UK: How Education Providers Are Growing Internationally Through The Strategic Use Of Franchising

Last Updated: 18 August 2014
Article by Babette Märzheuser-Wood and Robyn Chatwood

The potential of the global education market

The global education market is big business. Last year, the UK Government noted that the education sector is second only to healthcare in size, in respect of the global market.1 The UK education sector was the fifth largest services export sector in 2011. The figures are eye-watering – global expenditure on the sector was estimated at US$4.5 trillion2 in 2012 and forecasted to grow by 7 percent per year over the next five years.

This is unsurprising when you reflect on the many acclaimed universities, schools and other educational institutions which are already recognised globally for excellence in teaching. In the UK, exports of services by UK educational institutions ranked higher than exports by the insurance services and information technology sectors.3

There has been an evolution from the trend for internationally mobile students to study in the UK at independent schools to students studying according to British educational standards in their home countries (known as transnational education or TNE). The growth in transnational education is fuelled by globalisation and technology and is most prevalent in Asia and the Middle East. In particular, Hong Kong, Malaysia, Singapore and the United Arab Emirates have seen UK independent schools set up campuses abroad – at last count, nearly 20,000 students were studying at 29 overseas campuses.4 Some notable examples include:

  • Dulwich College (which opened Dulwich College Shanghai as early as 2005 and now has campuses in Shanghai, Beijing, Suzhou and Seoul and sponsored programs in China in Zhuhai and Suzhou);
  • Harrow, which has expanded into Bangkok and Beijing;
  • Sherbourne in Qatar;
  • Repton in Dubai;
  • Haileybury, which has a sister school in Kazakhstan; and
  • Marlborough College which has a school in Malaysia.

It isn't just confined to schools – higher education intuitions have embraced TNE. For example, Oxford Brookes University has over 250,000 students studying for a UK higher education qualification aboard or via distance learning.

The era has arrived where educational institutions are beginning to realise the value of their brands.

Strategic use of franchising and licensing

So, how are these educational institutions going about it? The answer isn't what you would think. They are not simply setting up overseas campuses using their own funds. Many are franchising or using a variety of other licensing strategies.

  • Education agents: Traditionally, many educational institutions used education agents who, for a commission, recruited pupils to a UK university or school or other education provider. To date, this has been a cost-effective method to develop a pipeline of enrolments. In particular, China and India have a strong education-agent sector which arranges study abroad. In recent times however, there has been widespread adverse publicity5 associated with abuses and misrepresentations by local agents acting for overseas education providers. Part of the reason that use of an agent can involve considerable reputational risk for a TNE provider is that the agent's remuneration structure is often linked to the quantity of student admissions rather than the quality of the advice given by him/her to the prospective recruit. There have been well-documented instances of agents writing the personal statements of students or using other unethical practices. The quality of a remote agent's activities can be difficult to monitor.
  • Franchising and licensing: Increasingly, independent schools are seeking to strategically partner or license their business model, brand and know-how. This strategy can be a cost effective way to enter a new market. Consequently, it is now the fastest growing method used for players in the global TNE market. Such peer-to-peer franchising has been used successfully by a large number of schools in niche markets. Franchising or licensing is attractive where the educational institution wants to minimise its financial risk in establishing in a new market. The franchisor also then obtains the advantage of accessing local know-how and the funding provided by the licensee. There is no shortage of willing licensees who will want to assist the franchisor to build on its existing reputation in the new market, but the franchisor school will nevertheless need to implement stringent quality control mechanisms.

Key commercial and legal issues

Irrespective of the strategy for international expansion, there are some key commercial considerations and legal issues to consider when growing internationally.

  • Quality standards: Of utmost importance are the processes and procedures by which your educational business can deliver educational excellence. Can these be costed, a value for them determined, and an appropriate fee charged to the licensee for them? The value of the brand of each school or higher education institution is ultimately assessed by the stakeholders on the teaching and assessments. Here, franchising can have an advantage over licensing as it can be used to control the implementation of standards of quality through uniform processes (such as staff selection criteria, training programmes, quality audits and staff monitoring). These processes are in the toolkit of every successful licensor or franchisor.
  • Intellectual property protection: Intellectual property is also crucial.
    • Trade marks: Clearly, the TNE will need to consider, before entering into the new international market, how its brand will be deployed in that market. Defensive trade mark registrations are important and should be in place before the market is entered. Consider how local branding will work if an existing school or higher education institution is the partner. Will there be co-branding?
    • Technology: It is also vital to consider whether the licensee will be able to set up or operate its own website or IT services and whether there is a need to translate online content into local languages. Licensing of back office processes and systems is common, but often overlooked are the issues associated with personal data transfers and data protection. This is vital to consider when you enter jurisdictions that may not have the same standards for protecting privacy as those in the UK. Will there be a need for the franchisor to obtain or access the personal data of the local students or staff?
    • Know-how and improvements: Education providers have a long tradition of collaboration and sharing best practice and innovation. In short, this can amount to giving away valuable intellectual property and know-how for nothing. A franchise structure can encourage and access local innovation, but a good franchise agreement will also deal with who owns what at the start and throughout the term of the collaboration, including in relation to any improvements to the systems, processes and know-how of the franchisor.
    • How to generate revenue: Many education providers are aware of the opportunities presented by international markets, but are less knowledgeable about the risks or revenue generation models unique to each particular market.
      • Pilots: Some providers who are not yet in a position to fully fund a foreign venture can instead provide a foreign partner with support services and training in return for a payment. Many start with a small and manageable pilot project to test the new model, rather than attempting a joint venture for a new campus in a greenfield market. Consider if you have a specialist service, such as a leadership curriculum or supplementary course or education clinic, or whether an exchange program could be provided as an add-on to an existing school. This can be less risky than starting with construction of a new campus in a foreign country.
      • Accreditations: Accreditation schemes also present another opportunity for international cooperation and revenue. Partners in emerging markets derive great value from the official seal of approval represented by the endorsement of their institution through an affiliation with a known education provider. Students and parents also value teachers who were trained in Europe or the US by a well-known centre of excellence. Obviously, endorsements should not be given lightly as substantial reputational damage can result if standards are not maintained by a partner trading under your brand. Due diligence and care in the selection of potential partners is crucial. Also essential are ongoing training and quality audit programmes.

Next steps

A well-thought-out international expansion strategy can support revenue growth for education service providers.

Franchising and licensing are proving to be growing and viable business models for many transnational education providers. Given the suitability of these strategies for lowering financial risk (provided that quality control mechanisms are in place), their growth is set to accelerate.

Before embarking on any international affiliation or expansion, education providers should consider carefully which structure to choose for the expansion and how they intend to support the new revenue stream. It is essential to take expert advice in the structuring of the new venture or international cooperation.

Footnotes

1 "International Education - Global Growth and Prosperity: An Accompanying Analytical Narrative", July 2013, at page 4, published by the UK Department for Business, Innovation & Skills (BIS) and Department for Education (DFE) citing the GCC Education Industry Report, 2010 produced by Alpen Capital.

2 As above, citing the Education Sector Factbook 2012, GSV EDU.

3 As per 2 above.

4 According to data provided by the Independent Schools Council.

5 For example, the CBC News Canada article dated 11 December 2012, "International students easy prey for immigration recruiters"

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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