MILAN, Sept. 3 (Class Editori) - Before the pandemic forced many companies in different sectors to modernize and quickly shift towards online solutions, the Chinese education industry was already experiencing a period characterized by high levels of growth and investment, in particular in terms of e-learning.
In 2018, the industry was already growing, with an esteemed value amounting at about 2.68 trillion yuan, about 328 billion euros, with the expectation of exceeding 3 trillion yuan, equal to 386 billion euros, by 2020. Towards the end of 2019, while the manufacturing industry and the consumer goods production were suffering from a drop in demand, the third sector, and in particular the private education one, was blooming.
The sectors with the highest growth potential, as noticed in the last years, are kindergarten, after-school activities and online education. The sector of early childhood education was already characterized by extremely high growth levels, with the highest request for stories and fairytales. For example, Kaishustory, a company which created more than 4,000 fairytales and children stories, collected 156 million yuan during the B financing round, in March 2018.
The potential of the tutoring or after-school activities sector is related to the need of meeting the high request created by the significant cultural importance attributed to academic results in China. Towards the end of 2017, more than 50% of high-school students attended after-school or tutoring activities.
This importance attributed to grades led to the fact that tutoring and after-school activities became a quick growing sector, which will continue to develop in the future as well, in particular thanks to the tutoring structure, which is also suitable for the online use. In overall, the market with the highest growth potential – already in 2018 – was online education. According to expectations, it should have reached a value of 235 billion yuan; however, it has largely exceeded this projection, by reaching 251 billion at the end of 2018, with a growth by 25.7% recorded in a sole year.
Already in 2017, the Chinese government had started to implement some measures, by introducing the use of technology in the education sector, among which artificial intelligence and Big Data. Even before the pandemic, thanks to its pre-payment model which creates a reliable liquidity source, online education was the main sector on which investments were focused.
After schools had to remain closed for many months due to the pandemic, the implementation of a completely online education system has been accelerated and has quickly taken hold in the whole country. Even if the pandemic has had a similar effect on the whole world, China has been particularly fast and effective in digitalizing education.
Already since the first days of lockdown, education companies have offered free online lessons to students, and also equipment and training to schools and universities, preparing the market to this quick change.
By offering free of charge classes, e-learning companies have managed to attract millions of students, strongly reducing marketing costs. Online lessons were mainly live, due to the fact that they are easier to prepare than recorded lessons. In order to ensure accessibility to these live lessons to the whole country, many partnerships have been established among different companies and sectors.
For instance, the partnerships established with the CCTV.com broadcasting service, which have allowed also traditional education companies to move online. Education companies which are not active online have also been helped by WeChat and similar platforms, which have allowed to assign tasks and easily communicate with parents and students.
Currently, the most promising operators in the sector are Taobao Education, the Alibaba service disclosed on last June 22, and the giant of the online education: Zuoyebang. The Alibaba service has been focusing on the Taobao customers, which can boast 800 million of active users. Taobao Education has announced its willingness to host more than thousand education companies and 100 million students by 2023.
Zuoyebang, instead, has already more than 800 million customers, 170 million of which are active every month and 50 million every day. The company has recently collected $750 million for the E round of financing. In addition, the CEO has introduced plans to reinvest earnings in the growth and development of their services.
Online education is not only a temporary alternative, which will disappear once schools reopen. At the end of March, when schools started to reopen in Xinjiang, the request for online lessons remained unchanged.
There are different opportunities in the sector due to its resilience. Not only school lessons are landing online, but also entire courses are becoming digital due to the increase in the online solutions demand for each kind of subject, such as fitness, health, design and cosmetic courses.
This new market of online courses provides several marketing opportunities to companies, which can communicate directly with consumers through educational material based on their own product and brand. Moreover, in order to meet market requirements, some companies which provide educational services but do not have an online presence are now relying on other enterprises which can help them.
This offers unmissable opportunities in the short and medium term in the B2B sector, which is experiencing a large growth in this segment. In particular, Italian companies have several opportunities to exploit in different areas. Currently, in Italy, almost half of municipalities have not access to the broadband and this means that over 6.7 million people cannot lean on the benefits of online education. For this reason, Italy ranks 25th among the 28 countries of the European Union in the DESI index (Digital Economy and Society Index).
Looking at the Chinese strategy, Italy may exploit much more partnerships with companies of broadcasting and education, by providing to the 6.7 million Italians currently cut out from the net a stable access to live lessons. The online shift of China has significantly increased the number of people who are active online.
This situation creates important opportunities for foreign companies and universities, including the Italian ones. Universities will have a higher number of students to whom ‘double degrees’ can be offered, thanks to the digitalization of education, which should allow new students to enrol in courses abroad without leaving their country. Meanwhile, companies will have more opportunities to participate to online exhibitions which have a decisively lower cost but may need investments in online platforms, for example in virtual showrooms.
In conclusion, the Chinese education industry has confirmed the opportunities promised in 2018 and it has succeeded in capitalizing and effectively answering to the growth in demand of online solutions created by the pandemic. This trend will create many other opportunities in the sector itself and also intra-industrial possibilities to be explored. (All rights reserved)
*Founder and CEO of Jesa Capital, advisory boutique specialized on the Chinese market, corporate finance and M&A, located in Shanghai for 20 years. Capozzoli has been working in China for 30 years
(Source:Class Editori)
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