By: Mitu Jayashankar/ Forbes India
British publisher Pearson is taking some risky bets in one of the world’s biggest education markets. The results could yield the template for a global footprint
In about three months from now, Bangalore will become the first city in the world where Pearson will have a school under its own brand name. Pearson plans to have at least 100 schools in three years. The closest it comes to this model is in Brazil, where it supplies everything that a school needs.
It is a crucial big step for a company that has in the last decade, under the leadership of CEO Marjorie Scardino, reinvented itself as a learning company (it owns brands like Financial Times and Penguin). Education now brings in 74% of its revenues and 81% of its profits. But Scardino can sense that the learning business is undergoing a massive change. Students are shunning textbooks in favour of Wikipedia and YouTube, and the largest number of school going children are in countries like Brazil, China and India where, till last year, Pearson did not have a big presence.
Scardino knows that unless Pearson, which gets 60% of its revenue from North America and relies largely on selling to institutions like schools and colleges, responds to these challenges quickly and aggressively, it will lose its dominant position. Which is why over the last six years, she has been pushing Pearson outside its comfort zone, into newer geographies and businesses in learning, spending $800 million in acquisitions last year. The bulk of this investment went to emerging markets and in businesses that sell directly to consumers. In China, Pearson acquired brick-and-mortar English language teaching schools; in South Africa, it has acquired a majority stake in a company that runs higher education colleges.
In India, that strategy is taking Pearson into the promising but extremely hard territory of running and managing schools and setting up vocational training centres. Like the one in Dadar, Mumbai, where, in a gleaming air conditioned 1,500 sq. ft. training centre, 90 men and women sit in four classrooms, get trained on how to speak English, be better salesmen, work behind the retail counter. In two months, and after paying Rs. 2,000, they hope to be placed in companies like DHL and Costa Coffee, earning Rs. 9,000 a month.
It’s a tough task. No company in India has managed to make good money in the vocational training business. The school business too is highly fragmented. Only two institutions in the last 50 years, DPS and Ryan, have managed to grow their franchise to 100 schools each. A number of factors — scarcity of land inside cities, government regulations and shortage of trained teachers — have made it extremely difficult to scale this business.
If Pearson manages to crack these businesses in India, not only will it emerge as a formidable player locally, but it would also have found a model that it can replicate in other emerging countries. “It is in some sense a laboratory for us to learn about new education systems. We will experiment with new models which we can take to other parts of the world like say South Africa,” says John Makinson, chairman, Pearson India and the man entrusted with the task of growing Pearson’s business in India.
The First Steps
In 2010, revenues from the education business in emerging markets crossed USD 800 million, growing three times since 2006. But in India, which has the largest number of school going children in the world, its presence was miniscule. According to a CLSA Asia-Pacific Markets report published in April 2009, the Indian education market was worth $40 billion in 2008. Last year, Pearson’s revenue from India (including its publishing business Penguin) was just about USD 70 million.
Knowing how important emerging markets were to Pearson’s future, in May 2008 Scardino invited C.K. Prahalad, an authority on emerging markets, to join the Pearson board as an independent director. Over the next several months, Scardino and Makinson along with Prahalad and independent board member Patrick Cescau (who, as the ex CEO of Unilever, had firsthand experience of emerging markets like India) had many conversations on what was the best strategy.
It was clear to Makinson that what had worked for Pearson elsewhere wouldn’t work in India. For instance, the school textbook market, Pearson’s bread and butter business, is highly competitive and extremely low priced in India with books selling for Rs. 20-30 a piece. Pearson sells Philip Kotler’s Marketing Management for USD 55 (about Rs. 2,500) in the US; in India it retails for Rs. 595. In other businesses where Pearson was strong (like computer-based examinations and certification), the market was tightly controlled by the government. But India had businesses that are absent in most parts of the world — for instance a USD 1 billion after-school tutoring and test preparation market. The biggest money though was in the formal K-12 schools (Kindergarten to Standard 12), estimated at around USD 20 billion.