Marketing assignment on: Industry analysis of the International Higher Education in Australian

Introduction:

The report would to investigate, analyze as well as state the opportunities which exist in an overseas market or a country in order to promote the Australian international education.This report highlights

Industry & Market Analysis:

The industry analysis of the International Higher Education in Australian could be done by highlighting the various facts & figures. The total number of students registered under the international higher education was approximately 203,324 in the various campuses of Australia. The rate at which the international education in Australia has grown as compared with 2008 is 12.1%. The overall rate of growth at which the international education is growing is 76% from the year 2002 having an approximate growth rate of 8.4% per annum.

Nearly 56% of the students enrolled in the global senior education in the year 2009 were majorly undergraduates & with almost 44% students enrolled under the post graduation courses. The most well accepted field of education where most of the students get enrolled in refers to the Management courses as well as Commerce with approximately 48.3% of enrolments.Whereas in case of any other field of education not more than 10% of the students were enrolled. In Engineering & Related Technologies second highest students were enrolled with an approximate 8.3% of the enrolments.

The list of the number of countries enrolled in the international education listed below, it could be seen that China has the highest ranking with an approximate share of 31.7% followed by India with 13.5% of the share. Total share of both the countries i.e. India & China was calculated to be approximate figure of  45.2% of all enrolments, an increase from 25% in 2003 and 11.1% in The

2000. The top five nationalities account for 62% of all enrolments, while the top ten nationalities account for almost 75%.

International higher education accounts for 32% of all international students, but represents 57.5% of all export revenues, at around $10.3 billion in 2009. On average, each international higher education student studying at an onshore campus in Australia generated $50,874. By comparison, each international VET student generated $20,647 in export income.

Recent Trends, Prospects and Scenarios

The relative health of the international education export sector is now under severe pressure owing to several international and domestic developments over the past 18 months:

 A stronger Australian dollar;

 The impact of the global financial crisis on demand for places;

 Increased competition from other countries seeking international students, in particular the USA;

 Reputational damage caused by highly publicised attacks on international students;

 The collapse of some private colleges;

 Significant changes to student visa rules and skilled migration; and

 The current election campaign discussion about immigration and population issues.

Commencement data from Australian Education International (AEI) for the year-to-date to June 2010, show a decline in overall commencements in the onshore international sector of around 6.3% on a year on year basis, although higher education is still trending positive with commencements to June of 54,326, up 5.64% on the 2009 equivalent figure of 51,339. The other three key sectors have all seen a marked decline in enrolments: VET commencements to June 2010 were at 67,046, down by 4.45%; Schools at 7,177, down by 12.27%; and ELICOS at 43,815, down by 20.5% from June 2009.

The Economic Implications of Fewer International Higher Education Students in Australia

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The ELICOS sector has been hit particularly hard. The peak body for ELICOS providers, English Australia, has suggested that in view of the confluence of negative factors recently, ELICOS enrolments could fall between 30 to 40%.From the perspective of higher education, the marked decline in ELICOS commencements could be a potential indicator of future decline. ELICOS providers typically prepare future higher education students in their short course structures, as 60% of students ‘pathway’ into the other sectors. Falls in ELICOS enrolments this year more often than not presage falls in higher education commencements the next year.

In addition to a general decline, there is evidence from commencement data to indicate that a significant fall in new enrolments across the education sector has already occurred in the Indian market. Commencements by Indian students for the year-to-date for June were 22,670, down by 13,300 or 37% over 2009 (year to June) levels of 35,970. This included a fall in higher education commencements of 1,898 students to 3,435, equal to 36% on the 2009 equivalent figure of 5,333. Of more concern is the 86% fall in ELICOS commencements – 950 students in 2010 versus 6,754 students in 2009. This is widely attributable to the negative press about attacks on Indian students in Australia, and changes in visa policy.Looking forward in the context of all source markets, the Department of Immigration and Citizenship (DIAC)’s grants for the higher education visa – the 573 visa – declined in 2009-10 to 118,541, a decrease of 11.5% on 2008-9 grants of 133,990, almost all of which is attributable to a fall in Indian higher education visa grants. Offsetting this change somewhat was the relatively healthy outcome for the postgraduate research visa, which increased by 11.3%. Overall, combined onshore and offshore grants for higher education visas fell by around 10.2% in 2009-10. Significantly, combined offshore grants fell by 23.4% in 2009-10.

Overseas Market

The market chosen for the promotion of the Australian Education would be China. One of the major reasons for choosing China is that it is one of the growing economy, contributing approxiamtel are

(Why to choose China?)With millions of students and only about 5% of graduates admitted into universities, China has been keenly focused on adult and online education initiatives to keep its citizens competitive. As a result, companies like China Education Alliance, Inc. (NYSE:CEU), Chinacast Education Corporation (NASDAQ:CAST) and New Oriental Education & Technology Group Inc. (NYSE:EDU) have realized significant revenue growth and profits.

Companies like China Education Alliance, Inc. (CEU, Free Analysis) have reported record profits over the past several years. Today, the firm announced revenues that increased 5.1% to $8,617,734 during the first quarter of 2010. The jump was attributed to an 8.3% gain in its online education division and a 12.2% gain from its training center, but the stock continues to trade at a very cheap 8x trailing 12-month earnings multiple.

Similar increases were seen by other companies in the sector, such as New Oriental Education & Technology Group, Inc. (EDU, Free Analysis), which saw a 33% increase in its net income as more students signed up for its language training and test prep courses. Meanwhile, revenues at the company climbed more than 35% to $89.2 million, but the stock remains one of the most expensive in the sector, trading at nearly 50x its trailing 12-month earnings.Chinacast Education Corporation (CAST, Free Analysis) is more reasonably priced at about 20x trailing 12-month earnings, but remains about twice as expensive as CEU. In April, the firm reported first quarter revenues that increased 42% to $15.9 million and net income that jumped 58% to $4.6 million as its gross margins expanded. Meanwhile, the company continues to pursue strategic growth initiatives largely through acquisitions, like that of Hubei in recent months.

Other emerging companies are also taking advantage of the trend by bringing their companies into the global marketplace. Global Education & Technology Group announced plans for a $100 million initial public offering on the Nasdaq by the end of the year, while companies that are already listed haven’t experienced many drawbacks when conducting secondary offerings, despite the potential dilutive effects to shareholders.

Since many of these stocks have fallen alongside the Shanghai Composite, some of them are available at bargain prices for investors, given their continued growth. As a result, this is a sector for investors to watch very closely over the coming months…

Market Segmentation & Target Market:

Market Entry & Expansion Strategy:

When firms have identified a country to target for entry and/or expansion, they must

determine what organizational structure and management strategy best help them maintain their competitive advantage and maximize their value creation. The interplay between the characteristics of the host country, the industry, and the firm itself (as discussed above) will determine the entry mode that is optimal for a particular firm planning to enter a particular country. There are a large number of possible market entry modes, including direct ownership, franchising (in its various forms – multi-unit franchising, master franchising, area development, etc.), management contracts, and a variety of combinations of these basic modes. Here, we focus on the three basic market entry modes most common in the hotel industry (the subject of this study): equity (ownership), franchising and management contracts.

In equity projects, the owner of the property operates it itself. Franchising and management contracts, on the other hand, do not require ownership of the property in order to generate revenue. Franchising consists of a continuing commercial relationship between a firm with a proven business system (the franchise company) and a third party (the franchisee), whereby the franchise company (the franchisor) grants rights to the franchisee for a given period of time to operate their business system using a common brand and common format for promoting, managing, and administering this business. In a management contract, the management company agrees to manage the hotel on behalf of the owner in exchange for management fees. The owner provides the property (land, building, and equipment) and (in most cases) working capital, while the management company provides the professional expertise to build, market and operate the hotel. A major distinction between management contracts and franchising is that the management company operates the hotel itself, whereas the franchise company relies on an independent franchisee to run the property.

The macro and micro factors discussed above determine to a large extent the mode of entry that is optimal for a particular firm into a particular country. Foreign Market Entry Modes

The decision of how to enter a foreign market can have a significant impact on the results. Expansion into foreign markets can be achieved via the following four mechanisms:

• Exporting
• Licensing
• Joint Venture
• Direct Investment

Exporting

Exporting is the marketing and direct sale of domestically-produced goods in another country. Exporting is a traditional and well-established method of reaching foreign markets. Since exporting does not require that the goods be produced in the target country, no investment in foreign production facilities is required. Most of the costs associated with exporting take the form of marketing expenses.

Exporting commonly requires coordination among four players:

• Exporter
• Importer
• Transport provider
• Government

Licensing

Licensing essentially permits a company in the target country to use the property of the licensor. Such property usually is intangible, such as trademarks, patents, and production techniques. The licensee pays a fee in exchange for the rights to use the intangible property and possibly for technical assistance.

Because little investment on the part of the licensor is required, licensing has the potential to provide a very large ROI. However, because the licensee produces and markets the product, potential returns from manufacturing and marketing activities may be lost.

Joint Venture

There are five common objectives in a joint venture: market entry, risk/reward sharing, technology sharing and joint product development, and conforming to government regulations. Other benefits include political connections and distribution channel access that may depend on relationships.

Such alliances often are favorable when:

• the partners’ strategic goals converge while their competitive goals diverge;
• the partners’ size, market power, and resources are small compared to the industry leaders; and
• partners’ are able to learn from one another while limiting access to their own proprietary skills.

The key issues to consider in a joint venture are ownership, control, length of agreement, pricing, technology transfer, local firm capabilities and resources, and government intentions.

Potential problems include:

• conflict over asymmetric new investments
• mistrust over proprietary knowledge
• performance ambiguity – how to split the pie
• lack of parent firm support
• cultural clashes
• if, how, and when to terminate the relationship

Joint ventures have conflicting pressures to cooperate and compete:

• Strategic imperative: the partners want to maximize the advantage gained for the joint venture, but they also want to maximize their own competitive position.
• The joint venture attempts to develop shared resources, but each firm wants to develop and protect its own proprietary resources.
• The joint venture is controlled through negotiations and coordination processes, while each firm would like to have hierarchical control.

Foreign Direct Investment

Foreign direct investment (FDI) is the direct ownership of facilities in the target country. It involves the transfer of resources including capital, technology, and personnel. Direct foreign investment may be made through the acquisition of an existing entity or the establishment of a new enterprise.

Direct ownership provides a high degree of control in the operations and the ability to better know the consumers and competitive environment. However, it requires a high level of resources and a high degree of commitment.

The Case of EuroDisney

Different modes of entry may be more appropriate under different circumstances, and the mode of entry is an important factor in the success of the project. Walt Disney Co. faced the challenge of building a theme park in Europe. Disney’s mode of entry in Japan had been licensing. However, the firm chose direct investment in its European theme park, owning 49% with the remaining 51% held publicly.

Besides the mode of entry, another important element in Disney’s decision was exactly where in Europe to locate. There are many factors in the site selection decision, and a company carefully must define and evaluate the criteria for choosing a location. The problems with the EuroDisney project illustrate that even if a company has been successful in the past, as Disney had been with its California, Florida, and Tokyo theme parks, future success is not guaranteed, especially when moving into a different country and culture. The appropriate adjustments for national differences always should be made.Comparision of Market Entry Options

The following table provides a summary of the possible modes of foreign market entry:

Comparison of Foreign Market Entry Modes

Distribution channels close to plants

High target country production costs

Liberal import policies

High political riskMinimizes risk and investment.

Speed of entry

Maximizes scale; uses existing facilities.Trade barriers & tariffs add to costs.

Transport costs

Limits access to local information

Company viewed as an outsiderLicensingImport and investment barriers

Legal protection possible in target environment.

Low sales potential in target country.

Large cultural distance

Licensee lacks ability to become a competitor.Minimizes risk and investment.

Speed of entry

Able to circumvent trade barriers

High ROILack of control over use of assets.

Licensee may become competitor.

Knowledge spillovers

License period is limitedJoint VenturesImport barriers

Large cultural distance

Assets cannot be fairly priced

High sales potential

Some political risk

Government restrictions on foreign ownership

Local company can provide skills, resources, distribution network, brand name, etc.Overcomes ownership restrictions and cultural distance

Combines resources of 2 companies.

Potential for learning

Viewed as insider

Less investment requiredDifficult to manage

Dilution of control

Greater risk than exporting a & licensing

Knowledge spillovers

Partner may become a competitor.Direct InvestmentImport barriers

Small cultural distance

Assets cannot be fairly priced

High sales potential

Low political riskGreater knowledge of local market

Can better apply specialized skills

Minimizes knowledge spillover

Can be viewed as an insiderHigher risk than other modes

Requires more resources and commitment

May be difficult to manage the local resources.

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