State of play Asia

1. State of play Asia May 2001

2. Who am I? • Government official in Australia 1975-1987 • Economic policy • Education and training policy • Venture capitalist • China, Japan 1987 – 1998 • Review of Higher Education Policy in Australia 1998 • “West Inquiry” • Formation of NextEd late 1998

3. Who are NextEd ? • Hong Kong HQ • Offices - Australia,NZ, PRC, USA, UK, Malaysia • Ownership – USA, HK, Australia • Fidelity • GE Equity • JH Whitney • Kerry Group • Post – secondary education partners – 25 • Universities from 10 countries • Professional Associations from 2 countries • Corporates from three countries • Dedicated higher education delivery environment spanning 13 countries • >200 awards, 1400 courses under contract • Varying degrees of success

4. Themes • Who is gaining market share in Asia? • Disruptive technology = value chain contestability • The University as a global extranet • The market – still crossing the chasm • What works today in Asia - Clicks and Mortar

5. A. Who is gaining market share in Asia?

6. Local entrepreneurs • Asian H.E - Last 10yrs CAGR 10-25%p.a • Provides context for differential growth by different types of providers • Winners of market share • Asian, mainly Chinese and Indian, entrepreneurs • UK and Australian universities • Growing but losing market share • Domestic government funded H.E sector – notable exceptions • Generally not scaleable • USA uninvolved • USA H.E sector – fat and happy and non-scaleable

7. Course price vs. volume- Asia US$1K – 1K US$0.5K – 10K <US$0.1K – 100K • Price elasticity of • demand is high • Income elasticity of • demand is high Example of dilemma: UK e-University volume vs price vs market positioning ?

8. The Growth of Giants • Real price of H.E in Asia increasing at 2-5% p.a • Suggests the “Honda” strategy • Some giants emerging concentrating upon: • Ownership of Student – via distribution • Infrastructure • Scaleable production • Lesser extent, content • Example NIIT – US$250M p.a/US$70M p.a profit • c.f say UHK SPACE US$90M p.a neg. profits

9. B. Disruptive technology = value chain contestability

10. Vertical Disaggregation

11. Shifts in value chain ownership Disaggregation leads to contestability of the value chain • Platform provision 10-30% < • Content 10-30% < • Student support 20-40% • Marketing and sales 10-40% >

12. C. Market Still Crossing the Chasm

13. What works/is valued – H.E Electronic Delivery • Provider – Student • working nicely in niche markets e.g Theology education • Provider – Corporates • where the $ are going • works in some areas e.g multiple outlet TNCs • Provider – Distributor – Student • all education is local • taking off, by far the largest market • clicks and mortar sales and delivery

14. Early Majority - Clicks and Mortar Mass markets Niche markets

15. D. The University as a Local node in a Global Extranet

17. All markets are local • Qualified lead generation • 60-70% via WOM or referral • Purchase • >$US5K decision – can often take 5 visits to a “place” • Delivery • F2F component to deliver non-education components

18. What are the students buying?

19. Example - Corporate • 104 cities, 54 countries, <10,000 employees • US$4M p.a E and T contract • Content unaccredited and accredited – 10 universities • Integration with corporate KMS • 24X7 Total support • Performance benchmarks, ISO9002 • Academic, administrative and technical • After sales support for two years

20. Example – Learning centre • STI – 120 centres in RP, China • Formed by former President of UP system • 80,000 students • 20% p.a compound growth • Training/UG IT • Post graduate start up via buy in • Franchising framework • Strong central integration

21. Example - University • RMIT University • Top Australian technology university • Largest Australian international university • >200 downstream distribution relationships • Let a 1000 flowers bloom • Master distributor consolidation • Standard franchising framework • Common Extranet infrastructure • eCRM, SIS, CPS, PSS all common

22. 1. Product – From JIC to JIT • New products/services emerging • Personalization/ customization of product • Move from just in case to just in time • Quality guaranteed • eCRM is king • Prediction • Dramatic new products being launched in Asia • Cannot keep on throwing the same old stuff over the fence – not working other than at v. high price points

23. 2. Production must be digitized • Customization, personalization and guaranteed quality • Requires underlying: • Digitized infrastructure • Customer relationship management system • Current situation • Asian universities tinkering • A few Australian universities are serious • Asian private colleges advancing

24. 3. Pricing becomes flexible • Price and income elasticity of demand • Strong basis for market segmentation • Disaggregation of pricing • Pricing principles • Inelastic – testing/award and language • Elastic – content • Cost plus – labor intensive elements • Price of content heading to zero

25. Conclusion • Explosive growth – USA missing in action in Asia • Disruptive technology = value chain contestability • The University as a global extranet • The market – still crossing the chasm • What works today - Clicks and Mortar