Does America’s Foreign Language Deficit Matter? Ask Google Translate

59817891For many years US education officials have lauded the remarkable success of Finland in math and science, where its 15 year-old students have, along with a handful of Asian countries, dominated the global rankings as measured by comparative international PISA scores. US Education Secretary Arne Duncan lamented that US students are one to two years behind Finland and Korea in math. McKinsey saw the middling performance of American students—in 2012 it ranked 35 out of 64 countries in math and 27 in science—as the “economic equivalent of a national recession.”

Although Finland’s case may be exceptional, its highly selective and well-trained teachers were central to its educational gains, where primary teachers must hold a 5-year Masters Degree and only 7% of applicants were accepted into teacher programs in 2015 (by comparison, Teachers College at Columbia, among the nation’s finest graduate programs, had a 57% acceptance rate). What is less understood is that Finland has also been creative, experimental and strategic with respect to what and how its students learn. As a tiny country facing crippling economic crises—the collapse of Nokia (which was worth 20% of GDP in 2011), demographic challenges within an aging population, and recent economic growth dipping to 1.5% which places it just behind Greece as among the worst economic performers in the EU —Finland doesn’t have time to dawdle on education policy.  Its latest pivot?  Embedding the critical foreign languages of Mandarin, Arabic and Japanese into its high school curriculum which, it should be emphasized, will be in addition to the mandatory English its students are expected to master by their teenage years.

On the surface, this new initiative from a small polyglot corner of Europe seems to be far from the American experience where less than 1 per cent of the adult population is proficient in a foreign language they studied at school; only 7 per cent of college students enrolled in a language course; with 8 in 10 American’s speaking only one language; and where K12 language study is usually not required or, if it is, as an afterthought to core studies. Indeed with the global English market projected to exceed 2 billion speakers by 2020, many Americans may wonder why they should learn foreign languages at all.

Paradoxically, as the rest of the world masters the English language the competitive threat to the US will intensify. America’s lack of foreign language capabilities is already proving to be a growing concern to national security, economic competitiveness, trade and sustainable employment. The root problem is a population unprepared to engage and compete with foreign countries in any language other than English, and a failure to see the advantage that mass multilingualism will bring.

Consider:

  • Of the 3.3 million employees at the Pentagon and Department of Defense, only 7.9% have reported language skills and almost half of these are Spanish language and therefore not relevant to operational deployments in the Middle East, Asia or Africa. More worryingly, only 28% of positions that require foreign language proficiency were filled in 2015. But this is not a new problem or one confined to the military. Back in 2009 only 61 per cent of foreign language positions were filled at the US State Department, where foreign languages, one would think, are supposed to be part of everyone’s job description. Even today there are shortages of skills in strategic languages such as Chinese, Korean, Dari, Turkish and Russian.
  • In the fight against terrorism, the Intelligence Community or “IC” (including the CIA, NSA, DIA, and FBI) continues to face challenges to “identify or build and enable proficient human capability to process information into actionable intelligence.” The FBI currently relies on a language resource base of roughly 1,400 linguists, which represents an 85% gain in linguists than prior to September 11, 2001. So important are languages to counterintelligence work that the FBI adopted the so-called FLIP (Foreign Language Incentive Pay) in order to hire and retain linguists and translators in critical languages. Yet even financial incentives can’t fill the gaps. Frustrated with this pipeline, the IC launched the STARTALK program to help support immersive language learning at the K-12 grade levels as part of an early intervention solution.
  • In international trade, business services continue to be America’s leading export sector.  Future success will depend on delivering value to customers in non-English speaking emerging markets. It is simply impossible to measure the opportunity cost of a mono-linguistic US workforce from corporations to small businesses to start-ups. Yet anyone who has experienced miscommunications between headquarters and local country operations, time wasted over failed negotiations and contracts, the opening of high-risk markets, and a genuine lack of cultural sensitivity critical to international business success knows how language capabilities can tip the balance. English may be the “global business language” with many multinationals such as Airbus, Renault, Samsung, and Rakuten adopting it as a means of internal communication, but this has nothing to do with how these companies operate with target consumers in countries around the world or how they win and retain business.

To be sure, the US is not Finland and its ability to engage across multiple contexts globally will depend less on foreign language capabilities than other factors such as innovation and hard power. But Americans would be mighty arrogant to ignore the dramatic economic, political, social and security benefits that can accrue from a multi-lingual society. Does anyone believe that America would be less competitive, effective and respected in the world if each of its citizens spoke two or three languages?  If so, how can this national opportunity cost be turned to a gain?

I would argue that the US educational system must shift foreign language learning beyond its current optional or high school elective status and toward a central part of the curriculum. To do this will require ambitious goals.

First, language learning should start early where it can be supported by immersive, well-resourced and supportive learning environments. Forget about waiting until high school and university: every child should begin to learn a second language in elementary school. As an amateur linguist, I would partially credit my ability to get through the challenges in studying Mandarin, Korean and later Russian with the long weekend hours of Hebrew I started learning at age nine, which exposed me to another ancient language with a different writing system far removed from English.  But this path is hardly the norm. I would have had a much easier time learning thousands of Chinese characters if I had been exposed to the language gradually, as part of normal elementary school studies. In building a national education program where the objective is have all students—some motivated, others lazy—be functional in a foreign language, an early start is essential.

Furthermore, those who believe language learning is not a priority may want to examine the other benefits to early immersion. Longitudinal research has demonstrated for years that students enrolled in early language immersion programs perform as well if not better than non-immersion students in the areas of math and science. Bilingual students have also “outperformed monolinguals in the areas of divergent thinking, pattern recognition, and problem solving.” Other studies show that learning languages boosts brain plasticity and the capacity of learning. At minimum, learning a language can enhance rather than distract from building broader cognitive skills and the earlier this becomes part of the normal school day the higher probability of student success.

Second, we must deepen public-private cooperation to build a national capacity for language acquisition. The current K12 battleground at the national and state levels  is simply not equipped to handle alone the dramatic changes in curriculum, testing systems, and language teacher training.  One solution could be language immersion schools, both public and private (or combined), which offer effective and scalable schools.

For example, according to Center for Applied linguistics data US-based language immersion schools grew at an annual growth rate of 10% over the past decade but still represent less than 1% of the total number of K12 schools in the United States. In 2000 there were approximately 260 dual language programs in the US, a level rising to  2,000 by 2011 and an estimated 2,350 by 2015. At present over 45% of these immersion schools focus on Spanish with the balance teaching French (22%) and Mandarin Chinese (13%)—still a very narrow selection. With China looming as America’s most serious economic competitor of this century, it should come as no surprise that Chinese language immersion is driving incremental growth nationally with the number of Mandarin immersion schools rising almost ten-fold, from only 13 programs in 2003 to 147 by 2013 and over 200 by 2015.

Yet the baseline is low. Enrollment figures for each program are unavailable but we can conservatively estimate that total national enrollments in Mandarin immersion programs would range from 17,640 students (assuming 120 students per program, six classes (K-5) times 20 students per class) to 22,050 students nationwide (assuming 150 students per school). That is a drop in the ocean compared to the total K12 enrollment private school enrollment of roughly 55.6 million primary and secondary students in 2016.

Building these programs into a larger platform will require the participation of public schools, charters and private initiatives at all levels, as well as accelerated activity and collaboration from strategic and financial investors. There are a number of effective models worth emulating:

Utah’s Dual Language Immersion Initiative sets the gold standard for state-level commitment to language learning. Established in 2008, Utah provides dual language immersion across 163 schools for the 2016-17 school year, of which 47 are Chinese language programs, 20 in French, 88 in Spanish, 2 in German, and 6 in Portuguese. The model uses is a 50:50 language immersion with English with most courses beginning in the first grade. State funding was initially provided at inception with a goal of educating 30,000 students per year by 2015 and higher benchmarks ahead. Over 20 percent of elementary schools now offer immersion in Utah and the progression of students to college is showing positive results.

• STARTALK was launched in 2006 by the Office of the Director of National Intelligence (ODNI) and awarded to the National Center for Foreign Languages at the University of Maryland. The program focuses on so-called critical languages and is designed to provide summer programs and promote best practices training to students and teachers at the kindergarten through college level. As a grants-based program, its reach is limited but it acts as a resource center for interested schools and organizations. STARTALK could be template for multinational corporations entering into similar arrangements with universities or other institutions to help support the roll out of language programs to schools at younger ages—an initiative akin to Intel or GE supporting STEM education.

• Privately funded schools such as the Chinese American International School in San Francisco and Hudson Way Immersion School in the New York area, offer impressive language learning models. Yet from a national perspective the norm has been single or small multiple schools, limited in capital funding, focused on a particular geographic cache and backed by Mom & Pop entrepreneurs. There are exceptions: the global network of Alliance Francaise is dotted across the country and brands such as LePort Schools, which embeds early language learning into its Montessori programs, has expanded to multiple campuses in California, Brooklyn and the Washington DC area. Companies such as Language Stars also provide a range of supplementary learning resources at scale.

With government budgets limited, the depth of private capital participation in the language education segment can make a significant difference in scale by creating new schools expansion and funding acquisition roll-ups and collaborative networks among existing, particularly as demand continues to outstrips supply. In Asia, English language immersions school chains (the doppelganger of foreign language immersion) such as Eton Kids, RISE, Elite K12, Maple Leaf, Nord Anglia and Yew Chung International School of Singapore have demonstrated that immersion programs can be achieved at significant scale and that various stages of investor capital are available to support quality expansion of bilingual education models. US investors can take a lesson from the Asian playbook.

Third, educators need to harness technology more aggressively to further widen access, increase retention, and lower teaching costs. Tens of millions of children are learning English online through one-to-one or one-to-many lessons on their computers and mobile devices though companies such as iTutor Group, TAL Education and VIPKIDS in China, and Cheungdahm Learning and Megastudy in Korea. Many of these lessons are private but the technology platforms exist to service school systems or students with supplementary work from home on a cost-effective basis.

From a unit cost perspective, US schools and students deploying education technology to learn languages may have an added advantage: while Chinese or Indian students often must pay a higher rate for online English language teachers, American programs can hire accredited language teachers and tutors across the developing world, whether in China or Colombia or Egypt, at relatively lower cost in both absolute and US dollar terms.

Fourth, students should be motivated with tangible incentives if they make an effort to master a critical foreign language. It is not enough for educators, parents and economic stakeholders to make foreign learning a mandatory skill for living and working in this century; they need to pay for it. Incentives could include college admission preferences, financial aid and/or research support for students with proficiency in “critical” languages learned in prior study, employer-sponsored apprenticeships and internships for students with exceptional language faculties, and start-up capital for ventures that combine foreign language with market or critical research needs.

Recent efforts such as the National Security Language Initiative For Youth to encourage and pay for study abroad, and the Boren Scholarships , which are part of the National Security Education Program for promising undergraduate students, provide a useful blueprint. Yet these programs tend to be narrowly focused on national security and limited in scope to those transitioning to new careers in intelligence, diplomacy and security. Non-security areas where language learning can be used effectively for careers—for example, in global health, environmental science, energy and business—would be well suited to create incentives of their own.

None of these initiatives will be easy, even if the education agenda in the US were not so overloaded with other challenges that include basic reading and math literacy.  But as the rest of the world increases their own language capabilities, the inescapable conclusion is that America will suffer if it does nothing.

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Chasing China’s Edtech Unicorns: A Cautionary Tale

This article was first published at EdSurge on June 7,2016

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There is little doubt that China’s record $1.7 billion invested in 44 edtech companies last year is helping to provide one of the world’s most dynamic education market with increased access quality learning and spurring a movement toward social impact investing. But in the competitive scramble for gaining market share at high cost and rapid speed—not to mention the rush for early investors to cash out—there are seeds of potential failure. In fact, many Chinese online education companies are already folding with only an estimated five percent of such firms earning a profit in 2015, despite an overall online market that exceeded $20 billion in sales. (All monetary figures in this piece are in US dollars.)

The latest test of public scrutiny is 51Talk, an online English language platform that uses teachers in the Philippines to conduct synchronous one-on-one classes with Chinese students through an Uber-inspired “shared economy” model. 51Talk recently filed for a small but high profile $45 million initial public offering in the U.S. (under its parent company China Online Education Group). But it is already facing “six suspicions” in a Chinese-language article at Whale Media. What’s so suspect? Its claim to be the “largest online education company in China” by using an unsourced research report as well as its own hand-picked measures for what is considered “largest”; its creative use of “gross billings” that reflect up-front cash paid by students without revealing average student retention levels in its courses; its accumulated losses ($50.5 million in 2015, $15.4 million in Q1 2016) based on heavy student acquisition costs as well as deferment of employee costs; and issues surrounding tax compliance, social welfare obligations and other financial issues.

Time, of course, will unravel this tangle of issues. Yet it’s worth noting that Chinese education companies have their own unique historical context. Here are a few points to remember.

China’s Early Market Entrants

First, China’s education market demographics, dating back to the turn of this century, will never be repeated, as primary enrollments are now declining. But between 2000 and 2012, the country saw a massive expansion in student enrollment; the number of K-12 students jumped from 233 million to 251 million, and higher-ed students increased from five million to more than 24 million.

This sudden growth created unprecedented demand for tutoring services, international student pathways, higher education and English language study. This meant that China’s early entrants benefited from substantial unmet demand, peak K-12 populations, a shortage of university seats, and mass urban affordability for items such as educational games, private schools, study-abroad programs, and the services that support them.

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Second, despite this growth, China’s consumer education market remains remarkably difficult to quantify. Consider that the recognized education giant of China, New Oriental, claims a large share of TOEFL and related overseas test preparation, but only one to two percent market share in China’s aggregate after-school tutoring market. Now try to figure out the other 98 percent of addressable consumers supplied by over 75,000 firms in the English language segment alone, not to mention other after-school tutoring competitors.

The result is that China’s ill-defined, but super-sized market plays havoc on investor expectations. Several high-flying Chinese companies listed in the US have been severely cut down to size. Take, for example, Ambow Education which was whacked with questions over financial and governance issues; ChinaCast, the first satellite-based online education company, which was crippled by executive corruption allegations; ChinaEdu, an online higher education service provider, which pulled its moribund public listing in the US via merger after years of sluggish growth on top of its anemic size and a tightly regulated customer base; and one-time investor darling Beijing Jadebird, a joint venture between India’s Aptech and Peking University, which after many years has faded quietly into the woodwork.

This leads to the third point: companies that consolidated their market share and shrewdly utilized financial resources were able to emerge dominant in China by also extending their brands to new education segments. New Oriental’s launch of its popular online platform, Koolearn, extended its learning center network into online tutoring. TAL’s move into early-stage edtech investing seeks to leverage synergies with U.S. higher education companies such as Minerva and Knewton. NetDragonWebsoft’s pivot from multi-level gaming to learning games culminated in its offshore acquisition of diversified global K-12 education provider, Promethean. As a result, early investors in these companies enjoyed smart returns since their IPOs, as Figure 1 indicates. But they are outliers.

In Search of China’s Next Unicorn

Fourth, unlike the past decade, today’s new crop of existing and aspiring Chinese Unicorns (see Figure 2) emerge from a startup scene that is soaked with education-focused venture capital. There is good reason: China’s thriving consumer-facing learning market is now richer as well as more mobile, tech-savvy, and globally obsessed than ever before, ushering in new opportunities in areas such as English language tutoring, international credentialing, virtual reality, and learning-based games. This has led nearly all of China’s leading internet companies (including Alibaba and Tencent) to invest in direct-to-consumer edtech startups and subsidiaries (along with leaders from India, South Africa and Europe), as covered here on Educelerate.

 

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I have previously argued that Asia is emerging as the world’s edtech laboratory with China at its center. And that companies that can harness the right technology, deliver consistent quality to China’s consumer-facing education sector, and maintain sustainable levels of returns to both investors and students, will be the world’s next education leaders.

But with high expectations comes the fall. Relatively few Chinese education companies have proven that they can handle the added investor and regulatory scrutiny that comes with being a public company, particularly in the US. This time around, at least we have history as a guide.

India’s Race Against Time

To the naked eye, India looks like an oasis in the middle of a wrenching emerging market economic downturn. In 2015 Indian GDP grew by 7.2% with the IMF projecting 7.6% growth over the 2016-17 period. FDI reached a record US$63 billion in 2015, exceeding China for the first time. And despite more recent concerns over a heated investment cycle and credit issues among India companies, the subcontinent remains a stable and low beta market when compared to its commodity and oil-based exporting peers. But look again, further over the horizon, and the outlook is far less assuring.

Between now and 2050 India will need to employ 300 million additional workers to its existing workforce, and they won’t be tilling the fields. Where to employ them, how to train them, who will pay, howIndia to create a productive use of an impending youth bulge are important questions that will consume Indian policymakers and investors in the years to come. India today has the largest K12 system in the world, with more than 260 million students, a level roughly 30% larger than China and 10 times that of the US. Yet many children are left behind. In fact, looking at India’s respectable college enrollment rates obscures a more troubling picture in the student pipeline: lagging enrollment and completion rates at the secondary/high schools level; an acute lack of teachers to provide quality classroom education; impending shortages of University seats; and a lack of budgetary flexibility to make bold education spending choices in the midst of unacceptably high poverty levels, creaky infrastructure and rural healthcare challenges.

How India responds to these educational challenges will not only have a critical impact on sustaining economic growth but will also define the scale of foreign engagement and investment in areas such as technology and services industries. The Modi government is prepared to take bold steps in terms of universal access to education and research capacity building as part of its “Make in India” economic platform. But government alone will not be the answer given the scale of the challenge, and time is not on their side.

Consider the following:

I. India does well at the high end of achievement but fails further down

Let’s begin with the positive. Figures 1 and 2 set the stage by comparing a range of emerging markets with large populations. Between 2000 and 2013, our cluster of emerging economies experienced dramatic gains in net adjusted income per capita, which correlated strongly with enrolling students into colleges and universities. India was no exception; in fact, its enrollment levels were comparatively high given that its growth in net adjusted income per capita lagged significantly behind China. By 2015, India’s number of enrolled tertiary students approached 29 million compared to 35 million for China. Coupled with a rising number of Indian students studying abroad, the size of Indian graduates represent an laudable achievement that bodes well for the country’s emerging role in the world of science, technology and innovation.

Figure 1: Net Adjusted Income Per Capita v. Tertiary Enrollment Ratios (%): 2000
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Figure 2: Net Adjusted Income Per Capita v. Tertiary Enrollment Ratios (%): 2014
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But focusing on the elite end of India’s educational system obscures some hard truths. India’s comparative situation shifts dramatically to the worse when we look earlier in the student cycle and, specifically, the number of students who make it to high school (upper secondary). By 2014 approximately 56.4% of Indian students were enrolled in high school based on GER (gross enrollment rate) data, as noted in Figure 3. Pakistan, at 31.1%, was even more abysmal, undoubtedly due to the lagging participation of girls, which was a mere 23.2% GER (compared to India’s female enrollment rate of 54.8%, which is nothing to get excited about). But it is here that China pulls far away from India, registering a upper secondary enrollment rate of 87.2%. This has important implications for labor markets and academic achievement in both countries, to the detriment of India. Moreover, India’s close neighbor, Indonesia, was also comparatively strong with a 74.2% enrollment rate.

In short, India may look competitive in enrolling University students and does well at the top end of the brain race, but the number of students left behind represents an immense and growing societal challenge. India passed the RTE Act (Right to Education) in 2009 which secures free and compulsory education for children ages 3-14, but not older. Student drop-outs also skew India’s tertiary data, as these students are off the grid and not counted part of an educational system that has failed them (and no longer counted in the % of high school students who can go to college).

Figure 3: Net Adjusted Income Per Capita v. Secondary Enrollment Ratios (%): 2014

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II. India’s Shortage of Teachers Is Worsening

On the supply side, India’s teacher shortage looks desperate. An estimate by the University Grants Committee concluded that India today needs 1.4 million more trained teachers but does not have the training necessary at University level, where 12 of the 40 central Universities lack a faculty of education. On the demand side, India’s number of pre-primary students has been exceeding China’s levels since 2003 so that accumulating pipeline of early age students is now moving into primary and secondary school grades.

Back in 2014, India was already enrolling approximately 46 million students at pre-primary levels compared to 37 million in China, or close to 10 million additional students per year over Chinese levels. As Figure 4 indicates, the pressure has not been abating but deepening over time, making it even more difficult for India’s stretched educational system to absorb even higher enrollments and provide the level of quality teaching required.

Figure 4: Pre-Primary Enrollments in India and China: 2000-2014

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Figure 5 underscores the fact that India’s primary level teacher-pupil ratios lags our entire country set, including Nigeria and Pakistan. Despite India’s marked improvements since 2000, it still has relatively high teacher-pupil ratios of 33.6x in 2000 and 25.9x in 2013. The only other direct comparable to India in terms of population—China—enjoyed a much lower teacher-pupil ratio of 15.1x in 2013, which no doubt contributes to the latter’s superior educational performance. Conversely, the impact of teacher shortages on educational quality in India leads not only to higher student attrition rates but a drag on future economic growth and productivity.

Figure 5: Teacher-Pupil Ratios (x), 2000 v. 2013

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III. India lags in both educating its women and employing them

Female participation in India’s labor force is falling as the aggregate population pool expands, from an already low level of 38.9% in 2005 to only 28.6% per cent in 2014, according to World Bank/ILO modeling data. Figure 6 places India against selected markets with one clear result: India resides at the lower level of both enrollment and labor force participation on a gender basis. Comparatively, what is most striking is the equivalent rate of female participation in China’s labor force by 2014, which was 70.4% and its 88.2% female high school enrollment—a massive difference from India’s 26% and 54.8%. But this lament also suggests that India’s “gender dividend” could be an enormous fillip to economic growth if more women with higher educational attainment levels are put to work.

Figure 6: Female Enrollment Rates at Secondary Level v. Employment

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IV. Can India Afford It?

India’s ability to increase spending on education is further complicated by its stubbornly high poverty levels despite tremendous improvement over the past decade. As Figure 7 indicates, India had 74% poverty rate in 2000 (based on a measure of US$3.10 per day) which shrank to less than 58% in 2013. India’s expanding population complicates these statistics but the message is clear.

Although education is an important component of any anti-poverty effort, the country’s poverty rates are severe and issues such as basic health, nutrition and infrastructure can crowd out limited budget resources and the ability to tackle specific education gaps. Note that India’s public expenditure on education has traditionally been low at approximately 3.38% of GDP between 2000-2012.

Figure 7: Poverty Headcount (in Millions) at $3.10 per day (US$, 2011 PPP)

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Fortunately, the private and household sectors are picking up some slack. PPP and philanthropic initiatives at the primary level have scaled well over the past decade, including companies such as Intel and Educomp and well-healed foundations at Bharti and Tata. Households are also sharing the burden, perhaps in response to a lack of public solutions. According to one household spending survey released by MasterCard, surveyed Indian families (mainly urban) have among the highest propensity to spend on academic tutoring in Asia relative to income levels (approximately 55% of those surveyed).

Despite this, India will require a lot more engagement from domestic and foreign institutions, companies and investors if it expects to create a quantum leap in education capacity against a rapidly expanding and youthful population. Without incurring more debt upon an already immense national burden, market-based solutions need to take root.

V. Money, Education and Technology

In a recent speech entitled “Money and Education” the government of India’s central bank and ex-Chicago economist, Raghuram Rajan, defined the solution to India’s education crisis across three areas: lowering the cost of education (particularly at college level), embracing technology, and improving University research capabilities.

As I discussed earlier, the latter point—expanding India’s research capabilities—is an important consideration for future competitiveness and indigenous innovation but does not go to the root of India’s more serious problems of educational quality, training and universal access. However Raja’s first two points—technology and cost—are more relevant as well as complimentary.

There are reasons to be sanguine. India’s market in e-commerce for retail purchases currently exceeds $600 billion and is expected to reach $1 trillion over the next three years. This bodes well for future consumer behavior and purchases that are directed at online education and related technology solutions, with China being the most relevant example. Even more importantly, risk capital is flowing to new ideas as the domestic edtech start-up and venture world grows rapidly alongside India’s traditional education and technology leaders such as Everronn, Aptech, NIIT, Emergent Global, Jetking, Classteacher and many others.

However foreign investment remains a wild card. At the transnational University level as well as areas such as private international schools, learning technologies, credentials and vocational platforms, there has been much greater promise than actual results. For years private, for-profit degree education has been suspect by stakeholders which has forced, where possible, creative work-around corporate structures for operating schools and businesses. Non-profit Universities and online platforms have also been hampered, despite some notable successes at free-access Khan Academy and Coursera.

India should drop the mask and internationalize its markets if it hopes to meet the daunting education and employment challenges ahead. Foreign collaboration is critical. Its neighbors—China, Vietnam, Malaysia—have all moved in this direction as both education and labor markets seek a wider connectivity abroad. Pronouncements from the Reserve Bank of India can help, but execution is critical. Time, and human potential, is wasting.

Africa, David Ricardo and the Promise of Education Outsourcing

The theory of comparative advantage is one of the most important concepts in international trade.  From 18th century economist David Ricardo’s explanation of why England should produce cloth and Portugal make wine–but not each country producing both– to more modern examples of credit card service centers in Bangalore or iPhone manufacturing operations in China, we intuitively understand that countries cannot and should not produce everything.  Yet somehow when it comes to education these trade principles are often ignored.

00281353-0575d6701eb5597ea6ffeec300cfe6bc-arc614x376-w614-us1To students of economics, comparative advantage is a logical and elegant textbook explanation of how the world works. But what happens when an entire country outsources their educational system to a foreign, private provider? And what if the private group happens to be a commercial, non-state entity?

When the small, West African country of Liberia signed such a contract with Bridge International Academies recently, the response was swift and virulent, if not predictable:

  • United Nations Special Rapporteur Kishore Singh warned that the “provision of public education of good quality is a core function of the State. Abandoning this to the commercial benefit of a private constitute a gross violation of the right to education (italics mine).”
  • Local teachers questioned how a for-profit entity could benefit off of their country’s “fragile” educational system.
  • Union groups sharply denounced the “privatization vultures” at Bridge (and, by extension, presumably such “vultures” as Mark Zuckerberg, Gates Foundation, World Bank IFC, and UK DID, all of whom are interested shareholders).
  • In a slightly more nuanced critique, a UNESCO Director wrote that the lack of previous experience in rural Liberia should disqualify Bridge from entering into the contract, and more generally that such public-private partnerships (PPPs) that promise scale and effectiveness should be further investigated before moving ahead.

Beyond the rhetoric, there are two lines of thought here: one, Liberia should continue as always to manage the entire primary school system as a matter of sovereignty, and two, if it must outsource advisors for teaching and education support that entity should be be public and non-profit.

Let’s first examine the claimed “right to education” for Liberia’s school-age children. Liberia has emerged from over a decade of civil war (1990s to early 2000s) and a more recent Ebola epidemic and commodity crash that has exacted a toll on its educational system so devastating that over a decade of education statistics are not even reported in the UNESCO’s statistical database.  Partly as a result, in 2015 Liberia had among the world’s lowest literacy rates at 54.5%, which were not only lower than the African average  of 73.9% but also below all countries defined as Low Income by the UN, which have an average literacy rate of 68%.  From here the statistics get worse.  Following a relative high rate of primary attendance, as the years go by over 22% of lower secondary age students drop out of school and face predictably negative consequences over time.

Figure 1 sets out some of the more dismal performance metrics for Liberia in the context of Sub-Saharan Africa, South Asia and Latin America.

            Figure 1: Liberia’s Education Data in Comparative Context

africaedUndeniably Liberia is a failed education state that does not provide adequate access to quality education for its population. Weakened economic growth has also made it more reliant on aid.  The past two decades of educational attainment growth, and the inevitable positive economic impact the results from this, have been lost. It doesn’t need to stay that way. At what point should the idea that somebody else can manage it better–perhaps even for an interim period–be accepted in the interest or “rights” of students?

The evidence suggests right now. Which leads to another question: Who can best provide this? And why not a private company such as Bridge International Academies or many of its competitors, local and foreign, that are sprouting up across emerging markets?

In my view, three issues matter here to Liberia and many other parts of Africa: quality, resource cost, and time.

Quality. There is no a priori reason why public-private partnerships should be inferior or less likely to succeed.  On the contrary, the wave of school and emerging Edtech solutions across Africa and emerging markets such as India and Brazil, from the management of schools to providing student finances to training teachers to business-education advocacy and Corporate Social Responsibility (CSR), suggests that public options are either not effectively meeting demand or lack the financial and technological resources to do so.  Companies from Omega Schools, Lekki Peninsula Affordable Schools, m-learning start-up One University NetworkGEMS and others will continue to fill the education void in Africa.

Indeed a plethora of private solutions already coincide with public and multilateral education programs around the world, so much so that the “outsourcing” of educational training, advice and management is a normal occurrence in the developing world. In the case of Liberia, a single contracted educational provider was deemed sufficient to manage the entire (admittedly small) primary school system, a fact that somehow was threatening.  To be fair, there has been criticism about Bridge’s pedagogy and use of Android-based curriculum but this is beyond the scope of my analysis. Yet given that the company has grown rapidly across places like Kenya and Uganda based on tuition paid at the household level–that is, parents with limited resources choosing and paying for these schools out of pocket–it would be difficult to argue that Bridge’s market-based educational model is flawed or not delivering on its promises, in which case it would be out of business. More importantly, if the alternatives were so much more effective, where were they when Liberia needed them?

Resource Cost. Liberia is spending approximately 2.8% of its 2 billion GDP, which is equivalent to a paltry $56 million or $139 per student annually (based on an estimated school age cohort in Liberia is 400,541).  By comparison, the entire budget of the Los Angeles Unified School District ($6.78 billion), with has over 640, 000 students, is over 3x Liberia’s entire GDP.  Per student cost in LA is $10,593. Bridge’s contact is valued at $65 million over five years which amounts to $13 million per year and $58 per primary student. This is below Liberia’s average current spending level of $139 per student; in fact, Bridge’s entire modus operandi is to deliver a lower-cost “School in a Box” model at scale, as it does with in Uganda and Kenya. Is this confiscatory?

There is no evidence that less expensive contracts at similar scale and quality are available (with public or multilateral agencies, for example), and Bridge already has a transparent track record in Africa. Moreover a quick glance at Devex, a leading development marketplace, suggests that pricing for a country-wide and multi-year initiative in education, whether in Africa or emerging Asia, does not come cheaply from anyone, whether public providers, NGOs, or teams of well-fed education consultants.

But the more profound way to look at this is by understanding the opportunity cost. Outsourcing to Bridge will free up efforts by Liberia’s government and private resources to tackle structural economic problems, including diversification away from mining and more attention paid to industries such as agricultural processing, infrastructure and tourism. Why not take the near-term education burden off the backs of pressured government bureaucrats to focus on areas where they have greater chance of success? With proper monitoring of Bridge’s performance measures through pilot school roll-outs and buy-in from local constituents (teachers, administrators), Liberia can focus on what it can do more effectively, and cheaply, rather than trying to bootstrap its education system from abysmally low levels.

Time. What would it cost for Liberia to provide the level of education across its primary system that Bridge has promised?  We don’t know, but an educated guess would be a significant amount of money to rebuild, conceptualize, negotiate, bring in advisers (again) and then implement, assess and discuss, particularly when the country is facing a crippling economic crisis.   Time is critical.  Students in Liberia who are given access to quality education today can have a salutary impact on the economy and society tomorrow.  Missing that chance ensures another generation of poverty and despair, while the cost of inaction gets worse.

Liberia is perhaps an extreme example of education outsourcing at the country level rather than at the township, district or school level–and as such has struck a particular nerve about “national sovereignty.”  But its lessons are no less relevant.  Education is a globally tradable good and service and should be viewed as such by those in the field.  As with many other socially impactful industries, from healthcare to environmental solutions, technology-enabled access to education will continue to drive wider areas of trade, access and collaboration.  Countries and constituents may seek to build their own domestic education industries, erect barriers to this trade, raise tariffs on foreign education products and services; or they might bring in outside technology, services and advice as a long-term plan to “import substitute” their own educational efforts over time.

Either way, the promise of education outsourcing as a way students are educated, workers are trained and economies are structured is only going to gather pace as the needs of populations continue to rise.

 

China’s Next Act: From Hollywood to Harvard?

This article was published in Edsurge on March 21,2016.

Could China buy America’s top universities? When this question appeared on Quora a few years ago it was quickly dismissed as unworkable from a governance perspective. But the ambition behind the question remains: If Chinese investors could, they would. What else might China acquire from America’s $1.3 trillion education industry if Harvard is out of reach? We are about to find out.

The unlikely parallel is Hollywood. In just the first few weeks of 2016 Chinese conglomerate Wanda Group acquired blockbuster Legendary Entertainment for $3.5 billion following its previous $2.6 billion acquisition of AMC Theaters; China Media Capital injected $100 million into blockbuster Imagine Entertainment, and Perfect World Pictures arranged a $500 million finance deal with Universal Pictures. In the adjacent digital games market Chinese acquisitions are stacked high, including Internet giant Tencent’s investments in Riot Games, Epic Games, a strategic minority stake in Activision Blizzard, and, more recently, established content streaming partnerships with HBO, Warner Brothers and the NBA.

Meanwhile e-commerce leader Alibaba has invested in companies ranging from LA-based Snapchat to startups such as Fanatics (online sports) and Kabam (video games), and more recently in online education company iTutor Group. China’s total M&A activity in the US during 2015 was $14 billion, with an additional $2.3 billion invested directly in startups since 2012, but this is only the beginning for the media and entertainment sector.

What do education and the Hollywood entertainment complex have in common? Despite obvious differences, both are industries where consumer demand is off the charts in China and where creative talent, technology, intellectual property (IP) and innovative content are coveted. Both are being disrupted by digital delivery models and adjacent competitors. Both operate in global markets where “Made in America” matters.

To date, US and UK education-related businesses have received a paltry $350 million in investment from China and other regional investors, based on our estimates. But there are strategic and financial reasons why China’s investment into US education will accelerate.

USChinapeg

First, intensifying competition within China’s domestic education sector is creating acute needs to differentiate by using unique foreign content, services and technology. The latest example is TAL Education’s investment in Knewton following an earlier investment in the Minerva Project, a type of alliance that not only offers China exposure to advanced technologies and innovative US education brands, but also signals to local consumers a superior level of quality and prestige.

Second, China’s internal educational reforms are driving consumer choice. Specifically, changes in the national gaokao and zhongkao exams, experimental admission standards at selected universities, and the internationalization of higher education pathways are fueling explosive demand for international schools in China and boarding schools abroad. A growing emphasis on early-age English immersion programs and extracurricular experiences also makes U.S.-based companies attractive partners.

Third, Chinese companies are looking to continue serving Chinese students even if they study overseas. Thus far, Chinese students are studying in both U.S. colleges and higher schools at record levels. Yet Chinese competitors, such as Universities and service providers, are largely absent in the U.S. In 2015, there were 304,000 Chinese students in U.S. higher education and 34,758 students in U.S. K-12 system, the latter growing 290% in a single year. According to the National Association of Foreign Student Advisers, international students overall contributed roughly $30.5 billion of economic value in 2015; a simple extrapolation, based on Chinese students as a percentage of total international students in the U.S., puts China’s contribution at over $10 billion annually. Yet despite such a large potential revenue base, there is a dearth of Chinese investment into US-based pathways, tutoring, boarding school and service businesses.

Fourth, from an American perspective a potential Chinese investor can provide access to its own deep market and a built-in platform for product distribution and student access. Many U.S.-based education and edtech companies simply do not have the networks, knowledge and resources to execute a meaningful China strategy, despite a scattershot of loose cooperative partnerships in emerging markets of questionable value and depth. With U.S. education markets offering limited scale compared to emerging economies, the case for venture and private equity-backed firms, from K-12 tutoring to proprietary vocational colleges, to search for more investment-intensive Chinese partnerships—including partial sales or buyouts—grows stronger.

Fifth, China itself is an emerging edtech market with an impressive lineup of mobile, e-commerce and media competitors, from well-known conglomerates mentioned above to new ventures such as NetDragon Education, iTutorGroup, and 17zuoye. Last year marked a high point of early-stage capital raises in China, amounting to $317 million in the first half of 2015 and placing China on a globally competitive level. Furthermore, many of these firms are cash rich, acquisitive, and innovative. For some, the added benefit of diversifying away from Renminbi (the Chinese currency) denominated revenues and risk—and possibly increasing their public valuations at home—provides a further nudge.

Industry after industry in China has struggled with intensifying domestic competition, a push toward innovation, exacting consumer demands, and the extension of their businesses abroad.

In the U.S., total Chinese investment now exceeds $50 billion and could reach $200 billion by the end of the decade. The question is not whether a critical mass of Chinese investment will enter America’s vaunted education sector, but when it will arrive. From U.S. education entrepreneurs to college leaders to venerable US education brands in need of a remake, Chinese capital, and the potential market access it can provide, may soon be coming to a classroom near you.

 

Do Emerging Markets Want Their Education Disrupted?

This article was published at Educelerate on March 7,2016.

Have foreign education companies “cracked the code” for educating the rest of the world?

Earlier this month the online education company Udemy reported that over 10 million students had taken “at least one of its courses” and that growth overseas was surging. While this milestone should be applauded, such a grand, but largely meaningless figure is increasingly routine among online platforms in a world full of massive, under-educated populations. Rather it begs the question: if developing countries have such an enormous need for education and skills development, and online education is providing the access and “disruptive” forces to hoover up millions of students, why do so few US education companies boast large international enrollments, or at least disclose a more detailed accounting of their international operations?

Building Global Silicon Valley Leaders in EdTech

Is EdTech too focused on satisfying Silicon Valley-centric user metrics at the expense of thinking about truly massive global numbers?

With an estimated 2.37 billion workers in the world’s key emerging markets and an additional 416 million high school and college students projected to enter the workforce over the next 35 years, the developing world is in a race against time to absorb impending youth bulges and head-off potential employment crises.

Figure 1 shows the relative level of working age population (ages 15-64) from key emerging markets in 2010 and projects them out to 2050. These estimates immediately underscore where the most acute employment pressures will occur through 2050 — India (+318 million additional workers), Pakistan (+115 million), Bangladesh (+41 million) and to lesser extent Indonesia (+28 million) — all of which lag far behind the OECD and other Asian peers in both high school graduation and college enrollment rates. Furthermore this data set does not even include several other countries in Emerging Asia or a surging working age population in Africa where the 15-19 year old population is expected to exceed 151 million by 203o (see Figure 2 for comparative data).

Figure 1: Working Age Population, 2010-2050 by Country


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Figure 2: Comparative Education Data by Region

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Comparative Education Data Globally

Not surprisingly, the most challenged countries are confronted with debilitating gaps in public funding for education and are turning to technology and the private sector for help. Hence the familiar opportunity for disruptive innovation that uses low-cost access and technology or fills unaddressed market segments.

But the view from the ground is more complicated. To get my head around this, I scanned the data on some of the new “disruptive” companies (whether backed by venture capital or foundations) involved in professional skills and higher education, but this only resulted in more questions:

  • How can so many companies in my sample claim to be serving 178 or 180 countries around the world, but only a few indicate the actual percentage of subscribers and student users, or revenue derived from these markets?((And forget about profits, the 10 million-student Udemy “might be profitable in 2017 or 2018.”))
  • Is it possible that so many competitors can operate as self-proclaimed “global leaders” or “leading global platforms” all at once? At what point can companies represent themselves as legitimate, serious international competitors without merely blowing smoke to investors?
  • Can a collection of loose channel partnerships or international investors, a strategy used by many rapidly scaling online entities including start-ups, truly provide the level of control, sustainability and local incentives to ensure future and profitable growth in such large and diverse markets?

My research led to Figure 3, a simple matrix which aligns so-called “global depth” (y axis), based on indicators such as enrollment, staff, and partnerships, with a level of product pricing (x axis) that takes into account both non and for-profit entities. Admittedly the matrix is based on a cursory scan of available public documents, announcements and information gleaned through internal inquiries. Private companies are also under no obligation to report these details and most do not. I also understand that the absence of evidence is not evidence of absence (and if any companies wish to set the record straight, we will happily review such), but lack of data is precisely the point of this post.

Figure 3: Selection of Global/EM Intensity, Estimated Enrollments versus Pricing

 

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There are, of course, competitors that show meaningful international market penetration (across the top quadrants in Figure 3). But this does not change the fact that the many companies under review appear to have an insignificant if not overrated presence in global markets despite statements to the contrary. Examining evidence in terms of geographic presence, student enrollments, users or subscribers and most critically (for commercial entities), revenue and profits, supports this contention.

Global Intensity and Education Companies

Why, Then, the Discrepancy between Rhetoric and Reality?

Here are a few hard facts to consider. In the context of education — which carries its own added social, economic and regulatory context — we need to immediately resist the tendency to define international expansion as a scalable, plug-and-play, and inevitably lucrative option that indiscriminately displaces local competitors, institutions and culture because it was built in Silicon Valley or based upon Western education models. There have been many promising international models, both in education and broadly across technology, which have utterly failed in emerging markets, let alone supplant local competition. Back in 2013, I raised a few such issues about the MOOC rush into China (see “MOOCs in China—Dream On?”) and the legacy of initial failures from such illustrious names as Google, eBay, Zynga, Groupon, Facebook and others. Challenges remain for foreign education competitors based on regulation, language, domestic competition, and market entry models, in China and elsewhere.

Planting Field Offices in a Few, Comfortable Capitals

There are also conceptual differences over what constitutes a deep international presence. American education competitors have long deployed what I would call a “global light” strategy by expanding into developed trade and finance centers such as Hong Kong and Singapore, or English-friendly markets such as Australia, the UK and South Africa. Some focus on single countries. Very often such moves provide a semblance of global presence that appease a risk-averse (and English speaking) Board of Directors and provides a little sizzle on their investor story ((Actually, for start-ups like Knewton and Minerva Project, it is uncertain if international opportunity attracted their recent foreign investors, or if the need to look abroad for new capital brought their market expansion roadmap along for the ride.)), but offers little reach into the far larger though less accessible developing markets which would offer far more material impact. For example, General Assembly provides high-priced IT and related courses overseas in London, Sydney and Hong Kong, but has little physical presence in large emerging economies themselves. Cengage previously ran its main offshore presence in Australia, before it was sold to another party and became Open Colleges, landing eventually into the hands of Apollo Global. DeVry’s international strategy is overwhelmingly focused on Brazil. Lynda, prior to its merger with LinkedIn, managed an European markets hub in Vienna and posted some Spanish language content.

Make no mistake, placing nodes of operations in selected markets or finding Chinese investors to prop up a capital table can certainly add to an overall business and global baby steps are fine. But this does not equate with being a “leading global platform” and, at its worst, merely passes for international window-dressing.

Free Online or Premium On-Ground, but not Premium Online?

What is clear is that demonstrably “international” competitors in online education have tended to be low-cost or freemium models. MOOCs such as Coursera and EdX, as well as Khan Academy’s Global Schoolhouse Model, are prime examples of mass online platforms delivered at no or low cost to students and which have deep global roots. By comparison, the premium online training site Pluralsight (which, unfortunately, discloses few details on international operations) notes some activity in India, but not in China or the vast majority of countries. Within school models (i.e., on-ground), private international K-12 schools have scaled impressively — from premium level tuition in Asia (e.g., Nord Anglia, Dulwich) to low-cost provision in Africa at Bridge or Omega schools — but most are using online solutions to compliment their physical presence. There are also classroom-based higher education players such as Laureate, Kaplan, Pearson, and to a lesser extent Apollo who have scaled internationally through aggressive in-market M&A strategies.

Bottom line: given the thousands of ambitious US-based education companies and start-ups that want to disrupt the education world, the field is considerably thin.

Flat World Fallacies

The World is FlatTo understand why, consider the “The World is Flat” argument popularized by Thomas Friedman. In his 2005 book of the same name, Friedman’s insight was that the world was “flattening” —culturally, geographically, physically (in terms of distance) and economically — with direct competition from India and China creating intense job dislocation in the US, from computer software to radiology. The argument was compelling in the midst of rapid changes in information technology and communications, and at the margins some US jobs were impacted, but most were not and many never will be.((In a lengthy rebuke to Friedman’s argument, Economist Edward Leamer wrote an entertaining and lucid paper (See A Flat World, A Level Playing Field, a Small World After All, or None of the Above?) which describes how difficult it would be to rapidly “flatten” the global labor market as evidenced by slow changes in income inequality between rich and poor nations. He goes on to conclude that “physically, culturally and economically the world is not flat. Never has been, never will” (his italics).))

Simply put, distance, location and things like trust between business exchanges matter quite a lot. As a practitioner in emerging economies, I make a living in search of solutions to such problems, and I mention the Flat World idea here for a specific reason: because it has become a mantra for many people running edtech businesses in the US and who seek to expand globally with little, if any, friction.Clayton Christensen Institute for Disruptive Innovation

The close cousin to the Flat World — disruptive innovation — is another tonic to Western educational entrepreneurs and companies who think they can magically disrupt a wide variety of disparate educational systems across the emerging world. Taken together, both concepts are compelling: who can doubt the ability to disrupt a $6 trillion education industry with superior technology in a Flat World? No barriers to entry. Massive scale. Instant adoption. Differentiated content. Limited local competition in overlooked segments. Pricing power at the low-end of the pyramid, selected affordability at the upper middle end.

If only it were so easy. Much as my colleague Christopher Nyren laughs at Silicon Valley’s flat-headed thinking about the ability for software to eat the $1 trillion US education market (see “Why Education Does Not Need Marc Andreessen“), there are many reasons to be level headed on the global disruptive power of Western education products, services, technology and intellectual property (“IP”). At a time when US for-profit colleges are under immense pressure, and amply funded edtech firms fight over a limited US market pie and ways to sustain themselves, most Western education groups have yet to make a dent in emerging markets. The newest technology-centric entrants have tried to maximize market exposure through a scattershot of “partnerships” or field offices or foreign investors on their way to being disruptors in 180 countries, but true leaders in none.

Conclusion: What is Disrupting the Disruptors?

From the above market observations and commentary, I have drawn the following four key challenges facing US edtech upstarts as they belatedly look abroad.

University degrees remain the gold standard in emerging economies and a key aspirational objective at the household level. In many countries, replacing or even disrupting college degrees is anathema to upward mobility. According to one reputable source, the level of higher education enrollments globally could exceed 520 million by 2035, from less than 100 million in 2000. College enrollment rates in Africa are projected to rise from 7 to 30% over the coming decades when students already face capacity driven wait lists of several years, a problem being addressed by the Silicon Valley edtech start-up One University Network. In Vietnam, a World Bank skills analysis underscored the country’s concentration on higher education degrees over technical skills, in part since households looked down on vocational training. Non-traditional online degrees in Asian countries such as Indonesia, China, Malaysia and Korea offer non-traditional education, but are priced cheap, considered inferior and usually do not do not carry equivalent accreditation (not to mention value in the workplace). Naturally, credentials can and do supplement degrees and provide some form of skills training and signaling for high school graduates — as they do in the US — but the drive toward a traditional university degree is only going to intensify. Degrees are sticky — replacing them with something else of value in the developing world will not be easy.

Second, new Credentialing models are not new in many countries outside the US where vocational and skills-based education has long been a substitute for poorly developed higher education systems. It seems as if an entire generation of US-educated entrepreneurs have discovered skills-based, vocational and competency-based education as a disruptive innovation. But many emerging economies have operated deep vocational and competency-based education systems for decades led by a diverse group of institutions, from public institutions, “Open University” systems and corporate universities to small, mom-and-pop private training organizations. Parts of Asia, for instance, have been heavily influenced by Germany’s dual-VET Meister system and Australia’s TAFE qualifications. In more advanced Asian countries such as Korea and Japan, a so-called “license regime” that matches jobs with licenses, which require specialized training, has a long tradition from the placement of higher-end technology technicians to Japanese ikebana flower arrangers.

What this means for foreign education companies is that many emerging markets are already highly competitive, well acquainted with credentialing, and have local systems that favor incumbents and their relationships with employers. Local companies and institutions are also increasingly technologically savvy, deploying the latest adaptive learning or online service platforms (for relevance in Asia, see “How Asia is Emerging As the World’s EdTech Laboratory“). In this sense, vocational and skills-based sectors cannot be considered “overlooked” market segments ripe for disruption, but rather are embedded within local education-to-employment systems — though to be sure, there is always room for more differentiated products and services at a quality level.

Third, cost pressures that give rise to student debt loads in the US — and a compelling case for disruption — are largely absent in the developing world, where tuition is often heavily subsidized by the state. For 2015-16, the College Board estimates US tuition costs $9,041 for 4-year public colleges and $32,405 for $-year non-profit colleges. At around $500 to $3,000 in India, and $2,500-$3,500 in China, education costs in the US are anywhere from triple to over 10 times the levels in emerging markets. Of course, these figures have not been PPP-adjusted for affordability, but neither do they take into account household savings rates that are comparatively low in America or college living costs which are generally higher. Rather it is meant to illustrate that the market for substituting a Western credential or education service based on relatively low cost is often less applicable outside the US context.

This is not to deny major financial constraints and their impact on education access in emerging markets, or the massive need for private capital and innovation in regions such as South Asia, West Africa or Brazil to meet demand. However, it is clear that cost will not drive foreign college students to consider new, disruptive models.

Fourth, the historical record is largely against foreign business models that favor multiple cooperative partnerships over deeper investment on the ground in terms of time, resources and equity — in short, having skin-in-the-game and tolerating higher risk-payoff options. I have previously discussed some these challenges and failures among universities and other groups expanding globally in this context (see “What Multinationals Can Teach Universities Expanding into Emerging Markets“) including many cases of misaligned partnership incentives, a lack of sustainable financial returns, insufficient understanding of product adaptability and acceptance in local markets, and remote-control management with insufficient day-to-day commitment. The implications for online learning models are equally serious, where “asset light” approaches can lead to insufficient control over product, distribution, IP and management.

There are always exceptions, such as the Khan Academies of the world, and companies certainly still have time to succeed abroad (especially one like Lynda which can leverage LinkedIn’s own growing global presence and deep network effects), but it is no coincidence that many education businesses with physical assets and concrete acquisitions have thus far outstripped their online and organic focused peers in penetrating emerging markets with durability and depth — such global plays and ranged from international K12 and language schools to college campuses, training facilities and research centers.

The foregoing issues do not in any way diminish the exciting opportunities for education companies across the student cycle and the vast majority of the world. Do emerging markets want their education disrupted? Yes, but at varying degrees and with many operational limitations. Are US edtech companies effectively disrupting these markets? No, but there is still massive untapped opportunity — though the challenges will be formidable without a committed and coherent global strategy.

Central Asia’s New Silk Road: Game Changers

“No need to listen for the fall. This is the World’s end.” — Rudyard Kipling, Kim

During a long, cold flight to Almaty in the late 1990s I sat sleepless reading Peter Hopkirk’s landmark history of the region, “The Great Game: The Struggle for Empire in Central Asia.”  My colleagues and I were about to spend the week meeting with Kazakhstan’s Ministry of Energy as well as its largest companies, all heavily armed by private security guards touting AK-47s while discussing their IPO plans in London. That alone was an eye-opener even Hopkirk would have missed. But what was unique about this trip was our informal mission, backed by the Chinese government, of introducing the idea of a vast pipeline in Kazakhstan that would reach from China’s far western Xinjiang region to the Caspian Sea. The Kazakhs at the time, fearing rather engaging China, were having none of it.

Fast forward to China’s “One Belt, One Road” initiative launched amidst much fanfare this year and not coincidentally in tandem with its sponsorship of the Asian Infrastructure Investment Bank (AIIB).   If successful, these two moves promise to have a geo-economic impact on par with China’s immensely ambitious development policy toward Africa. However unlike Africa, China’s focus on driving a renewed “New Silk Road” through Central Asia faces an already crowded field of post-colonial (and post-Soviet) military interests, natural resource competition, a resurgent and irredentist Russia, and a potential threat of IS terrorism in the region.

What is more, despite its natural wealth and historical location as a crossroads, Central Asia remains stunted by income inequality and lack of advanced educational attainment–two areas, I would argue, which hold the key to the Great Game.  This is because the success of any New Silk Road will likely require far more than the odd gas pipeline or wad of investment dollars but rather a level of development that enhances economic inclusion and can foster political and social stability, open borders, and diversified economic growth. In this sense, a single aspect of Central Asia which has been largely discounted must now be confronted: the education of its people.

Central Asia by the Numbers

To the uninitiated, the traditional concept of Central Asia is comprised of the five countries of Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan and Turkmenistan.  I’ve included Afghanistan in our analysis since it borders on three Central Asian republics and injects its own development challenges onto the region, whether they like it or not. As a failed education state, Afghanistan also serves as warning to the region about what an alternative path might look like.

Table 1 summarizes aggregate economic and education data for the Central Asian republics, centered on long-term indicators:

  • Total population of approximately 66 million people (and close to 100 million if we include Afghanistan)
  • A sizable 52.6 million people projected to be of working age (15-64 years) by 2030
  • FDI inflows of US$14.8 billion in 2013 or about half of India’s $35 billion FDI in 2014.
  • Relatively high per capita GDP (in PPP measures) of US$10,307 ($8,914 if we include Afghanistan)
  • Gini coefficients reflecting income inequality at moderate to high levels, ranging from a low of 29 for Kazakhstan to a high of  36.7 for Uzbekistan (but still lower than US levels of 40).
  • Wide variation of educational attainment and labor skills, ranging from OECD levels to rates far below India and China, but overall, lagging.

Figure 2: Comparative Economic and Education Data:  Central Asia and Afghanistan

OMore recently, and to add further urgency to what is a region in transition to emerging market status, Central Asia has fallen victim to collapsing oil prices, aborted resource investments, and economic weakness in Russia (which provides remittances and is the main export market for the region).  Under these conditions, it would be folly to believe that massive hydrocarbon projects alone will galvanize economic development without a level of education that acts as both an economic stabilizer and a key to social change, not least, to root out corruption based on resource extraction and control.

Where, then, is Central Asia heading in terms of educating its populations and what are the challenges ahead?

Early Success at Primary School Levels

Central Asia’s republics are relatively well educated at early ages. Universal primary school completion—a key indicator of future educational attainment—was reached or exceeded in most countries by 2012 and many were closing in on this goal in 2000 (see Figure 2). By comparison, Afghanistan is a failed education state with a paltry 34 and 38 per cent of children competing primary school in 2000 and 2012, respectively, not least due to the exclusion of girls.  According to one wide-ranging report on Afghanistan’s educational system in the 20th century, the number of students enrolled in 2000 barely exceeded levels achieved in 1978 and, even more distressing, remained far below the enrollments levels in the country during the more peaceful 1960s and 1970s.  Beyond Afghanistan, Pakistan and Bangladesh also face deep challenges, where only 72 and 75 per cent of children finished primary school in 2012.

In comparative terms, this illustrates that Central Asia is not the educational wasteland often thought of in popular imagination and should provide some solace to future policymakers and investors.

Figure 2: Primary Education Completion Rates by Country, 2000 v 2012

Declining Fertility Rates Put Less Pressure on Educational Systems

Supporting this early age education trend is a sharp decline in fertility rates. As I have noted in previous research, it is axiomatic that declining population pressures and less stress on educational systems can improve educational outcomes.  One study by the British Council has underscored the correlation between standardized test scores and falling birth rates in East Asia, a finding that can apply to other regions as well.

In Central Asia, Kazakhstan has maintained a consistently low fertility rate (as measured by birthrates per woman) of 2.7 times since 1990 which contributes to the fact that its educational outcomes are the highest in the region. More important are its “high-birth” neighbors which have reduced average births dramatically:  Uzbekistan, showing a declining fertility rate from 4.1 in 1990 to 2.5 in 2012; Tajikistan falling from 5.2 to 3.8, and Turkmenistan from 4.3 to to 2.4 births per woman. Contrast this with Afghanistan, which had 7.7 births per woman in 1990, reducing to an improved but still high 5.1 by 2012 (see Figure 3).

Directionally, the five Central Asian republics are primed for positive education outcomes for the simple reason that fewer children to educate equates to more potential support per child–financial, pedagogic or otherwise–and higher potential attainment beyond primary levels.

Figure 3: Total Fertility Rates: Birthrates per Woman by Country, 1990 v. 2012

Gradual Moves to Higher Education Attainment, But Uneven Success

With higher numbers of primary school graduates and lower stress on the student pipeline through moderating population size, we can expect a trend toward longer student engagement cycles and higher educational attainment through University if both capacity and affordability are sufficient.

Thus far we can see gradual improvements in Central Asia together with other, more depressing trends in tertiary enrollment rates. As Figure 4 indicates, Kazakhstan grew enrollments rapidly from 2001 to 2006 (at peak close to 790,000 students), but declined through 2010.  The country’s tertiary gross enrollment rate (GER) of 48.5 per cent in 2013 is largely in line with OECD averages and far higher than China and India, although its population size is vastly different.  Kyrgyzstan and Tajikistan are two other countries that have registered some moderate growth in tertiary enrollments. Kyrgistan is a particularly high GER of 47.2 per cent, with Tajikistan with a much lower (tough still relatively impressive) 25.4 per cent.

Uzbekistan and Turkmenistan are more problematic, with low GERs (8.9 and an estimated 8.0 per cent, respectively) and declining tertiary enrollments in the case of Uzbekistan (note that Turkmenistan does not report tertiary enrollments–never a good sign).  Moreover, Uzbekistan reported high secondary enrollment completion suggesting that a lack of capacity may be severely limiting student attainment in the country.

Figure 4: Tertiary Enrollments by Country, 2001-2012

International Mobility and Engagement Is Plugging the Capacity Gap

As in many other parts of Asia, the lack of domestic higher education capacity coupled with higher attainment levels, greater affordability and increased savings has traditionally propelled the movement of students abroad to destinations such as the UK, Australia and the US, and this is happening for Central Asian students as well, although most end up in Russia or non-Western University systems.

As Figure 5 illustrates, several Central Asian countries have increased the size of their tertiary student cohorts overseas.  Three countries are worth mentioning: Kazakhstan, which almost doubled its student abroad cohort to reach almost 44,000 annually by 2012; Tajikistan, with international students rising from 1,337 in 2001 to 9,128 in 2012; and Turkmenistan, which since 2007 has rocketed to a level of 27,959 students by 2012.

In 2014, a combined 3,203 students from Central Asia were studying at US colleges and Universities, a level however which is comparatively low and far less than even Nepal, which sent 8,155 students. Kazakhstan sent 2,102 students to the US in 2014 out of an estimated total of 44,000 students (using its 2012 data), or a mere 4.8 per cent of total.

Clearly US higher education is only a bit player in Central Asia–compared with Russia and to an increasing extent China–with significant scope for growth and engagement. Consider that out of thirteen international branch campuses in the region, all but two are hosted by Russian Universities; in Kazakhstan, all international branch campuses are Russian.  The US is seeking to remedy this strategic deficit–most recently through the launch of the American University of Central Asia and other government-led initiatives–but far more educational engagement is needed to build the level of educational capacity, and quality, that can serves the region’s future interests.

Figure 5: International Mobile (Offshore) Enrollments by Country, 2001-2012

Education Spending to Accelerate with Regional Growth

Finally, there is no reason to believe that Central Asian households will act any differently from the rest of Asia as their wealth increases and opportunities for educating their children unfold. The propensity for emerging Asia, including its poorest regions of South Asia and Myanmar, to spend a significant proportion of household income on supplemental education is well established, and an area I previously analyzed in the case of both poor and rich students in emerging economies.  

At present, two countries–Kazakhstan and Turkmenistan–are posting significant increases in GDP per capita (as measured in PPP) and at levels far above averages within Developing Asia. However the remaining populations of Uzbekistan, Kyrgyzstan, and Tajikistan lie beneath the $4,000 to 5,000 PPP “middle class” threshold and are growing from a much lower base. Differing levels of affordability will demand a more nuanced approach to the region as a whole.

Figure 6 illustrates these changes in affordability through the relative strong economic cycle ending 2013.

                 Figure 6: GDP Per Capita at PPP (Current International Dollars), 2001-13

In sum, educational and economic progress within Central Asia will not be easy but the region has a decent foundation base from primary school levels.  Country profiles differ widely, with Kazakhstan leading across many statistical indicators, including access to higher education and affordability.  The region’s reliance on Russia is unstable, if not problematic, in terms of educational needs and priorities.  Chinese investment may help to galvanize a region in need but not if it relies solely on large scale infrastructure projects.

The clock is ticking on economic and social stability in a region propped up by resources rather than human capital. Investors and policymakers who plan to travel along this New Silk Road should take note.