Creating a “Chinese version of G8” is not a fantasy

China’s “4+2+1” family structure, which resembles an inverted pyramid, has presented the child education sector with tremendous business opportunities. It also prompted First Capital Australia Education Master Fund’s high profile decision to acquire shares of G8 Education in Australia.

In the last issue, we looked at the development history and growth factors of China’s kindergarten education sector. We mentioned the forecast of the total number of kindergartens in China reaching 320,000 by 2020. In other words, more than 20,000 kindergartens will open each year starting 2015. The expanding industry will see the entrance of more players, and the success of a kindergarten amid intensifying competition will depend on whether it has parents’ recognition.

The core competitive edges of private kindergartens are: firstly, instead of pursuing inclusiveness, they focus on enhancing teaching content to highlight their unique characteristics and differentiate themselves from their peers; secondly, they capitalise on their existing brand and content advantages and replicate them to form a chain operation. The shortage of kindergarten places in most of China has been resolved basically today, but parents have new concerns, which are “getting their children into a good kindergarten” and “whether one can afford to do so”. Thus, improving teaching quality and brand building are the must do for kindergartens.

As pointed out in the last issue, China’s kindergarten education industry is relatively fragmented, with the top seven service providers accounting for only 2.3% of the market. So, what must one do to stand out as an industry leader in a country with abundant educational resources available? Let’s look at G8 Education as an example. G8 Education Group, formerly Early Learning Services Limited, is currently the largest profit-making child care service provider in Australia. It was established in 2006 and listed on the Australian Securities Exchange the following year. Then, in 2010, Early Learning Services Limited merged with Payce Child Care Pty Ltd, another leading industry player in Australia and changed its name to G8 Education. In 2014, G8 Education acquired Sterling Early Education, a leader in Australia’s early education market, which operates 91 early education centres, at the price of USD228 million. It then went on to acquire Adelaide Montessori Pty Ltd, a child care service provider based in Adelaide, at USD3.3 million in 2015. By then, G8 Education had basically completed laying out its business in the early education and child care service market in Australia. According to its 2016 annual report, G8 Education operated a total of 510 childcare and education centres as at the end of the year, 490 of which were in Australia and 20 were in Singapore. It also had over 38,000 licensed places in total. It made revenue of about AUD780 million, up 10.2% year-on-year, and its net profit after tax was about AUD80.3 million and earnings per share were AUD0.25.

G8 Education has an education service model worthy of emulation, definitely replicable in the China market with unlimited potential. The American early education brands which entered the market early bear witness to the real demands and growth potential of the market in the country. Thus, we have reasons to believe that, leveraging the reputation of the largest listed early education institution in Australia and with a focused yet open attitude, extensive cooperation with well-established early education chains in the country can begin and gaining a foothold in the rapidly developing market can become a reality.

A “Chinese version of G8” may very well emerge in the not too distant future in the vast early education market in China from the marriage of G8 Education’s well-established operating and management model as well as brand image with CFCG’s strong financial clout and the advantages its complete industrial chain affords.

*Data from First Capital Fund Management Company Limited, Ministry of Education of the PRC and WIND