The Indian education sector has been recognized as a “Sunrise Sector” for investment in the recent past. This recognition stems from the fact that the sector offers a huge untapped market in regulated and non-regulated segments due to low literacy rate, high concentration in urban areas and growing per capita income. The Government has also been proactively playing the role of facilitator in this sector.
The higher education sector, owing to its huge potential, holds very promising prospects. With an estimated 150 mn people in the age group of 18-23 years, the sector offers one of the most attractive yet highly complex markets for the private/foreign players. Despite some inherent concerns with respect to choice of entity, not for profit character and foreign investment in formal education space; the industry does offer various innovative business opportunities, which can be explored for establishing a presence.
Industry Trends
The Indian Education sector is characterized by a unique set of attributes:-
1. Collaboration with foreign players - Increasing affordability and growing demand in quality education drives foreign player entry. Eg. Apeejay signed MOU with Dutch universities
2. Multi campus model - To facilitate scalability, institutes are increasingly adopting multi campus model. Eg. Amity, ISB
3. Increasing adoption of technology - Technology solutions are gaining grounds in form of campus management software packages. This enhances quality, accessibility and increasing intervention
4. Indian players expanding abroad - Recognition of Indian education in global standpoint and ability of Indian players to compete globally. Eg. Manipal University in Antigua, Dubai, Malaysia, Nepal
5. Stricter policy landscape - AICTE aims to bring in new era of accountability and transparency
Industry Structure
Industry Growth
Indian higher education has grown by 20% in one year and added more than 5,000 colleges to the system. Likewise, gross enrollment ratio (GER) grew from 12.5% in 2007-08 to 17.3% in 2009-10. The United Nations Educational, Scientific and Cultural Organization(UNESCO), describes 'Gross Enrollment Ratio' as the total enrollment within a country "in a specific level of education, regardless of age, expressed as a percentage of the population in the official age group corresponding to this level of education."
The industry is growing at a rate of around 18%
India added nearly 20000 colleges in a decade
The drivers for sector growth are:
1. Market Size - Huge market size both in terms of students and annual revenues
2. FDI - Significant activity in terms of new foreign entrants
- Foreign direct investment (FDI) inflows in the education sector during the period April 2000 to March 2011 stood at US$ 405.5 million
3. CAGR - At present, the sector witnesses spend of more than Rs 46,200 crores, which is estimated to grow at 18.0 percent (CAGR) to over Rs 232,500 crores in next 10 years
4. Government spending - UGC has been allocated the general plan budget of Rs 4,390 crore for 2010-11.
Increase in the number of women taking higher education
The following chart will show the faculty-wise students enrollment n higher education
Factor Analysis
1. Industry Strength
- Few globally renowned educational institutions
- Huge demand – estimated 150mn population in 18-23 age group
- Growing middle class with increasing incomes
- Growing economy with numerous employment opportunities
- Huge demand for Indian students in overseas markets
2. Industry Weakness
- Lack of infrastructure
- Shortage of trained faculty to meet the increased demand
- Highly complex and unclear regulatory framework at Central & State level
- Regional imbalances
- “Not for profit” tag in formal education
3. Industry Opportunity
- Unsaturated demand for quality global education
- Low GER as compared to 84% in USA
- India is expected to emerge as a Global hub in education in Asia Pacific region
- Low focus on R&D
4. Industry Threat
- High time lag in introduction of reforms due to various reasons
- Deterioration in quality of education specially in private sector due to lack of availability of trained faculty
- Over regulation – Control over course curriculum, entrance tests, fees etc
Environment Analysis
In February 2007 the Indian government promoted 100% foreign direct investment (FDI) in higher education in India. There has been a rise in the enrolment of the population in the 18-23 age group in higher education. There is an increased trend of taking care of the special needs of the weaker sections and marginalized groups of the society. Building capacity in the educationally backward and North-East areas of the country is an encouraging political factor. The setting up of National Commission on Higher Education (NCHE) for overseeing and monitoring the Higher Education sector (Department of education India, 2006) and
Interim Budget 2014: Education loan subsidy to benefit nine lakh students make the industry politically sound.
Improving Indian economy and increase in the number of the middle class is a positive economic factor. An average middle-class household in India spends 15% to 20% of its income on education/careers for their children. The demand and desire for educated persons in this field will correlate with these trends.
Increase of the number of women taking higher education is a positive social factor. žA large young population (Increasing the Investment component of GDP). The population in the age-group of 15-34 increased from 353 million in 2001 to 430 million in 2011. Current predictions suggest a steady increase in the youth population to 464 million by 2021 and finally a decline to 458 million by 2026. žYouth faces constant peer pressure to excel academically. Also, higher education is considered as a status symbol in India where dowry based on qualification still exists in some parts.
The pace of technology and internet penetration in the market is accelerating and there is an emergence of distance learning. The increasing budget for IT in schools is an encouraging technological factor. žAccess to various e-Journals has been made easy by the development of IT.
Industry Attractiveness
The suppliers may be the academic staff, administrative staff, book publishers, technology services, service providers and banks. Threat of bargaining power from suppliers is low.
The customers may be students, parents, alumni, content license givers and hiring corporations. Threat of bargaining power from customers is low.
New entrants have a high disadvantage of economies of scale. reputation and credibility matters in higher education and some existing players have established their brand image in the industry
Threat of new entrants is low.
The substitutes are low cost alternatives, existing certificate courses and existing specialization courses. These make the threat of substitutes high.
There is strong competition, high fixed cost, limited pricing power, little product differentiation, low switching cost to a higher brand institute and very high importance to geographic locations. This makes the threat of rivalry high.
Why Should One Enter the Industry?
*A negative working capital:
(Current Asset – Current Liability) is a sign of managerial efficiency in a business with low inventory and accounts receivable (which means they operate on an almost strictly cash basis).
Despite the huge potential in the higher education sector, not everyone has been able to achieve success. The challenges/threats, which the private sector players face in India are significant and therefore, approaching the market with a well thought-out strategy is advisable.
(This article is written by Debalina Haldar, class of 2015 student at IIM Lucknow. Her novel, The Female Ward, was published in May, 2013. She is the Creative Head and Core Coordinator of the Media and Communication Cell at IIM Lucknow.)ž
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