Business up for study-abroad firms

Like most high school graduates, Fred Wan, 18, will be packing his bags to go off to college for the first time this fall.

But unlike the majority of his peers, the Beijing teenager must remember to carry with him a document some of classmates don't have: a passport.

Wan, who wants to go to the United States or Australia, is among a record number of students expected to travel abroad for their undergraduate studies.

Industry experts say the figure could range between 60,000 and 100,000 this year -- triple what it was in 2003.

Rising affluence and a sharp increase in the value of the Chinese yuan have combined to make an overseas education more attractive and affordable. Students and parents view a degree obtained abroad as a ticket to better career prospects.

This is welcome news for the increasing number of companies that specialize in helping students apply to overseas universities. These firms help students through the entire process, from choosing schools to applying for visas.

According to one estimate, the total size of this consulting market will hit 2 billion yuan this year, with possible profits of 200 million yuan.

Booming industry

By any measure, the industry is booming.

EIC Group, which claims to be the largest company in the industry, said its revenues doubled last year. Its client base grew from 800 in 1985 to 10,000 in 2008, EIC Group vice-president Michael Li told China Business Weekly.

"There is so much business," said Sang Xiaoqing, chairman of Bowenstudy.com, a firm that provides study-abroad information and services online.

"Applying to universities can be a really confusing process," said Alan McNeilly from Teeside University in England. "There is a lot of different information out there, so it helps if consultancies can guide the students through the maze."

And if you are willing to pay more, some firms will go the extra mile. They can help with renting apartments and provide pick-up services when the student arrives at the airport of the destination country.

Not satisfied with the school after the first semester? A handful of companies can arrange for a transfer to another college in the same country.

These agencies make money from both the students and the school. They collect consulting fees from students and parents, who pay for packages that cost, on average, 6,000 to 20,000 yuan.

One firm told China Business Weekly that companies can make profits of around 1,000 yuan per student.

In addition, agencies collect fees from schools that hope to enroll more full-paying Chinese students. This could come in the form of a lump-sum marketing fee or a per-student commission.

A university official, who declined to be named, said universities will pay as much as 10,000 yuan for each student the agency sends to the school.

It's a small price, considering that tuition fees collected by the universities are usually calculated in hundreds of thousands of yuan.

Intense competition

Because of the pace at which the industry is expanding, competition is heating up. There are 400 agencies registered with the Ministry of Education, but some unregistered firms have surfaced recently to claim a piece of the pie.

Many of these small, unregistered firms have sprung up over the last two years, said Feng Jishang, marketing manager at the consulting firm Wiseway.

They focus mainly on students who want to go to the United States, because this market is the most profitable, Feng said.

"They offer cheaper services, but their services might be of a lower quality," he added.

Li agrees. EIC, he said, cannot lower its prices because 60 percent of its consultants are haigui (Chinese returning from abroad).

"We will not compete on price, because we provide value for money," Li said.

Unregistered companies are not the only worry. Firms in related industries are also starting to enter the fray.

New Oriental, which trains students to take college entrance exams, has set up a subsidiary to provide study-abroad consulting services.

China International Travel Service (CITS), better known for its travel-related services, has done the same.

Some investors are also considering entering this market by merging with well-known firms or by making strategic investments.

In 2006, Global IETS School, the second-largest language school in China, announced a planned merger with EIC, to be followed by a possible IPO. The deal later fell through for undisclosed reasons.

Li said EIC has since been approached by a number of strategic investors, but is still considering its options.

Challenges

Other challenges in the industry persist, industry observers said.

Some consultants send students to schools that pay higher commissions, even though those schools might not best suit them, said Stanley Nel, vice-president of international relations at the University of San Francisco.

"Students need to know that different schools suit students with different personalities," Nel said.

"For instance, a school with a large class size will not suit you if you are not, by nature, pushy or competitive," he said.

The University of San Francisco is not among colleges and universities paying commissions to consultants.

"We don't pay commissions because we think it's a conflict of interest," Nel said.

But an Australian university official, who declined to be named, said commissions and marketing fees are the norm worldwide.

"That's how it's worked for the last ten years," the Australian source said.

Some in the industry think marketing fees are only a problem for smaller consulting firms that have links with very few schools.

Li admits that EIC collects marketing fees. But, he said, because EIC has relationships with nearly 130 universities in the United States, the United Kingdom and Australia, it is still able to help students choose the school that best fits them.

Feng said Wiseway makes sure that all the schools it recommends are recognized by the Chinese government, something he said smaller firms sometimes fail to do.

Consolidation ahead?

All these factors suggest that consolidation around a few well-known brands will become inevitable as the industry matures.

"It will become harder for smaller firms to survive, because they face higher costs and cannot offer the full range of services," said Li.

He believes the industry will gradually consolidate around brand-name agencies that can build up a credible reputation among parents and universities.

Xiao Chao, the father of a college-bound daughter, concurs. He wants to use the services of an agency, but will only consider well-known companies that have the ability to organize large-scale events such as university fairs.

"That way, I know that the company will act in the best interests of my daughter," said Xiao, who is planning to send his daughter to the UK to study accounting, financing or hotel management next year.

(China Daily 07/13/2009 page12)