says in his book, Higher Ed, Inc., “the combination of public and corporate dissatisfaction with traditional education, favorable demographic trends, and the infusion of a new kind of endowment – private investment capital – into the for-profit segment suggests that the for-profits will probably continue to take an increasing share of the education market”.

ATTRACTIVENESS OF INDIAN EDUCATION INDUSTRY

Education Industry is booming too!

The education market is now thriving on the back of the workforce proving itself equal to their counterparts elsewhere in the world in productivity. Given the predominantly young population, the education market is bound to accelerate rapidly.THE MUCH sought after Indian workforce that has propelled India to the top of several global competitive indices is not only attracting prospective employers to the country but also the education system behind this workforce is now driving a prolific education market. It seems to be a boom time for the education industry in India as the concept of business through education catches up with the Indian market.  

India’s youth, often referred to as its demographic dividend, accounts for over 50 per cent of its total population, with 367 universities and 18,000 colleges with half-a-million teachers and about 11 million students on the rolls, India could reap huge returns off its demographic dividend. Speaking on the topic, Ritesh Hemrajani, Consultant, IMS, said if one looks at the last five years there are about 1,500 management colleges, close to about 3,500 engineering colleges and about 1,200 medical colleges. In terms of private schools mushrooming day in and day out and a majority of the new institutions being private, if one wants to put a number to it, the privately-managed part of it would not be anything less than 20 to 25 thousand crores.  In recent months, the education segment has also seen the rising interest of private equity players. India-focused PE firm Gaja Capital Partners invested 8.25 million dollars in Career Launcher. Similarly, SAIF Partners invested 10 million dollars in the English training academy Veta and ICA Infotech. Some of the other listed companies in the education segment are Educomp Solutions, which posted a return of 374 per cent. Everonn Systems, which got listed in August 2007, gave a return of 130 per cent in just five months. Not far behind are the older horses such as Aptech and NIIT, which fetched returns of 162 per cent and 124 per cent last year. He also added, “In the next five years, I don’t see any reason why we shouldn’t be looking at a thousand crore market.”  It is believed that based on the current and future manpower requirements of the various sectors, there is a huge demand-supply gap in the education space. This has attracted many players to invest in education and training institutions with the aim of building valuable franchises that can be rapidly scaled up.

Education Industry to be a beneficiary of the new "Served from India" scheme

The Economic Times (Sep 01, 2004) reports that the Education Industry would be a beneficiary of the "Served from India" scheme announced as part of the foreign trade policy 2004-2009 unveiled by the Commerce Minister, Kamal Nath

It's time to stand up and serve with a new confidence. The foreign trade policy has recognised the stupendous performance of the services sector and has decided to go all out and brand the activity with a powerful and unique 'Served From India' catch phrase.

It would impact all 161 tradable services covered under the General Agreement on Trade in Services - though the government's efforts would focus on non-IT services as the latter has already established itself.

The government also reserves the right to specify from time to time the category or type of service exports that are eligible as well as the goods which do not qualify for import under the scheme.

Healthcare, education and hotel industry would be major beneficiaries. Under the proposal, the details of which are still being worked out and is bound to involve advertising, marketing and publicity campaigns, all service providers who have a total foreign exchange earning of at least Rs 10 lakh in the preceding or current financial year shall be eligible to qualify for a duty credit entitlement of 10% of total foreign exchange earned by them.

The duty credit entitlement may be used for import of any capital goods including spares, office equipment, professional equipment, office furniture and consumables, related to the main line of business of the applicant.

Only those educational institutions involved in exporting education are likely to benefit under this scheme. Will this scheme help incentivise more educational institutions to get involved in exporting education? The amount of foreign exchange earnings per year required to qualify for the duty credit entitlements is quite low at just Rs. 10 Lakhs or US$23,000. The average annual tuition fee for foreign students in India is about US$ 4,000. Presumably any institution with 6 or more foreign students will be able to qualify under this scheme.

References

www.quickmba.com/strategy/porter.shtml

www.marketingteacher.com/Lessons/lesson_fivefoces.htm

www.pdfqueen.com/pdf/po/porters-5-forces-for-education-industry

www.12manage.com/methods_porter_five_forces.html

www.allfreeessays.com/topics/porter-5-forces...industry/60

Journals

Shailey Minocha1 (2005) Role of social software tools in education: a literature

Yvonne Boora2 (2006) strategic planning in higher education: a review of the literature 

Simon Saukville, Tom Browne3 (2007) Accommodating the newfound strategic importance of educational technologists within higher education

Jane Hensley-Brown, Iskar Palatka4 (2008) Universities in a competitive global marketplace: A systematic review of the literature on higher education marketing

BOOK

Strategic management

a) John A Pearce

b) Richard B Robinson