6
THE Beaconhouse School System is among the largest private-sector schools systems in the region. There are some other for-profit private school systems in the country as well such as Lahore Grammar and City.
Similarly, there are some very well-known and fairly large not-for-profit school systems such as TCF and CARE. Each of them is running a large number of schools. Beaconhouse has even been able to segment and split the market for schooling by income level. The Beaconhouse brand is for the middle- and upper-level groups, while Educators caters to the lower middle-income groups.But what is surprising is that though there are some 56,000 odd private schools in the country already, there aren’t more chains like Educators, Beaconhouse and Grammar. Why are there no big chains at the middle-fee level, with tuition fee ranging from Rs1,000 to Rs2,500 a month, to compete with Educators?
There seem to be significant economies of scale and scope in creating school systems. Brand name is considered to be quite important by parents in the current education market in Pakistan, and it seems to be a good signal for colleges too.
There are significant economies of scale and scope in advertising, curriculum development, procurement of materials and teacher training. Even recruiting ‘better’ or more qualified teachers is easier for chains. Despite this, these chains are few in number and relatively small in size.
Some chains have sprung up in the lower middle- to middle-fee range but they sell a particular ‘brand’ of education (I am using market language to describe education, which does describe some of the phenomena we are seeing quite aptly).
These chains claim to offer good quality mainstream education, usually with English as the medium of instruction, but also offer extra classes for Islamic/ Quranic studies. A lot of parents, in the lower middle- to middle-income group, it seems, want their children to get quality mainstream education, but they also want them to have a good knowledge of Islam.
It appears the aspiration is training/ socialisation in being practising Muslims as well. And parents think the schools can deliver on this through curriculum, extra classes and the specific environment they provide to children. Some educational providers have picked on this market demand quite well and have expanded or are expanding rapidly.
There are some chains that just offer decent quality education, like Educators, without the ‘extra’, but these are still quite nascent and small.
At a recent seminar organised by some colleagues to discuss issues faced by private schools and private education providers, one issue that came through was that private providers, even in this middle-fee range that we are talking about and where for-profit providers are able to make some money too, often feel that lack of access to finance is a major constraint on their ability to expand.
Does this explain the lack of large chains in the area? Banks usually do not lend without collateral in Pakistan. Private schools tend to open up in rented premises in this fee range and so provision of collateral, even for people with the ability to run schools or for those school that already have some branches, is usually not there. The financial needs of these schools and school systems are usually larger than what could be provided for by micro-finance institutions, not that any are interested in the market though.
This might explain why, in this lower middle to middle-fee range, franchise operations have had more success. Educators, Allied and even some of the more ideologically driven systems mentioned earlier are all franchise operations. And judging from the speed of expansion of some of these, where they have gone from a few schools to a few hundred in a matter of years, the demand for franchises is strong.
Educators, reportedly, used to charge Rs500,000 as upfront franchise fee when it started out. Now it reportedly charges Rs1.5m. Some of the other franchise chains are also reporting similar gains once they develop a brand name and put systems in place.
The franchise operations also confirm our assumptions about where the economies of scale and scope lie. The head office keeps brand and advertising issues centralised, as well as aspects of curriculum development and teacher training, while some of the material procurement is also centralised.
The individual schools, for upfront fee and a share of the revenues, get to open a ‘brand-name’ place and offer standardised education. Parents do not have to worry as much about checking the quality of a particular school. This is really not much different from obtaining a McDonald’s franchise.
One can immediately see the strength of the franchise model. The creator of the brand name does not need to have capital for expansion. Those wanting to open a branch will bring capital.
Having said that, as the main vehicle for expansion of private education in the country, there are a number of issues. The franchise model depends on the existence of a brand name. Educators, even though it was a distinct and different name, was/is owned by Beaconhouse: the brand transcends name differences, as in the case of many other products. But for new entrants, the establishment of the brand is the key issue.
For new entrants, the strategy might be to start with a few owned and run schools and once the brand name is established, given the lack of financial market for school financing, expansion through franchise operation might be the best business model to follow. There seem to be a number of ‘groups’ poised for this.
If there are finance providers eager to enter the private school market, one of the fastest-growing markets in the country, the lower middle- to middle-fee market might be a good niche to explore. The fee level here is not so low that provision does not allow profits to be made. Helping establish brand names, franchise models and/or credible accreditation mechanisms might be the way to go.
The writer is senior adviser, Pakistan at Open Society Foundations, associate professor of economics, LUMS, and a visiting fellow at IDEAS, Lahore.
