Opportunities and Challenges for Entrepreneurs in China's Ed-Tech Market
Guest post by Tanbo Guo, founder and CEO of Edumize
Educational technology has become a hot topic in recent headlines. Although ed-tech companies are unlikely to break the traditional education framework in the short term, the fact that U.S. customers are increasingly receptive to paying for ed-tech products and services indicates there is still room for growth and opportunity for eager entrepreneurs to innovate. The same phenomenon is transpiring right now in a country thousands of miles away. Research reports show that 23 Chinese ed-tech start-ups have raised money from either angel investors or venture capital firms in 2013, varying from $10,000 up to $20 million.This activity is attracting attention from U.S. entrepreneurs and investors, raising the question, "What does the Chinese education market really look like?" China's education market is hugely fragmented with K-12 education, English training, and overseas study being the main sectors in the landscape.
Chinese K-12 Market
The K-12 market is an emerging one, but potentially very lucrative due to its stable and solid customer base. Current research shows that K-12 is the biggest market among all sectors in the Chinese education market, representing a 2.2 trillion RMB ($354 billion) market in 2013. A large portion of the market is related to test preparation, such as training for the College Entrance Exam, a test any high school graduate needs to take in order to get into college. The test is extremely difficult and the competition for college entrance is brutal. Only 23 percent of high school graduates pass it and get accepted by a college, comparing to 86 percent of students in United States taking the SAT.
Some pioneering ed-tech entrepreneurs have been working diligently to explore effective ways to deliver personalized instruction online. Many companies have concentrated on online tutoring services offered on evenings and weekends. However, as students are overwhelmed by coursework in school, the amount of free time students are willing to spend on online sessions is widely questioned.
English proficiency is a testing requirement in almost all school exams in China, and there are a shortage of instructors who can provide the level of support necessary for the millions of students in need. Several firms from English-speaking countries such as Pearson, English First, and Disney English, have perceived this testing requirement as a big opportunity and have been working to penetrate the market for years. Thanks to the rapid development of telecommunication technology, English training institutions can now provide instruction directly online and take advantage of the English teacher shortage.
English training will continue to present opportunities in the Chinese market, and ed-tech companies that can offer low-cost tutoring sessions online will have an advantage. VIPABC is the domestic market leader, providing online English tutoring sessions instead of hosting traditional in-person classes, significantly reducing operational costs. Flexibility is another intriguing characteristic of online tutoring sessions. Customers can have access to online sessions 24/7, since tutors are actually from all over the world. Students can simply select the time slot that works best for their schedule.
Based on the 2014 Open Doors Report from International Educational Exchange, the number of international students at colleges and universities in the United States increased 8 percent to a record high of 886,052 students in the 2013-2014 academic year. According to the NAFSA: Association of International Educators, international students contributed more than $26 billion to the U.S. economy in 2013. Every prospective student in China interested in pursuing an education abroad needs to tackle a mountain of obstacles before even landing in a foreign country. In China, there aren't many ways to obtain useful and relevant information about either the foreign country or the process to get there. There are some alternatives available to students to make up for the information shortage, however they are usually either costly or inconvenient. Edumize, a new online platform, intends to solve this problem. It acts as both a data collector and recommendation engine tailored for Chinese students who desire to study abroad. It consolidates information such as test preparation, school applications, and neighborhood and apartment rental information in a simple, ad-free layout, providing an affordable resource for millions of students.
Challenges together with opportunities
One factor that every ed-tech entrepreneur interested in online education needs to be aware of is the fact that Chinese students (and parents) place a large emphasis on curriculum quality. Further complicating the issue is the lack of direct research demonstrating the effectiveness of online-based instruction on College Entrance Exam performance. For this reason, Chinese students are more reluctant to pay for online education compared to traditional brick-and-mortar education. Another financial consideration is a relatively high customer acquisition expense involved in becoming a successful ed-tech business in China. Policies and legal issues are something every foreign entrepreneur needs to pay extreme attention to because they can be quite different among countries.
The good news is that the barriers to entry have remained low despite early entrants such as Xueda Education Group and New Oriental Education & Technology Group having already gone public. All things considered, market space remains for eager entrepreneurs looking to prove themselves and provide innovative solutions to complex educational issues.
- U.S., Chinese Schools Build Virtual Ed. Partnerships
- Quality Concerns Slow E-Learning Growth in China