The Business of Education

Education may be viewed as a market which has the following elements:  a system (that includes but is not limited to clients, providers, and regulators), institution, procedure, social relation, and infrastructure whereby parties engage in exchange¹.   It is a system that allows “buyers” and “sellers” to exchange services and money.

BUYERS

The buyers of education could be segmented into the following:

1. Parents of pre-school/playgroup students (age 3-5),
2. Parents of kindergarten students (age 5 – 6),
3. Parents of elementary age students (age 6 – 12),
4. Parents of the secondary grade students
5. Parents of the tertiary students and other individuals seeking higher education.

In 2009 – 2010, the Department of Education (DepEd) estimated the number of enrollment in the elementary grades (Grade 1 – 6) to be at 13.1 million students².  If we can assume that the dropout and survival rate reported at the PICPA Annual National Convention in 2007 applies (see Table 1), then only 8.5 million will finish Primary School and only 7.6 million of these students will enter secondary school.  And out of the 7.6 million secondary students who entered Secondary School, only 5.5 million students will finish Secondary School.  And out of the 5.5 million Secondary School graduates only 3.0 million will enroll at the Tertiary Level and only around 400,000 will finish college.

Table 1:  Dropout and Survival Rate³

Primary School

Survival	Levels	Dropout rate
100	Enter Primary School	100%
-35	Less Drop Out	35%
65	Finish Primary School	65%

Secondary School

57	Enter Secondary School	100%
-15	Less Drop Out	27%
42	Finish Secondary School	73%

Tertiary School

23	Enter College	100%
-9	Less Drop Out	40%
14	Finish College	60%

Using the estimated number of those who will enroll at the Primary level, which is 13.1 million and those who will enroll in the succeeding levels of education, 7.6 million in the Secondary level and 3.0 million at the tertiary level, then the estimated total number of students per year could roughly be around 27 million.  

In 2005, it was reported that the Philippines spent $138 per student.³  If the government continued to spend the same amount of money per student in 2009 – 2010 period then the total amount spent by the government could come to $3.7 billion.  While this amount may be smaller compared to other neighboring countries and does not include amounts spent by other sectors, it is still a relatively huge industry in the Philippines.

BUYER’S DEMOGRAPHICS

The demand for education is high and growing as the population of the Philippines continues to grow.  The estimated Philippine population is 103, 775, 0024 (July 2012 est.).  The age structure is as follows:

Age	Percent	Cumulative
0-14	34.3	34.3
15-24	19.1	53.4
25-54	36.6	90.0
55-64	5.6	95.6
65 +	4.3	99.9
Total	99.9

If we assume that the school age is below 24 years old, and if you add those who would take up post graduate courses, approximately 50 percent of the population is the potential market for education. 

 With a population growth rate of 1.873%⁵ (2012 est.) this market is expanding and the demand seems to be growing faster than supply.  By 2031 the population is estimated to be at 148 million.  If 50% of that estimated population would be school age that will amount to 74 million students.  If every year we read reports about deteriorating teacher to student ratio, school room overcrowding, and the lack of school rooms/buildings, poorly written text books, antiquated equipment, poorly trained teachers, etc. what would it be like in 2031?

Another factor that is driving demand for higher education is the need of business for educated, skillful and highly productive employees.  It is a very competitive market and only 63%⁶ of the graduates are absorbed into the labor market every year.  However, there was a Graduate Trace Study (GTS) commissioned by CHED in 1999 that showed graduates from three premier universities in Manila have higher employment rates and higher income⁷.  So, parents would like to put their children in the best schools they could find.  The question is, “Can all the families afford to send their children to the premier universities in Manila?”

The estimated 103 million people in the Philippines are estimated to be divided into 17⁶ million families (5-6 people in each family) with an income classification of A/B/C and D/E.  According to the article “Market Manila Income Levels/Poverty in the Philippines 2006,” the author cited the result of a survey by Pulse Asia as follows:

Classification	Percent of families
A.B.C	7
D	67
E	26
Total	100

In the same article the author cited the following statistics

Percent of the families in the Philippines	Average monthly income
1	P122,000 +
6	P55,000 +
97	Below P55,000

That means that the A,B,C income segment would be earning P55,000 plus per month and below that level the D,E income segment of the market would probably be earning on the average around P25,000 per month.  So, in spite of a big demand, the A,B,C segments or the top seven percent of the total families in the Philippines would probably be the ones enrolling their children in the expensive private education system whereas some of the D,E segments of the market would probably be enrolling their children in public education system where the primary and secondary education is for free.  Afterwards, the D,E income segment would probably be enrolling only one of their children at the tertiary level in some colleges with lower tuition fees and wait for this child to finish and find a job before sending another one to school.

SUPPLIERS

The suppliers of education services could be any of the following:

• State education

-University of the Philippines (UP), Mindanao State University (MSU), the Don Mariano Marcos Memorial University, the Cagayan State University, the Central Luzon State University, UP-Los Baños, Bicol University, West Visayas State University, University of Eastern Philippines and Visayan State College of Agriculture, Western Mindanao State University, Central Mindanao State University, University of Southeastern Mindanao, Mindanao State University, and Benguet State University in CAR, etc.

• Private sectarian education institutions

-The  Ateneo University, La Salle University, University of Santo Tomas, the Mountain View College of the Seventh-Day Adventist Group, etc.

• Private non-sectarian education

-Far Eastern University, Enderun Colleges, University of the East, etc.

EDUCATION AS A BUSINESS

The barrier to entry is high due to the cost of land, building facilities, and equipment.  Some famous schools with famous alumni even get a leg up on other schools because of generous donations or grants to the alma mater.  And any donation to education to any PCNC accredited school is exempt from the donor’s tax.  The allowable deduction is equivalent to 100% of value of such donation except for donation to UP that has an allowable deduction equivalent to 150% of the value of such donation.  Some well known businessmen had given donations to schools.  For example a businessman donated a whole building to a private sectarian school and it was named after him and he probably got a hefty tax deduction certificate equivalent to 100% of the value of the donation.  A well known graduate business private non-sectarian school in Makati practically built a building by asking companies to donate money and depending on the amount given a conference room or function room is named after the company or after the name of the CEO of that company.

Some well known businessmen had bought private non-sectarian schools and run it like a business.  The students pay upfront even before the services are delivered and once the student has enrolled in one school they tend to stay for the duration of the course which gives the school a steady stream of revenue.

PRODUCT/SERVICE

Depending on the segment targeted by each school, they may position themselves through the quality of the courses offered.  The positioning could be in Engineering, Architecture, Accounting, Liberal Arts, Law, Medicine, Journalism, Information Technology, Culinary Arts, or Business.  A business college I know has a tie up with a famous business school in the US and incorporated some of its online courses into their own curriculum and provide a separate certification for the online course. 

Other than the courses offered some of the features for each school could be the quality of teaching.  And some these schools have teacher development programs to continue to improve their faculty.   Some schools build foundations so that it could raise funds to support professorial chairs not necessarily to produce more research papers but just to augment the salaries and maintain professors in schools.  Google had some statistics⁷ on teachers’ average monthly salaries in different countries and while teachers in the Philippines are not the lowest paid, they are also not the highest.  Some schools may even have foreigners from famous institutions abroad either doing research work or teaching in their schools.  That means they may have to pay them a monthly salary (see table) equivalent to the salaries in their own home country.

US	$ 4,055
UK	$ 3,075
Germany	$ 3,065
Australia	$ 2,793
Korea	$ 2,643
Norway	$ 2,573
Japan	$ 2,518
France	$ 2,483
Canada	$ 2,238
Finland	$ 1,936
Portugal	$ 1,797
Austria	$ 1,537
Italy	$ 1,441
Thailand	$1,216
Kuwait	$ 1,207
Peru	$ 1,097
Philippines	$ 1,069
Czech Republic	$ 1,042
Mexico	$ 1,018
Poland	$ 1,013
Hungary	$ 918
Latvia	$ 804
Lithuania	$ 788
Brazil	$ 745
Slovakia	$ 706
Romania	$ 588

State-of-the-art facilities and equipment are sometimes used to attract students.  Dormitories and other amenities within the campus or around the campus could also be used to encourage students to enroll in certain schools

PRICE

Tuition fees could also be used as a positioning tool.  Below are tuition fees from some selected NCR schools⁸:

And if I add to the above information a school where I teach, the tuition fee per unit alone amounts to 186% of the highest tutition fee cited above. 

School	Tuition Fees per unit	At 21 units per semester	At 21 units per year	Four Year Course
Enderun Colleges	P5,500.00	P115,500.00	P231,000.00	P924,000.00
ADMU	P2,943.95	P61,822.95	P123,649.90	P494,583.60

Obviously, only a few families could afford to send their children to most of the above universities for education because of the high tuition fees and other miscellaneous expenses that go with enrollment and going to school.

Mayo Lopez, a colleague from the Asian Institute of Management (AIM) and a fellow futurist, suggested that other universities and schools that charge low fees should be cited to show the full range of fees being charged.  Due to lack of time this direction was not pursued.  Mayo Lopez was quiet interested in this because of the high demand for education or a diploma and the short supply of schools.   He is afraid that some of these institutions may be taking advantage of the situation by charging low fees and going for volume and high classroom usage per day to spread the overhead costs and hire poor quality instructors that they do not pay well to make money.   And this is may result in to the poor quality of education evidenced by failure of many of their students in passing some board exams or landing better jobs.

PLACE

A university campus can also be used to position a school.  The cost of land had risen, and the need to build more rooms to accommodate increasing enrollment had put a toll on the limited space most universities have.  Those who started with a big tract of land have been able to preserve wide open spaces with lots of shady trees that provide not only a healthy atmosphere for the students but also space for physical activities that most students participate in.

Disruptive technologies like the Internet have now entered into the education market and are offering alternative ways of education.  And the way they operate need not have a campus.  They offer instruction materials for free through the Internet and try to make money in terms of tutoring fees or in providing accredited testing and charging a fee for it.  They are probably also offering ad spaces to commercial companies who would like to reach their students in order to make more money.  The Internet is also able to offer a course that may have little audience is one particular country but may have a greater audience around the world.  

The information technology is developing very fast and it may eventually help solve the lack of classrooms because there is no need for a classroom.  It may also solve the lack of books or the difficulty of getting content because content could be downloaded from the cloud anytime.  And the school or the students do not have to buy computers because in the future smart phones would be powerful enough to use as the screen needed by the student.

Some schools that used to require their students to wear a uniform have recently loosened this requirement allowing students to wear anything.  There is one school, however, that is an exception – the school requires all their students and their teachers to either wear a chef uniform or a business suit.  One visitor to the campus of this school, after seeing all the young students in dark suits, commented that he felt he was in a “Harry Potter School”.

Architecture is another positioning tool used by some universities to differentiate themselves from the other schools.  Some universities had been able to preserve old buildings that had been constructed more than a hundred years ago to project the image that it is one of the oldest universities, even older than Harvard itself.  Other universities project the image of modernity through their modern architecture.

One school I know is partnering with IBM and Microsoft to create classrooms for the future that fully utilizes the information technology.  It would be fully equipped with the latest information technology gadgets that would allow students to download lessons from their terminal, work individually on case problems and request individual tutoring from the teacher if they want to.  The teacher would have a monitor that would show if students are focusing on the lesson or on social networks.  And when the teacher has to present some information, he or she would have a tablet on his or her hand that could act as a whiteboard where he or she can write and project the information on each student terminal or on a wide screen in the classroom.

The same school bought an audience response system that has interactive keypad polling system that could register the opinions of the students regarding a point being discussed.  And without identifying who said what, each opinion could be discussed in terms of why a person or group of students would think in a certain way and why others would think differently thereby involving everyone in the discussion.  This allows student to explore critical thinking by examining the premises of each conclusion.  If certain students do not participate, it would register as a number on the screen and the teacher could ask for people to fully participate.  It improves attentiveness through engaged communication.

PROMOTION

Print media had been traditionally used by many schools.  You place a newspaper ad or print a brochure and mail it to prospective parents and wait for them to call for an appointment or to visit the school.  

Forming a formidable sports team, especially a basketball team, is one sure way to get prime time TV viewing and in winning the hearts of many Pilipino students.  There is intense rivalry between schools when it comes to sports and the top seeded teams get lots of publicity in many TV and radio talk shows.  Sports pages are also filled with dramatic action pictures of players with the names of schools prominently displayed on the uniforms of the players.

Results of the board exams are also good material for publicity for the schools where the “topnotchers” come from.  Many schools buy ad spaces to congratulate their graduates with subtle reminders that they graduated from their particular school.

Today, in addition to ads in daily newspapers and brochures the use the Internet is prevalent through emails, twitter, facebook and the school website.  Schools are now announcing events, enrollment dates, team scores, and any kind of school news through twitter.  Photos of homecoming, video shots of the school team, encouraging comments from students and collecting alumni as friends of the school is great on facebook.  And school websites are now being designed not only to post online admission materials but also to allow donations to come in.

AN INCOME STATEMENT

The revenue of one of the private non-sectarian university with one of the highest enrollment indicates a continued growth in revenue.  From US$41.5 million it has grown to US$52.7 million⁹ in four years’ time.  The growth rate had been slowing down but it still has an average growth rate of eight percent.  The university has 30% profitability and is also very liquid.

Table II:  Income Statement

Currency in Millions of US Dollars		Mar 31 2009 Restated USD	Mar 31 2010 Restated USD	Mar 31 2011 Restated USD	Mar 31 2012 USD
Revenues		41.5	46.3	50.2	52.7
TOTAL REVENUES		41.5	46.3	50.2	52.7
Cost of Goods Sold		18.2	21.4	23.5	23.4
GROSS PROFIT		23.3	24.9	26.7	29.3
Selling General & Admin Expenses, Total		8.6	8.6	9.3	10.3
Depreciation & Amortization, Total		1.3	1.8	2.6	2.8
Other Operating Expenses		0.1	0.1	0.0	0.2
OTHER OPERATING EXPENSES, TOTAL		10.0	10.5	11.9	13.2
OPERATING INCOME		13.3	14.4	14.9	16.1
Interest Expense		--	--	-0.1	-0.1
Interest and Investment Income		2.9	2.7	3.8	5.1
Other Non-Operating Expenses, Total		0.7	-0.1	-0.4	0.0
Other Non-Operating Income (Expenses)		0.7	0.0	-0.2	0.4
Gain (Loss) on Sale of Investments		--	--	0.2	-0.2
Gain (Loss) on Sale of Assets		--	5.1	--	-0.1
EBT, INCLUDING UNUSUAL ITEMS		16.9	22.2	18.3	20.7
Income Tax Expense		2.1	3.1	2.4	2.8
Minority Interest in Earnings		-0.6	-2.9	-0.5	-0.5
Earnings from Continuing Operations		14.8	19.1	15.9	18.0
NET INCOME		14.2	16.2	15.4	17.4
NET INCOME TO COMMON INCLUDING EXTRA ITEMS		14.2	16.2	15.4	17.4
NET INCOME TO COMMON EXCLUDING EXTRA ITEMS		14.2	16.2	15.4	17.4

Table III:  BALANCE SHEET

Currency in Millions of US Dollars		Mar 31 2009 Restated USD	Mar 31 2010 Restated USD	Mar 31 2011 Restated USD	Mar 31 2012 USD
Assets
Cash and Equivalents		28.4	12.4	9.2	11.8
Short-Term Investments		26.9	30.6	31.3	40.5
Trading Asset Securities		--	--	0.2	--
TOTAL CASH AND SHORT TERM INVESTMENTS		55.3	43.0	40.7	52.3
Accounts Receivable		1.2	2.2	3.3	4.4
Other Receivables		1.9	6.4	3.9	5.6
Notes Receivable		--	11.6	3.6	1.3
Inventory		3.1	3.0	2.9	2.9
Other Current Assets		1.1	2.2	2.4	1.1
TOTAL CURRENT ASSETS		64.0	68.4	57.0	67.7
NET PROPERTY PLANT AND EQUIPMENT		20.5	29.9	40.0	42.9
Long-Term Investments		0.2	0.4	7.8	8.3
Other Long-Term Assets		9.5	9.4	9.1	7.5
TOTAL ASSETS		94.3	108.2	114.2	126.8
LIABILITIES & EQUITY
Accounts Payable		1.0	1.2	0.9	1.3
Accrued Expenses		3.0	2.6	2.0	2.9
Current Portion of Long-Term Debt/Capital Lease		0.1	0.1	0.1	0.1
Other Current Liabilities		5.9	6.8	5.2	5.4
TOTAL CURRENT LIABILITIES		13.0	14.0	11.0	11.5
Long-Term Debt		0.3	0.2	0.1	0.2
Minority Interest		7.6	10.7	11.1	11.7
Other Liabilities, Total		0.3	0.5	0.5	0.5
TOTAL LIABILITIES		13.6	14.6	11.5	12.2
Common Stock		23.9	23.9	23.9	33.4
Retained Earnings		49.6	59.0	67.3	67.6
Treasury Stock		-0.1	-0.1	-0.1	-0.1
Comprehensive Income and Other		-0.2	0.2	0.5	2.0
TOTAL COMMON EQUITY		73.1	83.0	91.5	102.9
TOTAL EQUITY		80.7	93.6	102.7	114.6
TOTAL LIABILITIES AND EQUITY		94.3	108.2	114.2	126.8

CONCLUSION

The business of education is a big and growing industry driven by population growth and growth in business.  The demand for good education had been outstripping supply thereby driving tuition fees higher.  This situation makes it more difficult for many families in the Philippines to get good education and settle for whatever school they can afford to send their children.  

State education had been trying to catch up with the demand by building more school rooms and hiring and training more teachers.  Unfortunately, the government effort is not enough because costs just kept on going up.  The private sector had stepped in and had invested in education to fill part of the education need of the population but it is not nearly enough also.

The quality of education in the country ranges from the good to bad.  Many of the students of the better schools are able to land job more quickly and get higher pay or are able to pass government board exams and even top them.  There are some schools whose students have difficulty finding jobs or have difficulty passing government board exams.

Technology is also now affecting the education scenario in several ways.  First, it is creating new jobs requiring skills that may not yet be taught today. Second, it is providing content previously only available through teachers and schools. How do we prepare students now for jobs that do not yet exist?  And what role should teachers and school play in a situation where content is already readily available in the Internet?

As a business, the problems to solve are the high cost of delivery:  good teachers, good facilities, and modern equipment.  Anyone who can do that could change the education landscape in the Philippines.

_________________________________________________________________________________

References

^{1.            Wikepedia:  Education in the Philippines}

^{2.            Wikepedia:  Education in the Philippines}

^{3.            PICPA Annual National Convention 2007 by Marilou G.  Ernie}

^{4.            Wikepedia:  Education in the Philippines}

^{5.            Wikepedia:  Philippine Demographic Profile 2013}

^{6.            Wikepedia:  Philippine Demographic Profile 2013}

^{7.            Google International Average Salary Income Comparison: Teacher Salary}

^{8.            GMA NEWS April 2, 2013}

^{9.            Bloomerg Businessweek; Far Eastern University}

^{10.          Employment Prospects Growing Dimmer for New Graduates, Study Show by Arnold Padilla}

^{11.          Is Education in Sync with Labor? by Jose Ramon G. Albert Ph.D}

^{12.          Income Levels/Poverty in the Philippines by Marketman.}