Pearson Plc Stakes an Educational Claim in India

British publishing house Pearson Plc, of The Economist, Financial Times and Penguin fame, has invested $30 million in two education businesses in India: It has entered a 50:50 joint venture agreement with Educomp Solutions to get into the vocational and skills training space and has acquired a 17.2 percent stake in online tutoring company TutorVista. John Makinson, chairman of Pearson India and the Pearson Plc board member responsible for the India education strategy, discusses in a telephonic interview how the company is viewing the India opportunity.

Pearson has been increasing its focus on India, especially over the last two years. Where does India fit in its scheme of things?
I would say it will be hard to order it in terms of importance vis-à-vis other countries. But that said, there are all of the very familiar arguments about why we must invest in India — some of these being the open market for investment in India and the phenomenal growth of the Indian economy. The second thing is that India is a service-based international economy as opposed to a manufacturing-based economy. And the third thing is that we view India as a potential market for education services. Therefore what we can contribute and what other education based companies can contribute to that has got to be exciting and attractive to us. Unless the economy is successful in bridging the skills gap between what the formal education system is currently delivering and what the service-based economy is going to require, there is a danger that India might lose its competitiveness. And that’s clearly behind the commitment of the new government and the new education minister and the National Skills Commission – train 500 million people in India over the life of the plan.
We view India as potentially the platform for development of global education services. One example of that is our investment in TutorVista — the main reason for this investment is to strengthen our capability and their capability in the US markets and then potentially, other markets around the world. We have invested in an Indian company but that in a funny way is not entirely an investment in India. It is also an investment in international education. There would be technology-based services that we will develop in India that will then be relevant to a worldwide audience for education.
So those are the three things — the scale of the economy, the service base of the economy and the need for education to propel that growth, and the opportunity to develop global content and services from India.
 
So the opportunity for Pearson is two-fold: India as a market for education and India as a provider of services as well?
Yes. We have, for example, a learning system around the world called MyLab, the market leader in interactive learning for college students. That whole platform was developed in India by an Indian company. That’s an example of something we have done and something we will continue to do.
 
How different is India vis-à-vis the other developing markets you are present in?
We have always viewed India as a very attractive market for us and we have been relatively comfortable in India because we have been here for a very long time. We never felt uneasy at all about [our] investment in India. But what has come into sharper focus in the last two-three years is the enormous scale of the opportunity in the private delivery of education services. And that was partly through the growth of private English medium education in schools in India and partly through the growth of service-based economy and the [skill] was creating. And it was partly what we sensed at the national level — an openness to the participation of international companies. Emerging markets are an extremely important part of our overall strategy for education. And we are the biggest education services and publishing company in the world. We are particularly strong in international emerging markets. So we are investing, we think, in success to some extent because we have already established strong positions in these markets and they are offering growth opportunities.
The size of the investment we have made in India today [$30 million]is not very large in the context of Pearson [globally.] Our strategy in China is very different — it’s around English language schools and partnerships in education. It’s not about skill development. The English language is a common theme around all of these markets. It’s a common thread in China and India. But otherwise the markets are fairly different.

Pearson is present in other emerging markets like China, Africa and Latin America as well. Are there any lessons that you have picked up from there that are relevant to the Indian market?
Our experience in China has been really quite different from our experience in India. We have the content, we have the technology but [what] we need to have is the right partners to execute it. The challenge is in execution of these ideas. Our strategy actually is pretty straightforward.

John Makinson, chairman of Pearson India and the Pearson Plc board member

How did you think through your India strategy? Going forward, what is the larger plan?
We started with a blank piece of paper two years ago when we first looked at this in a formal way. We looked at the various segments in the market and I tried to identify those areas of the [market] that met three criteria —they had begun to show growth over time. They were open to international organizations like ourselves so we would be able to participate. And they matched up to what we had resources and expertise in. So if you take vocational training for example, it was a market that had begun to show a lot of growth and we had a great deal of content and expertise particularly in the US. That was the first thing we did. The second thing was that we looked at business models that would work for the India market — so we wanted to take a bottom of the pyramid approach to this opportunity. We didn’t want to be an elite provider of educational services in India. We saw that there was significant scale opportunity and so we said do we have the capacity, do we know how to deliver educational services of real scale? So that led us to the third conclusion of the strategic review — we shouldn’t try to do all of this alone because we didn’t have the market know-how and the distribution capacity to deliver training in services to a very large audience in India. So we needed to find the best partners. That’s when we zeroed in on Educomp and TutorVista.

What about the other education opportunities that exist in India?
We already have a substantial traditional education publishing business in India. We will build on that in terms of scale and we will build around that in delivery of services to universities and schools. In other parts of the world we are delivering a lot of interactive learning, lot of assessment [tools] and testing, test preparation and analysis. We are already offering those elements of educational services in other parts of the world and we will offer more of them in India. We will also look at our specific investments, partnerships and acquisitions across a range of educational services. I don’t want to be too specific about this. But if you look at what we do around the world it is a very comprehensive menu of educational services — we do content and content preparation, interactive learning tools, we do a lot of assessment and testing. We could do a lot of these in India. We are working on different kinds of models on teaching and assessment of English and we could do more of that here. We may make one to two other announcements over the next six to 12 months.

What about other Pearson group companies? Will they also establish a presence here?
I believe that the Pearson group companies that need to be in India already are here. We have under the Financial Times a company called Interactive Data Corporation which is a quoted company in America — that doesn’t have a significant presence in India. I guess that in five years time, it would. In three years time I guess our index business, FTSE financial index business, will probably have a reasonable presence in India. So yes, there are businesses that will enter the Indian market in time, but the big Pearson companies are already here. We are pretty much all here.
 
You have just invested $30 million in India. Going forward how do you see your India investments growing?
We don’t have a dedicated pool for India. And it’s primarily because we don’t have particular capital constraints. It won’t surprise me if we invest a $100 million in India every five years. But that’s not a plan. That’s just a possibility.
 
You are trying your hand at vocational training in India. How did you size up that opportunity?
We are better known as a curriculum based educational publishing business. But we do have a very substantial vocational training business in America and we already do a lot of vocational assessment work in India — so we do tests for nurses and cabin staff for airlines. And we do a lot of professional vocational training in America.  We are the biggest teacher of English as a foreign language around the world. We are also in the technology training and publishing business in America. So we have English-teaching capabilities and domain skills like knowledge of construction or plumbing. We have content that addresses all of these areas and in some cases, we have testing and assessment capabilities as well. What we didn’t have was mass market penetration in India and an understanding of the bottom of the pyramid economics. And that’s what Educomp has through their success in developing the ICT [Information and communication technologies] business in schools.
 
In vocational training, you are focusing on the blue-collar worker space. Is this an attempt to start at the bottom and gradually move up the income pyramid, so to say? Is that your strategy for India?
Yes. We certainly need to address the bottom of the pyramid. We need to think about physical distribution, about skills training, delivery of testing, accreditation in blue collar skills training. We do have something of a presence through the BTEC [a vocational qualification in the UK] qualification in the professional market — accountants, security analysts and so on. But the initial focus of this venture will be quite blue collar and the bottom of the pyramid but we gradually see it going up.
 
But the blue collar worker space in developing markets like India is very different from developed markets where you have expertise. Doesn’t that create issues of transferability?
Yes. That’s why we are working with a partner. We did a lot of very detailed work with Educomp on this issue. But yes, it is not readily transferable. We spent a lot of time with C.K. Prahalad, who is on our board, on thinking about those kinds of transferability issues. So I don’t think we are that naïve about this.