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Stratgic Management
ON
TOPIC- PORTER’S FIVE FORCES OF MODEL ON
EDUCATION SECTOR
SUBMITTED TO:-
SUBMITTED BY:-
Ms.Jaspreet Kaur
GAURAV GUPTA
CLAS
S:-M.B.A 4th
Rol
l No- B-35
SECTI
ON: - 1802
Acknowledgement
First of all I would like to take this opportunity to thank the Lovely
University for having (Strategic Management) as a part of the
M.B.A 4th Sem .
Many people have influenced the shape and content of this term paper,
and many supported me through it. I express my sincere gratitude to
Ms.Jaspreet Kaur for assigning me a Term Paper on “Apply the
Porter’s five forces model on Education industry and analyse the
attractiveness of the industry for investment purpose”.
I also would like to thank my Friends who have helped and encouraged
me throughout the working of the term paper.
Last but not the least I would like to thank the Almighty for always
helping me.
Gaurav Gupta
TABLE OF CONTENT
i) Topic
ii) Introduction
iii) Education in Post-Independence India: Some
Milestones
iv) Challenges in Education Sector
v)Objectives of education
vi) Mission/Vision of Education industry
vii) Swot analysis of education industry
viii) Porter’s five forces model
ix) Overall Higher Education Industry Assessment
x)Current Impressions of the Higher Education
Industry
xi) Attractiveness of Indian Education Industry
xii) Education Industry to be a beneficiary of the new
“served from India”
xiii) Biblograply
Introduction:
Education in India has suffered from severe problems. It has always been seen as an elitist sector
and the poor were always left out. Even now, there are thousands of village without access to
schools. Even if there are schools, they are meant to provide students to Universities, where the
elite go to. Technical and vocational education was ignored as that was not an area where the
elite sector would go to. Also, education was considered an area where the government would
have complete ownership and control. While commercialization was considered desirable in
other sectors, it was not simply seen as an option in education, and in similar ways in the health
sector. Both these sectors suffer as they only provide access to the rich and the urban India. But
in this column we shall not discuss the health sector. As a result what happened was that very
few schools and colleges were opened and because the sector was completely run by the
government, the people it could recruit as faculty were usually of poor quality. The better faculty
were few and far between and more as exceptions. Even now the problem is acute as is reflected
in the more than 40 per cent vacancies that exist in our premier colleges like the Indian Institutes
of Technology and the Engineering colleges.
(1950) India becomes a Republic. Free and compulsory education enshrined as one of the
Directive Principles of State Policy in the new Constitution
(1951) Decennial Census yields a Literacy Rate (5+) of 18.3% (overall), 8.9% (female)
(1958) Second IIT established at Mumbai 1959 Third and Fourth IITs established at Kanpur
and Chennai, respectively
(1968) First National Policy on Education (NPE) adopted, in the light of the recommendations
of the Education Commission
(1963) Third IIM established at Banglore
(1975) Integrated Child Development Services (ICDS) Scheme launched to provide for
holistic development of children up to the age of six years
(1987.88) All India Council of Technical Education (AICTE) vested with statutory status by
an Act of Parliament
(1992) NPE, 1986, revised, based on a review by the Acharya Ramamurti Committee
(1993) National Council of Teacher Education (NCTE) vested with statutory status by an Act
of Parliament
(1996) Fifth IIM established at Kozhikode 1998 Sixth IIM established at Indore
(2002) Constitution amended to make Free and Compulsory Education, a Fundamental Right
(yet to be brought into force)
(2004) Education Cess levied for raising additional finance needed to fulfill Government’s
commitment to universalize quality basic education
(2006) Two Indian Institutes of Science Education & Research (IISERs) established at
Kolkata and Pune, respectively
New Delhi: With the advent of a new year, a look back to the previous year - 2009 is imperative
taking into consideration the important developments being undertaken in the education sector of
India. Among those to hit the headlines the most in 2009, were the Central Board of Secondary
Education (CBSE) Class 10 Board examinations becoming optional; the appointment of India's
new HRD Minister Kapil Sibal (who took over from Arjun Singh) and the Common Admission
Test (CAT) getting marred by technical glitches.
Challenges in Education Sector
Current Scenario in India
• New emerging professions (like BPOs, clinical research, aviation, travel, tourism etc.)
• Around 7.7 lakhs ISO 9000 certified schools and 1.1 lakhs
• President’s address to QCI during the 2nd National Quality Conclave to formulate a quality
accreditation system standard for schools and also develop a rating system for verifying the level
of adherence.
• QCI developed a standard of educational quality management system with inputs from
educationists, administrators, quality experts and interested parties including parents.
OBJECTIVES OF EDUCATION
Individual Development
• Social, aim of education in equally important because an individual lives in society and
has his obligations towards his nation.
• There is a realization that, "The present education system does riot yield required results
mainly because it is divorced from the real social content and social goals".
Social Transformation
• Education should not merely equip an individual to adjust with society to its customs and
conventions, but it should enable him to bring desirable changes in the society.
• It has been, therefore, suggested that, "Every educational institution from secondary
school to university college should be developed to become an agency of change...."
• However, it is essential that we should be quite clear about the purpose of change.
Value Education
• Education is a methodical effort towards learning basic facts about humanity. And the
core idea behind value education is to cultivate essential values in the students so that the
civilization that teaches us to manage complexities can be sustained and further
developed.
• It begins at home and it is continued in schools. Everyone accepts certain things in his/her
life through various mediums like society or government.
• Value education is important to help everyone in improving the value system that he/she
holds and put them to use.
• Everyone has understood their values in life they can examine and control the various
choices they make in their life.
• One has to frequently uphold the various types of values in his life such as cultural
values, universal values, personal values and social values.
• Thus, value education is always essential to shape one's life and to give him an
opportunity of performing himself on the global stage.
• The need for value education among the parents, children, teachers etc, is constantly
increasing as we continue to witness increasing violent activities, behavioral disorder,
lack of unity in the society etc.
• The family system in India has a long tradition of imparting value education. But with
the progress of modernity and fast changing role of the parents it has not been very
easy for the parents to impart relevant values in their wards.
• Therefore many institutes today conduct various value education programs that are
addressed to rising problems of the modern society.
• These programs concentrate on the development of the children, young adults etc.
focusing on areas like happiness, humility, cooperation, honesty, simplicity, love,
unity, peace etc.
• To strengthen the linkages with industries, professional societies, accrediting bodies and
statutory authorities and share common goals and responsibilities
4. Human resource staff are easy to work with and willing to try new recruitment ideas
Weaknesses:
1. Over 50% of the managers and supervisors are eligible for retirement
3. A large number of retired baby boomers are considering returning to the workforce on a
part-time basis
Threats (external)
1. The demand for workers in the field exceeds the supply of potential workers
4. Educational institutions are reducing the number of courses offered in this field
Public universities and colleges are usually very large organizations with extensive
administrative operations, pervasive facilities and grounds, invaluable brands and a alumni base
that can have a legacy well over a hundred years old. These characteristics, the capital and
endowments required to support these long-term assets, including land grant entitlements, almost
per se define large economies of scale, which certainly represent formidable barriers to entry.
Federal and state governments also regulate the establishment of publicly supported schools
based on policy needs and budget constraints.
While public sources of student loans continue to decline, one unintended consequence is
mounting barriers to entry as related to the for-profit sector. Approximately 93 percent of for
profit institutions’ cash flow consists of tuition and fees. The crucial point is 64 percent of the
tuition and fees consist of federally backed student loans. Please review Exhibit 1 in the
appendix for details. As the federal backed student loan industry continues to spiral towards
crisis, for-profit higher education firms have noticed weaker earnings, sporadic enrolment drops,
and falling stock prices, all of which signal extreme caution to any potential new entrant (Value
Line, 2008). An additional barrier to entry, although tangential, is the existence of intellectual
property and technology transfer offices within most university systems. These offices protect
and monetize university research, which represents addition cash flow, and benefit from existing
economies of scale and departmental synergies. Probably one of the most controversial barriers
to entry into specific areas of higher education is the requirements and restrictions imposed by
accrediting associations. These organizations, while promoting curriculum standards, affinity
group branding and visible education outcome metrics, also cleverly protect the incumbent
members with an “accredited by” license. The success and reputations of business schools,
medical colleges and law schools are critically interwoven with certification and accreditation
(see www.aacsb.edu for example). Surprisingly, incumbent universities control most
accreditation boards. An example of the control that an industry managed accreditation board has
is where the Association to Advance Collegiate Schools of Business, the most influential
business school accreditation board, will not accredit the business school of the University of
Phoenix.
The Indian higher education industry includes approximately 4000 degree granting colleges and
universities. The adjacent pie chart illustrates the industry breakdown by sector. Although,
higher education may appear fragmented with over 4000 competing entities, the industry is
actually quite concentrated due to over 50 percent of the approximately 17.7 million students
being enrolled in only 400 of these colleges or universities. The resulting consequence of this
enrolment pattern is that 10 percent of the industry has over 50 percent of the market share
(Hoovers, 2008). In 2007, the industry’s combined revenue was approximately $200 billion
(Hoovers, 2008). Although the for-profit sector only earned $13 billion, this sector represents the
fastest growing segment of higher education and revenues for the top 10 for-profit universities
are predicted to double over the next five years (Gallagher, 2004). This growth trend appears to
be long term and predictable, with 17.7 million students currently enrolled in U.S. universities,
and projected to grow to 19.5 million by 2014 (Gilde, 2007). As demand for Indian higher
education escalates, state supported universities and community colleges will most likely cap
enrollments with the forprofit sector quickly responding to the increased demand with a
corresponding increase in supply. The for-profit segment is much more flexible, agile to market
conditions, and eager to accept change than the traditional state supported universities,
essentially due to its governance structure (Ruch, 2001). Generally, organizations within the
higher education industry have an exceedingly high fixed cost to total cost ratio. This financial
structure requires these organizations to operate at full or near capacity, as measured by
enrolment, to have a chance of realizing competitive economies of scale. The for-profit segment
is an exception here. Most of these organizations lease classroom space, do not provide
residential accommodations, have limited resources, and do not provide tenure tracks for faculty
employees, so consequently, have substantially lower fixed costs.
The bargaining power of customers (buyers)
With roughly 17.5 million currently enrolled students in higher education institutions in the
India, without any specific target groups representing a majority market share, buyers are
fragmented and diffused across the market. This buyer characteristic limits the effective power
any one specific student may have in terms of negotiating tuition rates, admission requirements
and other amenities. There is one acceptation to this observation. Public and private universities
are targeting and aggressively recruiting the standout 15-25 percent of high school classes with
the predictable, but unintended consequence of giving this market segment generous power to
choose their options and to negotiate. In today’s information age, the contents of an
undergraduate record of course descriptions is only a mouse click away. School search and
evaluation data is a frictionless, symmetrical and essentially free process. Of course, this not was
always the case. Twenty years ago, a high school student had to patiently wait weeks to receive
an university record by mail to assist with college evaluations. It is axiomatic that the more
information a buyer has, the more balanced the transaction or exchange will be. Two additional
components that influence the degree of buyer power are the rate of growth for the specific
industry and the strategic value of the buyer to the industry as a whole. A growing market
diminishes buyer power relative to a market with an average growth rate and along that same
argument, the more distributed buyers are over a given geographic location, the less power they
accrue (Walker, 2004).
The degrees of supplier concentration and supplier importance, in respect to the higher education
industry are essentially the same side of the economic coin. If there are few suppliers to an
industry and these suppliers sell an essential component or service to the industry, then supplier
power will be high relative to other industries. A classic example of this principle is the Industry
Rivalry Barriers to Entry Suppliers Buyers Substitutes clout and influence Intel has over the
personal computer manufacturing industry. There are effectively only two CPU manufacturers
supplying the most important component to the industry. Within the higher education industry,
there are numerous suppliers of a variety of products and services, fragmented across the
industry. Even highly regarded textbook publishers, clamor for faculty time and compete for
each text approval and unit sold. Universities and colleges frequently represent large stable
contracts to vendors, so the ensuing competition for bids among these vendors is typically
frenzied. Based on the observation of numerous vendors selling essentially generic products and
services, and low motivation by these suppliers to vertically integrate into higher education
“delivery,” suppliers’ ability to influence the industry is low.
At first, one may think that the options or alternatives related to earning a college degree or
obtaining additional higher education would be constrained by location, level of income or
possibly cultural influences. Although possibly true 20 years ago, these limitations to higher
education are significantly less relevant today. At present, the variety of educational “products”
is extensive and continues to increase as influenced by the exponential advances in information
technology. Classic economic theory classifies information technology as product compliment,
because the existence of the product or service augments the features and benefits of an
incumbent’s product offering.
An additional economic process that measures the threat of substitution is the availability of
price-performing product alternatives. As an example, most state supported universities within a
specific state have similar tuition rates and largely, the state tuition structure is equivalent for
potential students. Thus, it essentially costs the same to attend Management Institute and State
University as to attend the University of Delhi. Potential students or even transfer students could
view these two universities as proxies (Heaven forbid!).
Switching costs between products and services are a concrete aspect of the abstract concept of
product substitution. As an example, the process of transferring between universities or colleges
is relatively fluid within the India. More specifically, moving between one business school and
another is an example where the tangible and intangible switching costs are low because of the
availability of compatible curriculums. Obviously, one could get caught in the details of transfer
credits, course descriptions, and degree requirements, but as compared to the cumbersome tasks
of transferring to a new school in the India (the positive benefits of the Bologna Process aside),
India students probably only have a slight emotional cost involved. Not to over generalizing but,
younger adults are more disposed to change than older adults. Youth brings out the attitude of
“what do I have to lose” as contrasted to the “anchors of age” associated with older adults. It is
not a stretch to conclude that younger adults have a higher propensity to substitute than older
adults do, within the same population of higher education students. Of course, these examples
are hypothetical and best measured by transfer rates and graduation rates. Price points widely
differ between the public, private and for-profit higher education segments. For-profit
universities deliberately price their degree programs between the public and private tuition
schedules. In economic terms, the for-profit sector overall, prices at the price elastic point of the
higher education demand curve. However, this strategy does have some weaknesses, including
the unintended consequence of effectively minimizing switching cost between a public
university and a for-profit institution. In addition, since for-profit tuitions are high relative to
public universities, the student is already price conditioned which makes transferring to a more
expensive private school a realistic option. The overall assessment of the threat to substitute is
high and not beneficial to the industry incumbent.
The education market is now thriving on the back of the workforce proving itself equal to their
counterparts elsewhere in the world in productivity. Given the predominantly young population,
the education market is bound to accelerate rapidly.
THE MUCH sought after Indian workforce that has propelled India to the top of several global
competitive indices is not only attracting prospective employers to the country but also the
education system behind this workforce is now driving a prolific education market. It seems to
be a boom time for the education industry in India as the concept of business through education
catches up with the Indian market.
India’s youth, often referred to as its demographic dividend, accounts for over 50 per cent of its
total population, with 367 universities and 18,000 colleges with half-a-million teachers and about
11 million students on the rolls, India could reap huge returns off its demographic dividend.
Speaking on the topic, Ritesh Hemrajani, Consultant, IMS, said if one looks at the last five years
there are about 1,500 management colleges, close to about 3,500 engineering colleges and about
1,200 medical colleges. In terms of private schools mushrooming day in and day out and a
majority of the new institutions being private, if one wants to put a number to it, the privately-
managed part of it would not be anything less than 20 to 25 thousand crores.
In recent months, the education segment has also seen the rising interest of private equity
players. India-focused PE firm Gaja Capital Partners invested 8.25 million dollars in Career
Launcher. Similarly, SAIF Partners invested 10 million dollars in the English training academy
Veta and ICA Infotech. Some of the other listed companies in the education segment are
Educomp Solutions, which posted a return of 374 per cent. Everonn Systems, which got listed in
August 2007, gave a return of 130 per cent in just five months. Not far behind are the older
horses such as Aptech and NIIT, which fetched returns of 162 per cent and 124 per cent last
year. He also added, “In the next five years, I don’t see any reason why we shouldn’t be looking
at a thousand crore market.”
It is believed that based on the current and future manpower requirements of the various sectors,
there is a huge demand-supply gap in the education space. This has attracted many players to
invest in education and training institutions with the aim of building valuable franchises that can
be rapidly scaled up.
The Economic Times (Sep 01, 2004) reports that the Education Industry would be a beneficiary
of the "Served from India" scheme announced as part of the foreign trade policy 2004-2009
unveiled by the Commerce Minister, Kamal Nath
It's time to stand up and serve with a new confidence. The foreign trade policy has recognised the
stupendous performance of the services sector and has decided to go all out and brand the
activity with a powerful and unique 'Served From India' catch phrase.
It would impact all 161 tradable services covered under the General Agreement on Trade in
Services - though the government's efforts would focus on non-IT services as the latter has
already established itself.
The government also reserves the right to specify from time to time the category or type of
service exports that are eligible as well as the goods which do not qualify for import under the
scheme.
Healthcare, education and hotel industry would be major beneficiaries. Under the proposal, the
details of which are still being worked out and is bound to involve advertising, marketing and
publicity campaigns, all service providers who have a total foreign exchange earning of at least
Rs 10 lakh in the preceding or current financial year shall be eligible to qualify for a duty credit
entitlement of 10% of total foreign exchange earned by them.
The duty credit entitlement may be used for import of any capital goods including spares, office
equipment, professional equipment, office furniture and consumables, related to the main line of
business of the applicant.
Only those educational institutions involved in exporting education are likely to benefit under
this scheme. Will this scheme help incentivise more educational institutions to get involved in
exporting education? The amount of foreign exchange earnings per year required to qualify for
the duty credit entitlements is quite low at just Rs. 10 Lakhs or US$23,000. The average annual
tuition fee for foreign students in India is about US$ 4,000. Presumably any institution with 6 or
more foreign students will be able to qualify under this scheme.
References
www.quickmba.com/strategy/porter.shtml
www.marketingteacher.com/Lessons/lesson_fivefoces.htm
www.pdfqueen.com/pdf/po/porters-5-forces-for-education-industry
www.12manage.com/methods_porter_five_forces.html
www.allfreeessays.com/topics/porter-5-forces...industry/60
Journals
Shailey Minocha1 (2005) Role of social software tools in education: a literature
Yvonne Boora2 (2006) strategic planning in higher education: a review of the literature
Simon Saukville, Tom Browne3 (2007) Accommodating the newfound strategic importance of
educational technologists within higher education
BOOK
Strategic management
a) John A Pearce
b) Richard B Robinson