1. education
2. english as a second language

How To Get A Slice of The Action:
The Analysis Of China’s English
Training Industry
By
Meng Xu
2007
A Dissertation Presented in Part Consideration for the Degree
of Msc International Business
Acknowledgement
Firstly, thanks must go my supervisor, Dr. Chengqi Wang, who gave
me valuable suggestions to help me undertake the research and
improve the presentation. Without the patient help and great help
from him and the various members of NUBS staff, this dissertation
cannot be successfully finished.
The special thank are reserved for my dearest parents, who give me
not only a capable brain and healthy body to think and to do
everything I am interested in, but also continual supports and
encouragements during the period when I study in the UK.
I also would like to thank each of the interviewees, as well as those
who assisted in the gathering of sample and data. Thanks to their
patience and valuable information, the empirical research can be
conducted successfully.
At last, I would have to thank all my friends in the UK. They are a
very important part of both my research and colorful life.
ii
Abstract
Since China is becoming more and more international, China has
been a great considerable market for English language training
nowadays. More and more training schools have been established
since the late of 1980s. In the past 20 years, not only Chinese own
training schools, but also International language training giants such
as English First, and Wall Street Institute English have achieved great
success in China.
How to survive and develop in the fierce competition is a great
problem for people who want to establish an English training school
in China. First of all, the general environment of English training
industry should be examined carefully. It is because that the firm’s
competitive strategy is formulated based on its both external and
internal environment. By using the methodology of selected
interview and case study, the current competitive strategies of
existing English training schools would be introduced. Thanks to
these different strategies, many English training schools have won
great achievements. However, serious problems are still influencing
the development of China’s English training industry. For example, in
China, many English training schools believe that the capability of
iii
passing examinations is more important than English communication.
In addition, the exaggerate advertising is also limiting the industry’s
further development. In spite of that, there are still some new
tendencies in China’s English training industry. For instance, various
particular professional English and applied English are being more
and more popular in recent China.
At the last part of this research, a conclusion of China’s English
training
industry’s
development
and
some
recommendations
concerns about how to compete in this industry will be given. Owing
to the limitations, such as the time and the financial situation, it is
not easy for the author to gain more accurate information; even so,
this paper might be a general introduction and theoretical guide for a
future study.
iv
CONTENTS
Page
ii
Acknowledgement
Abstract
iii
1
1
2
3
Chapter 1. Introduction
1.1 Background
1.2 Objectives of Research
1.3 Outline of Dissertation
Chapter 2. The Overview of China’s English Training
Industry
2.1 The General Environment of China
2.1.1 Political Reasons
2.1.2 Economic Factors
2.1.3 Technological Forces
2.1.4 Social Factors
2.2 Three Key Drivers of China’s English Training Industry
2.2.1 The Regulations of Ministry of Education of China
2.2.2 The Entry of Foreign Investment
2.2.3 Markets for Foreign English Tests
5
5
5
6
9
10
12
12
14
15
19
Chapter 3. Literature Review
3.1 Introduction
3.2 What is Competitive Strategy
3.3 External Environment Analysis
3.3.1 “PEST” Analysis
3.3.2 Industry Analysis
3.4 Internal Environment Analysis
3.4.1 Resources, Capabilities and Core Competencies
3.4.2 Applying the Resource-Based View Analysis (RBV)
3.5 Developing Sustainable Competitive Advantage
3.5.1 Porter’s Three Generic Strategies
3.5.2 Value Chain Analysis
3.6 Summary
Chapter 4. Methodology
4.1 Introduction
4.2 Qualitative Research and Quantitative Research
4.3 Case Study
4.3.1 Why Choose Case Study
4.3.2 How to Select the Case
v
19
19
21
23
25
33
34
39
40
41
44
47
48
48
48
49
49
50
4.4 Collecting Primary Data
4.4.1 Interview
4.4.2 Advantages of Interview
4.4.3 Limitations of Interview
4.5 Collecting Secondary Data
52
52
53
54
54
Chapter 5. Cases of China’s English Training Industry
5.1 English First English Training School (EF)
5.1.1 Background
5.1.2
Value-Creating
Activities
Associated
With
the
Differentiation Strategy
5.1.3 Relative High Cost
5.2 New Oriental English Training School
5.2.1 Background
5.2.2 Value-Creating Activities Associated With the Cost
Leadership Strategy
5.2.3
Value-Creating
Activities
Associated
With
the
Differentiation Strategy
5.3 Some Middle and Small Sized English Training Schools
5.3.1 Value-Creating Activities Associated With the Cost
Leadership Strategy
5.4 Summary
Chapter 6. Current Problems and New Tendencies
6.1 Main Problems of Current China’s English Training Industry
6.1.1 Disadvantages of Learning English in China
6.1.2 Quality Difference within the Same Training School
6.1.3 Immature Market
6.2 New Tendencies of Development
6.2.1 Tendencies of China’s English Training Industry
6.2.2 Tendencies of Customers
6.2.3 Tendencies of English Training
Chapter
7.
Limitations
Conclusion,
Recommendation
7.1 Conclusion and Recommendation
7.2 Limitations and Further Study
and
56
56
56
57
63
64
64
65
67
73
75
77
79
79
80
82
84
88
88
90
91
93
93
98
100
Bibliography
107
Appendix
vi
List of Figures and Tables
Page
Figure 2.1 China’s GDP Growth 1952-2005
8
Figure 2.2 China Per Capital Incomes 1980-2005
9
Figure 2.3 China’s Public Expenditure on Education and Distribution
per Level
11
Figure 2.4 Three Main Streams of China’s English Training Market
17
Table 3.1 Import Variables in the PEST Analysis
24
Figure 3.1 Five Forces Model of Environmental Threats
25
Table 3.2 The Four Types of Tangible Resources
36
Table 3.3 The Three Types of Intangible Resources
36
Table 3.4 The Four Criteria of Sustainable Competitive Advantage
39
Figure 3.2 Porter’s Generic Competitive Strategies
42
Figure 3.3 The Basic Value Chain
45
Figure 5.1 New Oriental Schools in China
65
Table 5.1 Exams that New Oriental’s Test Preparation Related
70
vii
Appendix
Page
Appendix A. The Interview Questions
107
Appendix B. The List of Interviewees
110
viii
How To Get A Slice of The Action:
The Analysis Of China’s English Training Industry
Chapter 1. Introduction
1.1 Background
In the past twenty years, the role of English training industry has
changed greatly and rapidly in China with more investors entered this
profitable market. Since the late of 1978 China’s government has
been reforming its economy from a soviet-style centrally planned
economy to a more market-oriented economy but still within the
political framework. With this reform, China’s economic structure was
adjusted; both small-scale enterprises and foreign investment were
promoted. Such changes resulted in China’s more openness for the
world (Stockman, 2000). Beside that, China retook the membership
of the World Trade Organization (WTO) in 2001. In 2006, the economy
of China was the fourth largest in the world measured by nominal GDP
and also one of the most attractive economies for investors (China's
National Bureau of Statistics). Being closer and closer to the
international society, more and more Chinese people realized the
importance of English, which is not only a tool for business, but also
the breath of life for cultural and any other communication.
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How To Get A Slice of The Action:
The Analysis Of China’s English Training Industry
According to Social Survey Institute of China (SSIC), the total value of
China’s English training market has reached 15 billion RMB in 2005,
which is equal to the annual product output of a middle seize city. It is
also forecasted that the total value is going to reach 30 billion RMB in
2010. With huge market potential, many China’s and foreign English
training schools have achieved great success and more new investors
want to enter this profitable market. Due to the fierce competition,
how to survive and develop an English training school has become a
great challenge for every investor. As a result, recognizing English
language training schools’ competitive strategies, from which
competitive advantage could be achieved, is helpful for both defining
the suitable positioning strategy and how to segment customers for
any language schools.
1.2 Objectives of Research
This dissertation is carried out to give people who want to enter
China’s English training industry a rough introduction and theoretical
guide by examining the current characteristics of English training
industry focusing on the different competitive strategies of training
schools. The objectives are a decomposition of the aim: the first
objective is to examine the general situation of English training
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How To Get A Slice of The Action:
The Analysis Of China’s English Training Industry
industry in China. Secondly, the existing characteristics of the
language training industry by dividing the training schools into
different types in terms of their competitive strategies will be
discussed. The third objective is to draw a conclusion and give some
recommendations about how to establish an English training school in
China.
1.3 Outline of Dissertation
This research is organized into seven chapters. First of all, Chapter
One gives a brief introduction. Chapter Two generally introduces some
background of China’s economy and the current English training
industry situation in China. Chapter Three is the literature review,
introducing several relevant literatures used in this research. In this
Chapter, the theory of external and internal environment analysis will
first be presented separately. The theoretical background and analysis
concerned with competitive strategy will then be discussed. Chapter
Four is the methodology, explaining why interview and case
study—the main methodology of this research were adopted and how
the data have been collected in the case study. Chapter Five will
mainly examine two of the most representative training schools in
China, New Oriental School and English First School, to illustrate
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How To Get A Slice of The Action:
The Analysis Of China’s English Training Industry
different competitive strategies of achieving competitive advantages.
Following a discussion and summary of the previous Chapters, some
problems and new tendencies in current China’s English training
industry will be defined and discussed in Chapter Six. Finally, the
dissertation
will
be
ended
by
a
brief
conclusion.
Some
recommendations and limitations will also be introduced in Chapter
Seven.
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The Analysis Of China’s English Training Industry
Chapter 2. The Overview of China’s English Training Industry
2.1 The General Environment of China
The theme of this part is how managers in the English training
industry can make sense of an uncertain world around their training
schools — the general business environment. According to Dobson
and Starkey (1993), every organization is in the certain context of
various levels of the environment, from general environment of the
industry to the organization’s internal environment. A PEST analysis
that includes political factors, economic factors, social factors and
technological factors will be introduced here to examine the general
environment of China’s English training industry.
2.1.1 Political Reasons
From China’s economic reform since 1978, Chinese government has
recognized the importance of private schools, which can provide
people
more
chances
of
education.
Consequently,
Chinese
government enacted specific laws and regulations, such as ‘2004
Regulation for Implementing the Principles of stimulating Private
Education’, ‘Law of the People's Republic of China on the Promotion of
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How To Get A Slice of The Action:
The Analysis Of China’s English Training Industry
Privately-run Schools 2002’ and ‘The Principles of Stimulating Private
Education 2002’ to promote the private education (People’s Daily &
Chinese Government Official Web). With government’s support,
China’s private education especially various training schools achieved
great development in the past twenty years. According the statistics
from Ministry of Education of China, there were more than 8,895,000
people participated into different kinds of training schools in 2005. In
addition, Chinese government also encouraged Chinese local schools
to cooperate with foreign educational organizations and to employ
foreign teachers. As a result, ‘Regulations of the Peoples Republic of
China on Sino-Foreign Cooperative Education 2003’ was made to
protect and standardize such type of education.
2.1.2 Economic Factors
Since China’s economic reform, opening the door to the world was
approved as a government policy and China has become increasingly
incorporated into the international economy (Stockman, 2000). China
is widely regarded as one of the great economic success stories of the
past two decades. Over the 25 years after the reform and opening up,
China maintained annual economic growth of above 8% (Davies,
2003). China’s economic reforms have advanced China’s integration
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How To Get A Slice of The Action:
The Analysis Of China’s English Training Industry
with the world economy, maintained a strong external payments
position, liberalized markets for many goods and services, intensified
industrial competition, and introduced modern macroeconomic
management (Luo, 2000, p.27-28).
Today, China has the fourth largest economy in the world when
measured by nominal GDP. The general economic output of China is
$2.68 trillion US Dollars (National Bureau of Statistics of China). Just
like Figure 2.1 shows that since the economic reform in the late 1970s,
China’s economy has successfully sustained a continuously high rate
of annual growth. During the 1980s, this reform led to average annual
9.8% in agricultural and industrial output. China’s economy regained
momentum in the early 1990s. China’s GDP maintained a 10% growth
rate from 1990 to 1995 (Sachs & Woo, 2000). The economy slowed
down in the late 1990s, influenced by the Asian Financial Crisis
(1998-1999), with annual GDP growth of 7.8% for 1998, and 7.1% in
1999. China’s GDP accelerated again from the start of new century,
with a growth rate of 9.1% in 2003, 9.5% for 2004, 9.8% in 2005 and
10.7% in 2006 (National Bureau of Statistics of China).
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How To Get A Slice of The Action:
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Figure 2.1 China’s GDP Growth 1952-2005 (National Bureau of Statistics of
China)
Owing to the economic reform, China’s trade with other countries was
also promoted. China has become a major player in the globe trade.
According to the statistics from OECD, China ranked sixth in trade
amounts in all countries in 2005. In addition, China also maintained
the position of the second largest Foreign Direct Invest (FDI)
receipted country in the world (Luo, 2000).
Great economic growth also means an earth shaking change to
people’s lives. As Figure 2.2 shows, China’s per capital income
increased dramatically in the past twenty years, especially in the
urban areas. With a fast-growing purchasing power, many people paid
more attention to the education market, especially the English
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How To Get A Slice of The Action:
The Analysis Of China’s English Training Industry
training market.
Figure 2.2 China Per Capital Incomes 1980-2005 (BCA Research)
In one word, as the largest developing country in the world, China has
been catching up with other developing countries by integrating itself
with global economy and such a momentum is further consolidated by
China’s entry into the World Trade Organization (WTO) (Chen, 2004).
Moreover, with the accession of WTO, to trade with China will become
more liberalized. Today, most scholars believed that China is
developing rapidly and will continue to grow in the future.
2.1.3 Technological Forces
In general, technological development brings a great change and
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How To Get A Slice of The Action:
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promoted the English training industry. Firstly, the cost of training is
reduced effectively; consequently more people could go to training
schools. For instance, by using Internet and computer, people would
not have to sit in the classrooms. It becomes possible to have a high
quality training course even at home. In addition, it should be noted
that the usage of technology is playing a more and more important
role in both teaching and learning English. Interactive computer
network allows students to test the result of learning without the risk
of being punished for any mistake. Learning does not have to be a
pressure. Computer-assisted language learning can reduce the
anxiety of students and turns out to be a positive side of learning
(Gates & Myhrvold & Rinearson, 1997). In fact, the research
concerned with multimedia in English training is becoming a trend
during these years. For example, University of Warwick provides a MA
course of English Language Teaching and Multimedia from 1999
(University of Warwick). All these developments of technology should
not be neglected in the examination of China’s English training
industry.
2.1.4 Social Factors
No country can afford to neglect education. Chinese people have the
social climate pf respect for teachers and education for thousands of
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years. Currently, Chinese government also has a high regard to
different levels of education. According to the UNESCO, the public
expenditure on education kept increasing since 1978 and there was
13.0% Chinese government spending goes to education in 2005
(Figure 2.3). On the other hand, past twenty years also witness the
great increase of consumer expenditure on education. According to
the 2006 Blue Book of China’s Culture (Chinese Academy of Social
Science), over fifty percent of Chinese family expenditure were on
education in 2005. Education expenditure of Chinese consumers
reached 476 billion RMB and ranked the fourth in all the purposes
(Global Market Information Database & Euromonitor International,
2005). All these social factors may have a direct influence on the
development of China’s English training market.
Figure 2.3 China’s Public Expenditure on Education and Distribution per
Level (UNESCO)
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2.2 Three Key Drivers of China’s English Training Industry
China’s English training industry has experienced fast development in
the past two decades. In 2005, China Daily reported that the total
value of China’s English training market has reached 15 billion RMB. It
is also forecasted that this number will reach 30 billion RMB in 2010
and continue to grow. Besides, there are more than 50 thousand
English training schools in China today (Social Survey Institute of
China). China has become the largest potential English training
market in the world.
Normally, it is believed that China’s English training industry started
from the late of 1980s. In general, there are three main drivers of
China’s English training industry, which are government’s policies,
China’s
economic
development,
and
going
abroad
oriented
examinations.
2.2.1 The Regulations of Ministry of Education of China
For the purpose of promoting English language and enhancing the
significance of English in universities, China’s Ministry of Education
introduced College English Test (CET) system, which contains College
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English Test Band Four and College English Test Band Six. Since then,
students in universities would not get their bachelor degrees if they
cannot pass the CET Band Four examination. In addition, people who
want to apply a master degree will have to pass CET Band Four. As a
result, how to prepare and pass the CET examination became a prior
task instantly for students in universities and people who plan to be
promoted or take further studies.
According to the statistics of
Chinese National Education Examinations Authority (NEEA), since the
CET Band Four started in 1987 and the CET Band Six started two years
later, there have been nearly ten million people took part in the CET
examinations.
Due to the popularity of CET examinations in China, the exam related
English training market emerged gradually in the late 1980s. Many
Chinese English training schools, such as New Oriental School, started
their training business concerned with CET examination at that time.
No one could deny that such CET system, which was set up by Ministry
of Education of China, plays a very significant role in the emergence
and development of China’s English training industry.
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How To Get A Slice of The Action:
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2.2.2 The Entry of Foreign Investment
According to the statistics of People’s Daily, up to 2006, more than
400 among the global 500 giants had already gathered in China. They
made their investment with number of projects coming to over 2,000
in total, and more than 100 research centers, of which nearly 40 are of
a noticeable scale. Moreover, successful Bidding in 2008 Olympic
Games, 2010 World Exposition and China's Entry into the WTO will
continue to spur up the expansion of Foreign Investment in China.
Obviously, these foreign companies need a huge number of
employees with a good capability of English communication. In
consequence of such a great demand, professional English, or work
English, which focuses on the capability of English communication at
work, is becoming more and more popular. Currently, many different
types of test for work English have been introduced to the various
organizations in China, such as BEC (Business English Certificate),
BULATS (Business Language Testing Service), TOPE (Test for
Professional English) and TOEIC (Test of English for International
Communication). It is no doubt that having any certificates of these
tests will enhance the competitiveness of people who are seeking jobs
or the promotion. From the late of 1990s, many large firms or
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How To Get A Slice of The Action:
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organizations
have
taken
work
English
certificates
as
their
requirements. For instance, Air China, BP, Shell and plenty of other
international firms introduced BEC into the employee assessment.
Meanwhile, international giants such as Microsoft, Philips, Samsung
and LG put TOEIC in their recruitment process. Obviously, these
famous firms’ decision of putting specific English certificates into the
recruitment is the significant basis of related English training market.
2.2.3 Markets for Foreign English Tests
Since China opened its door to the world, it became easier not only for
foreign companies and foreigners to come to China, but also for
Chinese firms and Chinese people to go abroad. According to Xinhua
Net, up to 2004, there were over 80,000 Chinese-funded enterprises
in more than 200 countries in the world (Xinhua Net News). In
addition, a fever of immigration and to study abroad was spreading
among Chinese, especially in some large and developed cities. For
these two purposes of going abroad, certain level of English capability
is needed. Consequently, specific English test were introduced in
China.
In 1981, TOEFL (Test of English as a Foreign Language) came into
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Chinese’s sight. It evaluates the potential success of an individual to
use and understand American English at a college level. Normally, it is
required for non-native applicants at many English-speaking colleges
and universities (Education Testing Service). About ten years later,
IELTS
(International
English
Language
Testing
System)
was
introduced in China. IELTS is a test of English language proficiency,
which is managed by University of Cambridge ESOL Examinations,
British Council and IDP Education Australia. With different purposes,
candidates could choose Academic Module or the General Training
Module. It is well accepted by most Australian, British, Canadian, Irish,
New Zealand and South African academic institutions, by an
increasing number of academic institutions in the USA, and by various
professional organizations. It is also a requirement for migration to
Australia and Canada (Official IELTS Web Site ).
There are also many other specific tests for people who want to go
abroad. For example, GRE (Graduate Record Examination) is a
standardized test that is an admissions requirement for many
graduate schools in English speaking countries (Education Testing
Service). Furthermore, GMAT
(Graduate Management Admission
Test) is a standardized test for measuring aptitude to succeed
academically in graduate business studies. It is normally used for the
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test as one of many selection criteria for admission into MBA program
by business schools (Graduate Management Admission Council).
According the statistics from China’s Ministry of Education, there are
more than 100,000 people to go to study abroad every year in China
since 2002 (Ministry of Education of the People’s Republic of China
Report 2006). In fact, most of these people would have to take any
kind of the tests mentioned before.
To sum up, owing to these key drivers, the demand of China’s English
training market is very huge. There have been many different kinds of
English training schools existed and more are being established. In
general, China’s English training market could be divided into three
main parts by the different objectives of training, which are job
–related
training
market,
exam-related
training
market
self-development training market (Figure 2.4).
Jobr el at ed
Tr ai ni ng
Examr el at ed
Engl i sh
Tr ai ni ng
Sel f devel opm
ent
Tr ai ni ng
Figure 2.4 Three Main Streams of China’s English Training Market
17
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The purposes of people who want to take job-related training are
mainly focusing on how to find a good job or get a promotion. This
kind of training is normally concerned with the certificate of work or
professional English test, such as BEC, TOEIC, BULATS and TOPE.
Whereas the purpose of doing exam-related training is to pass various
kinds of examinations. These examinations could be divided into two
main types:
firstly, the
domestic examinations that includes
University Entrance English Exam, College English Test and so on; the
second type is the tests for people who plan to study abroad, which
contains TOEFL, IELTS, GRE and so on. Finally, the objective of
participating self-development training is on the basis of the
improvement on personal English communication capability.
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Chapter 3. Literature Review
3.1 Introduction
This Chapter is mainly talking about the literature background
focusing on how a firm can create its strategy in order to sustain a
competitive advantage, which is organized into four parts. The first
part reviews concepts and theories concerned with competitive
strategy. The second part describes the analysis of external
environment based on a PEST analysis and five forces framework
developed by Porter (1985). Part three discusses the literatures
related to the analysis of internal environment, which mainly
examines the firm’s resources, capabilities and core competencies.
Besides, the Resource-Based View analysis will be used to explain how
firms make full use of the company’s resources and capabilities to
achieve competitive advantages. The last part provides the answer of
question how to make competitive advantage sustainable.
3.2 What is Competitive Strategy
In general, a firm’s strategy can be defined as its theory about how to
gain competitive advantages (Barney & Hesterly, 2006). Historically,
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scholars gave their definitions of strategy from two different aspects.
On the one hand, White (2004) believed that the strategy is a
coordinated series of actions that involve the development of
resources to which one has access for the achievement of a given
purpose. While there are also many scholars that think the
formulation process of strategy is more like one kind of analysis based
on both external and internal appraisals. They believed that the
change of external and internal environment would influence the
strategic decision and suggested that appraisals of external and
internal elements into a strategic consideration. For instance, Porter
(1980; 1985) builds up a system of strategy theories and models with
competitive positioning approaches.
According to Porter (1980), two central questions have been the core
of his research concerned with competitive strategy. The first is the
attractiveness of industries for long-term profitability and the factors
that determine it. The second central question is the determinants of
relative competitive position within an industry. Porter (1980) insisted
that a firm couldn’t be analyzed without its industry and firms’
strategies must fit in the industry environment. As a result, the five
forces framework was introduced for the industry analysis and lately
well accepted by many academics. The five forces framework will be
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examined carefully in the latter part.
According to Porter (1985), competitive strategy can be concerned
with how the firm competes within a particular industry or market.
The task of competitive strategy is to determine how the firm will
deploy its resources within its environment and so satisfy its
long-term goals, and how to organize itself to implement that
strategy.
3.3 External Environment Analysis
As a result of the increasing efforts by managers to develop a
competitive advantage in their respective business sectors, the
management literature is replete with conceptual propositions on
sound business practices and strategies for success in today’s fast
changing market (Day 1994). Before an organization can make its
own strategic decision, it must scan the external environment to
identify
possible
opportunities
and
threats
and
its
internal
environment for strengths and weakness. An organization can use
environmental scanning to avoid strategic surprise and to protect its
long-term benefits (Wheelen & Hunger, 2004). It also has been found
that there is a positive relationship between environmental scanning
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and profits (Roach, 1996). An integrated understanding of the
external and internal environments is also essential for firms to
understand the present and predict the future (Sirman, Hitt & Ireland,
2003).
Companies’ experiences and research suggest that the external
environment affects firm growth and profitability (Song, 2002).
Summarized by Hitt, Ireland and Hoskisson (2005), the external
environment has three major parts: the general environment
(elements in the broader society that affect industries and their firms);
the industry environment (factors that influence
a firm, its
competitive actions and responses, and the industry’s profit potential);
and the competitor environment (in which the firm analyzes each
major competitor’s future objectives, current strategies, assumptions
and capabilities).
According to Barney and Hesterly (2006), the general environment
consists of broad trends in the context within which a firm operates
that can have an impact on a firm’s strategic choices. While Hitt,
Ireland and Hoskisson (2005) believed that the general environment
is composed of dimensions in the broader society that influence an
industry and the firm within it. In undertaking general environmental
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examination, strategic managers must first be aware of the many
variables within a corporation’s social and task environments.
Compared with recently Barney and Hesterly’s (2006) suggestion that
the general environment consists of six interrelated elements:
technological change, demographic trends, cultural trends, the
economic climate, legal and political
conditions, and specific
international events, the PEST analysis that briefly includes the scan
of political-legal, economic, technological and sociocultural forces is
more acceptable by the strategic managers (Wheelen & Hunger,
2004).
3.3.1 “PEST” Analysis
PEST analysis stands for ‘Political-legal, Economic, Sociocultural and
Technological
analysis’
and
describes
a
framework
of
macroenvironmental factors used in environmental scanning. As
shown in Table 3.1, Political-legal forces that allocate power and
provide constraining and protecting laws and regulations; Economic
forces that regulate the exchange of materials, money, energy and
information; Sociocultural forces that regulate the values, mores and
customs
of
society;
Technological
forces
that
problem-solving inventions (Weheelen & Hunger, 2004).
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Political-legal
Economic
Sociocultural
Technological
Antitrust
GDP trends
Lifestyle changes
Total
regulations
Interest rates
Career
spending for R&D
Environmental
Money supply
expectations
Total
protection laws
Inflation rate
Consumer
for R&D
Tax laws
Unemployment
activism
Focus
Special
level
Rate
incentives
Wages/price
formation
controls
Growth
regulations
Devaluation/
population
New
Attitude toward
Revaluation
Age
technology transfer from
foreign
Energy
of population
lab to marketplace
companies
availability and
Birth rates
Productivity
Laws on hiring
cost
Regional shifts in
improvements
and promotion
Disposable and
population
automation
discretionary
Life expectancies
Internet availability
Foreign
trade
Stability
government
of
income
of
family
rate
government
industry
of
spending
technological
efforts
Patent protection
of
distribution
New products
developments
in
through
Telecommunication
infrastructure
Table 3.1 Import Variables in the PEST Analysis (Wheelen & Hunger, 2004)
The general environment defines the broad contextual background
within which a firm operates. To understanding the general
environment, such as making a PEST analysis, may help a firm
identify some of the threats and opportunities it faces. However, firms
cannot directly control the general environment’s segments and
elements. As a result, while analyzing a firm’s general environment is
an significant step in any application of the strategic management
process, this general analysis must be accompanied by an analysis of
a firm’s more local environment if the threats and opportunities facing
a firm are to be fully understood (Barney & Hesterly, 2006).
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Accordingly, Porter’s approach to industry analysis — the specific tool
for analyzing a firm’s local environment will be discussed in next part.
3.3.2 Industry Analysis
Hitt, Ireland and Hoskisson (2005) defined the industry environment
as the set of factors that directly influences a firm and its competitive
actions and competitive responses: the threat of new entrants, the
power of suppliers, the power of buyers, the threat of substitutes and
the intensity of rivalry among competitors. In general, it is believed
that the interactions between these five factors determine an
industry’s profit potential.
Threat of
entry
Threat
Threat of
of
rivalry
suppliers
Level of threat
in an industry
Threat
of
Threat
substitutes
buyers
of
Figure 3.1 Five Forces Model of Environmental Threats (Porter, 1980)
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This five forces model was firstly introduced by Porter in 1980 (Figure
3.1) and lately adopted by most of the scholars. It identifies the five
most common threats faced by firms in their local competitive
environments and the conditions under which these threats are more
or less likely to be present. By studying these forces, the firm will find
a position in an industry where it can influence the forces in its favor
or where it can buffer itself from the powers of forces in order to
increase its ability to earn above-average returns (Hitt, Ireland &
Hoskisson, 2005). In other words, not like analysis of the general
environment that is focused on the future, analysis of the industry
environment is focused on the factors and conditions influencing a
firm’s profitability within its industry.
Threat of New Entrants
New entrants are firms that either recently begun operations in an
industry or that threaten to begin operations in an industry soon
(Barney & Hesterly, 2006). Noticing new entrants is important
because they can threaten the market share of existing competitors.
Normally, new entrants are motivated to enter into an industry by the
superior profits that some incumbent firms in that industry may be
earning. With the absence of any barriers, entry will continue as long
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as any firms in the industry are earning competitive advantages, and
entry will cease when all incumbent firms are earning competitive
parity (Johnson & Scholes, 2002).
The threat of entry depends upon the cost of entry, in other words,
depends upon the existing barriers to entry. Barney and Hesterly
(2006) give the definition of barriers to entry as attributes of an
industry’s structure that increase the cost of entry. Existing
competitors try to develop barriers to entry. In contrast, potential
entrants seek markets in which the entry barriers are relatively
insignificant. There are several kinds of potentially important barriers
to entry.
(1) Economies of Scale
Economies of scale are ‘the marginal improvements in efficiency that
a firm experiences as it incrementally increase its size’ (Makadok,
1999). According to Hitt, Ireland and Hoskisson (2005), economies of
scale refer to the reductions in unit cost achieved by producing a large
volume of a product. New entrants might face a dilemma when
confronting current competitors’ scale economies: large-scale entry,
in which the new entrant manufactured large volumes of a product to
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gain economies of scale, risks strong competitive retaliation;
alternatively, small-scale entry places new entrants at a cost
disadvantage.
(2) Product Differentiation
Customers valuing a product’s uniqueness tend to become loyal to
both the product and the company producing it (Porter, 1985).
Consequently, new entrants would have to allocate many resources
over time to overcome existing loyalties. To combat the perception of
uniqueness, new entrants usually offer products at lower prices,
which may also result in lower profits or even losses (Hitt, Ireland &
Hoskisson, 2005).
(3) Capital Requirement
Competing in a new industry requires a form to have resources to
invest. Both physical facilities and huge capital are possibly needed for
the business activities of new entrants (Wheelen & Hunger, 2004).
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(4) Switching Costs
Switching costs are the one-time costs customers incur when they
buy from a different supplier (Hitt, Ireland & Hoskisson, 2005). A new
entrant will have to offer either a substantially lower price or a much
better product to attract customers if the switching costs are really
high.
(5) Access to Distribution Channels
In many industries, participants may develop effective means of
distributing products. Once a relationship with its distributors has
been developed, a firm will nurture it to create switching costs for the
distributors (Barney & Hesterly, 2006) . As a result, access to
distribution channels can be a strong entry barrier for new entrants,
especially for the consumer unendurable goods industries.
(6) Cost Disadvantages Independent of Scale
Sometimes, established competitors have cost advantages that new
entrants cannot duplicate, such as proprietary product technology,
favorable access to raw materials, desirable locations and government
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subsidies.
(7) Government Policy
Government can also control entry into an industry by the means of
licensing and permit requirements. For instance, banking is an
example of the industry in which government decisions and actions
affect entry possibilities in many countries.
The Threat of Suppliers
Increasing prices and reducing the quality of their products are
potential means used by suppliers to exert power over firms
competing within an industry. The profitability would be reduced by
the suppliers’ actions, if a firm were unable to recover cost increases
by its suppliers through its pricing structure (Hill, Ireland & Hoskisson,
2005). Porter (1998) summarized that a supplier group is powerful
when:
○ It is dominated by few large companies and is more concentrated
than the industry to which it sells.
○ Industry firms are not a significant customer for the supplier
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group.
○ Satisfactory substitute products are not available to industry
firms.
○ Suppliers’ goods are critical to buyers’ marketplace success.
○ The effectiveness of suppliers’ products has created high
switching costs for industry firms.
○ It poses a credible threat to integrate forward into the buyers’
industry.
Credibility
is
enhanced
when
suppliers
have
substantial resources and provide a highly differentiated
product.
The Threat of Substitutes
A third environmental threat in the five forces framework is
substitutes: the products services provided by a firm’s rivals meet
approximately the same customer needs in the same ways as the
products or services provided by the firm itself (Barney & Hesterly,
2006). Substitutes meet approximately the same customer needs but
do so in different ways (Porter, 1998).
Generally, product substitutes present a strong threat to a firm when
customers face new, if any, switching costs and when the substitute
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product’s price is lower or its quality and performance capabilities are
equal to or greater than those of competing product (Porter, 1985). In
fact, substitutes are playing an increasing important role in reducing
the profit potential in a wide variety of industries.
The Threat of Buyers
Being the major components in the marketplace, buyers (customers
of an industry or a firm) always want to buy products at the lowest
prices. In contrast, all firms seek to maximize the return on their
invested capital. In order to reduce the costs, buyers bargain for
higher quality, greater levels of service and lower prices. These
outcomes are achieved by encouraging competitive battles among the
industry’s firms (Hitt, Ireland & Hoskisson, 2005). Buyers may be
more powerful if some of the following situation happens:
○ Buyers purchase a large portion of an industry’s total output.
○ The sales of the product being purchased account for a significant
portion of the seller’s annual revenues.
○ Buyers could switch to another product at little, if any, cost.
○ The industry’s products are undifferentiated or standardized, and
the buyers pose a credible threat if they were to integrate
backward into the sellers’ industry.
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The Threat of Rivalry
The final threat in the five forces framework is rivalry—the intensity of
competition among a firm’s direct competitors. Rivalry threatens firms
by reducing their economic profits. Normally, high levels of rivalry are
indicated by such actions as frequent price-cutting by firms in an
industry, frequent introduction of new products by firms in an industry,
intense advertising campaigns and rapid competitive actions and
reactions in an industry (Porter, 1998).
Some of the attributes of an industry that are likely to generate high
levels of rivalry: first of all, rivalry tends to be high when there are
large number of competing firms in an industry and these firms tend
to be roughly the same size; secondly, rivalry tends to be high when
industry growth is slow; besides, rivalry tends to be high when firms
are unable to differentiate their products in an industry; finally, rivalry
tends to be high when production capacity is added in large
increments.
3.4 Internal Environment Analysis
After examining the external environment, the author will evaluate a
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firm’s internal capabilities. Where external analysis focuses on the
environmental threats and opportunities facing a firm, internal
analysis helps a firm identify its organizational strengths and
weaknesses (Barney & Hesterly, 2006). It also helps a firm
understand which of its resources and capabilities are likely to be
source of competitive advantage and which are less likely to be
sources of such advantages. It is summarized by Guo (2005) that ‘by
studying the external environment, firms identify what they might
choose to do; by studying the internal environment, firms determine
what they can do’.
A firm is a bundle of heterogeneous resources, capabilities and core
competencies, which are also the characteristics that make up the
foundation of competitive advantages. Resources are the source of a
firm’s capabilities. Capabilities in turn are the source of a firm’s core
competencies, which are the basis of competitive advantages (Carolis,
2003).
3.4.1 Resources, Capabilities and Core Competencies
Resources
It is well supported that resources cover a spectrum of individual,
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social and organizational phenomena (Hitt, Ireland & Hoskisson,
2005). Typically, resources alone do not yield a competitive advantage.
In fact, a competitive advantage is created through the unique
bundling of several resources (Sirmon, Hitt & Ireland, 2003). In
addition, Hitt, Ireland and Hoskisson (2005) give the definition of
resources as the inputs into a firm’s production process, such as
capital equipment, the skills of individual employees, patents,
finances and talented managers.
Sirmon, Hitt and Ireland (2003) also argue that some of a firm’s
resources are tangible while others are intangible. Tangible resources
are assets that can be seen and qualified, including production
equipment, manufacturing plants and etc.. In contrast, intangible
resources include assets that typically are rooted deeply in the firm’s
history and have accumulated over time, which are relatively difficult
for competitors to analyze and imitate. In the following tables (Table
3.3 and Table 3.3), the four types of tangible resources and the three
types of intangible resources are listed clearly.
Capabilities
It is defined by Hitt, Ireland and Hoskisson (2005) that capabilities are
the firm’s capacity to develop resources that have been purposely
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Tangible Resources
Financial Resources
·The firm’s borrowing capacity
·The firm’s ability to generate internal funds
Organizational
Resources
·The firm’s formal reporting structure and its
formal planning, controlling and coordinating
systems
Physical Sources
·Sophistication and location of a firm’s plant and
equipment
·Access to raw materials
Technological
Resources
· Stock
of
technology,
such
as
patents,
trademarks, copyrights and trade secrets
Table 3.2 The Four Types of Tangible Resources (Barney, 1991; Grant,
1991)
Intangible Resources
Human Resources
·Knowledge
·Trust
·Managerial capabilities
·Organizational routines
Innovation Resource
·Ideas
·Scientific capabilities
·Capacity to innovate
Reputational
·Reputation with customers
Resources
·Perceptions of product quality, durability and
reliability
·Reputation with suppliers
·For efficient, effective, supportive and mutually
beneficial interactions and relationships
Table 3.3 The Three Types of Intangible Resources (Hall, 1992; Grant,
1991)
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integrated to achieve a desired end aim. They also believed that
capabilities are often based on developing, carrying and exchanging
information and knowledge through the firm’s human capital. Because
the foundation of many capabilities lies in the unique skills and
knowledge of a firm’s employee and, usually, their functional
expertise, the value of human capital in developing and using
capabilities and core competencies cannot be overstated (Coff & Lee,
2003). For example, international business leaders increasingly
support the view that the knowledge possessed by human capital is
among the most significant of an organization’s capabilities; but some
firms may not be able to completely utilize the knowledge that they
had and transferred (Hitt & DeNisi, 2004).
According to Hitt, Ireland and Hoskisson (2005), capabilities are often
developed in specific functional areas, such as manufacturing, R&D
and marketing; or in a part of a functional area like advertising. It is
also indicted by research that a relationship between capabilities
developed in particular functional areas and the firm’s financial
performance, suggesting the need to develop capabilities at both the
corporate and business-unit levels (Hitt, Ireland & Hoskisson, 2005).
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Core Competencies
Argued by Barney and Hesterly (2006), core competence is the
collective learning in an organization, especially how to coordinate
diverse
production
skills
and
integrate
multiple
streams
of
technologies. Moreover, core competencies are resources and
capabilities that serve as a source of a firm’s competitive advantage
over rivals. It also distinguishes a firm competitively and reflects its
personality. As the capacity to take action, core competencies are “top
cherries of a company”, the activities the company performs
especially well compared to competitors and through which the firm
adds unique value to its goods or services over a long period (Prahald
& Hamel, 1990)
Firms should make decisions and make actions that are based on their
core competencies. However, not all of a firm’s recourses and
capabilities are strategic assets—that have competitive value and the
potential to serve as a source of competitive advantage (Bowman &
Ambrosini, 2000). As Table 3.4 shown, Hitt, Ireland and Hoskisson
introduced the four criteria of sustainable competitive advantage that
firms can use to determine those resources and capabilities that are
core competencies.
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The Four Criteria of Sustainable Competitive Advantage
Valuable Capabilities
· Help a firm neutralize threats or exploit
opportunities
Rare Capabilities
·Are not possessed by many others
Costly-to-Imitate
·
Capabilities
organizational culture or brand name
·Ambiguous cause: The causes and uses of a
Historical:
A
unique
and
a
valuable
competence are unclear
·Social complexity: Interpersonal relationships,
trust
and
friendship
among
managers,
suppliers and customers
Nonsubstitutable
·No strategic equivalent
Capabilities
Table 3.4 The Four Criteria of Sustainable Competitive Advantage (Hitt,
Ireland & Hosskisson, 2005).
3.4.2 Applying the Resource-Based View Analysis (RBV)
The internal environment analysis has many approaches, while the
Resource-Based View (RBV) a major one that focuses on the
resources and capabilities controlled by a firm as sources of
competitive advantages (Barney & Hesterly, 2006). The concept of
the Resource-Based View was firstly coined by Wernerfelt (1984) and
lately well accepted and developed by many scholars, such as Barney
(1991), Peteraf (1993), Miller and Shamsie (1996). Barney and
Hesterly (2006) summarized and defined the RBV as an economic
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theory that suggests that firm performance is a function of the types
of resources and capabilities firms’ control.
In addition, the RBV makes two assumptions about resources and
capabilities, which are the assumption of resource heterogeneity (that
some resources and capabilities may be heterogeneously distributed
across competing firms) and the assumption of resource immobility
(that this heterogeneity may be long lasting) (Barney & Hesterly,
2006). These two assumptions can be used to describe conditions
under which firms will gain competitive advantages by exploiting their
resources.
On the basis of RBV, a tool can be derived to analyze a firm’s internal
strengths and weakness. It is named the VRIO framework and asks
four questions about a firm’s resources and capabilities in order to
evaluate their competitive potential. These questions are: the
question of Value, the question of Rarity, the question of Imitability
and the question of Organization.
3.5 Developing Sustainable Competitive Advantage
In general, external and internal environment analyses are the
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processes through which a firm identifies its environmental threats
and opportunities and organizational strengths and weakness (Barney
& Hesterly, 2006). With the help of these analyses, it is the turn for
firms to engage in developing sustainable competitive advantage.
3.5.1 Porter’s Three Generic Strategies
According to Porter (1985), the fundamental basis of above-average
performance in the long run is sustainable competitive advantages.
From his points of view, firms will get profits if their products were
valued more than that produced by competitors. In other words, a
firm has a competitive advantage when it is able to create more
economic value than rival firms (Barney & Hesterly, 2006).
Porter (1985) also believes that there are two basic types of
competitive
advantage
a
firm
can
possess:
low
cost
and
differentiation. Combining these two types of competitive advantage
with the scope of activities for which a firm seeks to achieve them,
Porter
(1985)
defined three
generic
strategies for
achieving
sustainable competitive advantages. These three generic strategies
are cost leadership, differentiation and focus and shown in Figure 3.2.
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Competitive Advantages
Broad Target
Narrow Target
Competitive Scope
Lower Cost
Cost Leadership
Cost Focus
Differentiation
Differentiation
Differentiation
Focus
Figure 3.2 Porter’s Generic Competitive Strategies (Porter, 1985)
As Porter (1985) shown in Figure 3.2, there are three generic
strategies
with
two
dimensions—competitive
advantages
and
competitive scope. Each of the generic strategies involves a
fundamentally different route to competitive advantage, combining a
choice about the type of competitive advantage sought with the scope
of strategic target in which competitive advantage is to be achieved
(Hitt, Ireland & Hoskisson, 2005). In other words, combining the two
types of competitive advantages with its activity scope will lead to the
firms’ competitive strategy. It should be noticed that there are two
variants of the focus strategy, which are cost focus and differentiation
focus.
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Cost Leadership
Normally, cost leadership is a low-cost competitive strategy that aims
at the broad mass market. Due to the lower cost, the cost leader can
charge a lower price for its products and still make an acceptable
profit. In addition, the lower price also plays a role of a barrier for new
entrants because of the leaders’ cost advantage.
Differentiation
Differentiation is focused on the broad mass market and involves the
creation of a product or service that is perceived throughout its
industry as unique (Porter, 1985). Firms’ specialty is usually
associated with design, brand image, features, technology and so on.
Differentiation can be a strategy for earning above-average profit in
specific industries because the resulting brand loyalty lowers
customers’ sensitivity to price (Wheelen & Hunger, 2004).
Cost Focus
Cost focus is a low-cost competitive strategy that mainly concerned
with a particular buyer group or market and attempts to serve only
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this niche, to the exclusion of others (Wheelen & Hunger, 2004). Firms,
using this strategy, usually seek a cost advantage in their target
segments.
Differentiation Focus
Differentiation focus strategy is also focused on a specific buyer group,
product segment or geographic market. Not like cost focus, this
strategy seeks differentiation in a targeted market segment. Firms,
using differentiation focus strategy, normally believe a firm that
focuses its efforts is better able to serve the special needs of a narrow
strategic target more effectively (Wheelen & Hunger, 2004).
In addition to these four strategies mentioned before, there is still one
possible situation existed, which is “stuck in the middle”. According to
Porter (1985), a firm that engages in these generic strategies but fails
to achieve any of them is “stuck in the middle”. Firms must try to avoid
such a situation because they do not have any advantages to compete
the cost leaders, differentiators, or focusers in the market.
3.5.2 Value Chain Analysis
Porter (1985) firstly introduced the theory of value chain analysis,
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which allows the firm to understand the parts of its operations that
create value and those that do not. As shown in the Figure 3.3, the
basic value chain is segmented into two groups, namely primary
activities and support activities. Defined by Hitt, Ireland and
Hoskisson (2005), primary activities are involved with a product’s
physical creation, its sale and distribution to buyers, and its service
after the scale. While support activities provide the assistance
necessary for the primary activities to take place.
Margin
Service
Marketing & Sales
Outbound Logistics
Procurement
Human Resource Management
Technological Development
Firm Infrastructure
Support Activities
Margin
Operations
Inbound Logistics
Primary Activities
Figure 3.3 The Basic Value Chain (Porter, 1985)
The primary activities contain inbound logistics, operations, outbound
logistics, marketing and sales, and service (Hitt, Ireland & Hoskisson,
2005). Firstly, inbound logistics are activities used to receive, store
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and disseminate inputs to a product, such as materials handling and
warehousing. While operations refer to activities necessary to convert
the inputs provided by inbound logistics into final product form.
Thirdly, outbound logistics are activities involved with collecting,
storing and physically distributing the final products to customers.
Moreover, marketing and sales activities are completed to provide
means through which customers can purchase products and to induce
them to do so. At last, service activities are designed to enhance or
maintain a product’s value.
Alternatively, support activities include procurement, technological
development, human resource management and firm infrastructure.
Procurement means activities completed to purchase the inputs
needed to produce a firm’s product. Technological development
includes activities completed to improve a firm’s product and the
processes used to manufacture it. In addition, human resource
management activities are involved with recruiting, hiring, training,
developing
and
compensating
all
personnel.
Finally,
firm
infrastructure includes activities that required supporting the work of
entire value chain (Porter, 1985; Hitt, Ireland & Hoskisson, 2005).
In general, value chain analysis is used to identify and evaluate the
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competitive potential of resources and capabilities. Only under these
conditions, can a firm understand its cost structure and identify the
activities through which it creates value.
3.6 Summary
This chapter is the theoretical basis of all the research; both basic
concepts and popular models focused on how to manage competitive
strategy were examined in this part. The concepts concerned with
competitive strategy were reviewed firstly. The second part was
briefly talking about the analysis of external environment based on a
PEST analysis and industry analysis. The next part explained some
theories related to the analysis of internal environment, which was
mainly about the firm’s resources, capabilities and core competencies.
The Resource-Based View analysis was also discussed to examine how
firms make full use of the company’s resources and capabilities to
achieve competitive advantages. The final part was the review of how
to develop a sustainable competitive advantage.
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Chapter 4. Methodology
4.1 Introduction
In this Chapter, the main methodology employed in this research will
be explained. According to Frankfort and Nachimias (2002), the
scientific methodology is a system of explicit rules and procedures
upon which research is based and against which claims for knowledge
are evaluated. This dissertation uses the information that comes from
both primary and second sources. Because that each methodology
has its own strengths and weakness, the limitations of chosen
methodology will also be noticed.
4.2 Qualitative Research and Quantitative Research
It is well known that there are two main categories of research
methodology, which are qualitative research and the quantitative
research (Cassell & Symon, 2004). Most scholars defined the
qualitative research as ‘ a situated activity that locates the observer in
the world’, which usually provides soft, rich and deep data such as
people’s opinions and thoughts. Whereas quantitative research
focuses on how to count and measure something and normally
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delivers hard information such as numbers and statistics (Denzin &
Lincoln, 2000).
This research is mainly concerned about the current situation of
China’s English training industry and the competitive strategies of
different English training schools. Compared with plenty of hard and
static data, the existing social reality is possibly more suitable for this
dissertation. As a result, qualitative method was used to get the first
hand data in the primary research.
4.3 Case Study
4.3.1 Why Choose Case Study
Sociological case studies have proved to be investigations of
particular cases, which are conducted by giving special attention to
totalizing in the observation, reconstruction and analysis of the cases
under study. Accordingly, a case study is an in-depth study of the
cases under consideration (Zonabend, 1992). In other words, case
study could be used to gain in-depth understanding replete with
meaning for the subject, focusing on process rather than outcome, on
discovery rather than confirmation (Burns, 2000). Normally, case
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studies
employ
various
methods,
which
includes
interviews,
participant observation and field studies.
In brief, the case study has proven to be in complete harmony with the
three key words that characterize any qualitative method: describing,
understanding and explaining (Hamel, 1993). For the reasons
explained before, the cases of two English training giants: New
Oriental and English First were selected in the dissertation to illustrate
the current situation and the theory of competitive strategy.
4.3.2 How to Select the Case
For the reason that culture and social life have become so complex
currently, it would be very difficult to study a cultural or social
phenomenon fully. The case study has basically been faulted for its
lack
of
representativeness,
and
especially
the
lack
of
representativeness of the case used as a point of observation for the
social phenomenon or issue constituting the object of research
(Hamel, 1993). In fact, this point is also the most conspicuous
problem in any sociological study.
To overwhelm this problem, the selection of case studies was made
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very carefully. English First is an international language training brand
with its training schools in more than 50 countries in the world. It is
also one of the earliest international language training schools started
Chinese business, and now it is the largest foreign English training
school in China (Xinhua Net, 2006). While New Oriental is a Chinese
local training school and also the largest English training school in
China, which landed on New York Stock Exchange in 2006. These two
training schools were selected for the reasons that: first of all, New
Oriental was established by a Chinese named Yu Minhong, while
English First is the world’s largest private education company found by
a Swedish entrepreneur named Berti Hult. This determined that these
two training schools have distinct background and traditions. As a
result, they have significantly different business module and
concerned competitive advantages. Secondly, English First and New
Oriental stand for two most representative groups of training schools
in China. English First aims the customers with relatively higher
incomes, while New Oriental targets the customers from all incoming
levels.
To study these two typical cases, a better understanding of current
China’s English training industry could be made on the basis of a brief
comparison between these two largest training schools.
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4.4 Collecting Primary Data
4.4.1 Interview
This empirical research is basically a combination of the primary study
and secondary information collection. Normally, there are three main
ways to obtain the first hand data: questionnaires, interviews and
direct observation. In this research, interview is the most significant
approach used to collect the first hand data. According to Cassell and
Symon (2004), the goal of the interview is trying to see the research
topic from the perspective of interviewees, and further, to understand
how and why this particular perspective is shaped. Because that
interview could help people to understand the active respond and
detail description of a topic, flexible and open questions are more
used in the process of interview (Holstein & Gubrium, 1995).
Compared with the others approaches such as observation, field and
questionnaires,
In order to obtain most of the primary data, the interviews were
carried out via telephone. During the process of research, the author
made telephone interviews with seven people from different English
training schools in different cities. From Holstein and Gubrium’s (1995)
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perspective, the selection of interviewees is based on the principle
that their views typically reflect the opinions in a specific area. In this
interview, all these seven interviewees have close relationships with
the English training industry and their own insights. There are some of
the interviewees that worked in different size English training schools
for a long time. In addition, there is also a market expert concerned
with China’s education and training market. All these significant
opinions and valuable insights will be submitted and presented in the
follow chapters.
4.4.2 Advantages of Interview
Compared with questionnaires and observation approaches, using
interviews has its specific advantages. First of all, interview might be
the most flexible method and suitable for examining broader issues.
Moreover, it is also ideally fitted to talk over questions that include
different levels of meaning and understanding. Normally, it will be
easy for people to talk about something in their familiar fields, so they
could share this with people who are interested in (King 2004). Finally,
summarized by Alan Bryman (1999), interview can provide more
in-depth insights into the research questions as it is conducted in an
interactive way.
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4.4.3 Limitations of Interview
Form Kumar’s (1996) perspective, there are also limitations existed
for the approach of interview. Firstly, interview might be expensive
and time-consuming. Secondly, the quality of data collected is easily
influenced by the quality of the interaction between the interviewer
and the interviewee. In addition, by gaining more experience in the
process of interviews, the questions asked might be adjusted by the
investigator. As a result, the data that obtained from people who are
interviewed at the beginning might be different from that obtained
from people interviewed at the end. The researcher might bring bias
into the study.
4.5 Collecting Secondary Data
In addition to obtaining the primary information with qualitative
methods, this research also makes full use of various secondary data,
including academic articles, earlier research, government publications,
on-line news, official websites of institutions or authorities, annual
reports of various English training schools, etc.. Secondary data plays
a significant role in this research because it not only provides cost and
time economies, but also shows a solution to the problem in the same
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cases. For example, diversified news and reports concerned with
China’s English training industry could be found on various Chinese
Websites, such as China Daily, People Daily, Xinhua Net and so on.
Besides, the general environment of China’s English industry, which is
introduced the Chapter 2, is mainly based on the analysis conducted
by different specialists, reporters and journalists.
However, it must be noticed that not all the secondary data is accurate
due to the different purposes. For instance, the data obtained from
the official website of English training schools might be not accurate
enough, because all the data from these schools seems like to be
positive in order to attract more customers. Consequently, not all the
information provided by these training schools could be used without
consideration. In contrast, the statistics and description collected
from government reports or famous non-profit organizations will be
relatively more accurate and reliable and might be used in the
research.
To sum up, this research was carried out on the basis of both primary
and secondary sources in all aspects of discussions, implications and
recommendations for the competitive strategy of different English
training schools in China.
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Chapter 5. Cases of China’s English Training Industry
5.1 English First English Training School (EF)
5.1.1 Background
English First English Training School (EF) is an international private
education provider founded in Sweden in 1965 by a young
entrepreneur named Bertil Hult. It owns a network of English
language schools offering English language courses in more than 10
countries in the world. In China, English First opened its first school in
1992 and today it has branches in more than 60 cities (English First
Official Website).
In general, English First has achieved great
success particularly in China. For example, English First has been
awarded the contract of the Language Training Supplier of the Beijing
Organizing Committee for the 2008 Beijing Olympic Games. It means
that English First will provide the training to judges and other support
staff for the upcoming Olympics in Beijing. It seems like that English
First has made China as its most important market in the future and
moved its Academic Research and Development team and even the
head office to Shanghai (English First Official Website).
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Compared with other English training schools, especially local English
training schools, English First targets at customers with a higher level
of incoming. According to the Social Survey Institute of China (SSIC),
English First ranked “The Top Foreign Training Branch in China”. It is
also selected by Sina.Com, which is the No. 1 portal website of China,
as “The Most Trusted English Training Institute in China”. By providing
the products and services that have different and valued features,
English First becomes the differentiator in China’s English training
industry. As described in the literature review, firms can use the Value
Chain Analysis to determine the parts of the company’s operations
that create value or not. Both the primary and support activities that
allow English First to create value through the differentiation strategy
will be examined in the next part.
5.1.2 Value-Creating Activities Associated With the Differentiation
Strategy
(1) Human Resource Management
According Mr. Cui, the inspector of English First in Shanghai, “We
believe that nothing is more important than your English teacher.
Good teachers can make everything different. There are 95% of our
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teachers come from English speaking countries, mainly from the UK,
the United States and Canada. We have found that some students in
the lower levels actually learn English faster if some of their classes
are taught by top Chinese instructors. That's why, after careful
screening and training, we also employ some local Chinese teachers.
Besides, all the teachers of English First have London Trinity College’s
Certificate of TEFL (Teaching English as a Foreign Language) and at
least five years’ teaching experiences. In fact, English First is the only
English training school in China that has teacher’s training centers in
Boston, London, Manchester and Sydney. Every foreign English
teacher of our training school was selected and trained by the four
training centers. This allows us to screen every teacher for their
personality,
ability
to
motivate,
as
well
as
their
teaching
qualifications”.
Obviously, foreign teachers, especially native speakers, have great
advantages for teaching English. Compared with Chinese teachers,
native speakers could supply the students authentic English. In
addition, they are more familiar with the background and culture of
English speaking countries, which are quite important for every
English learner. Without background and culture study, students may
not understand the real meaning of natives even they could catch the
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words. With this point in view, English First possibly has a best English
teaching team in China’s English training industry. As a result, English
First has to accept a higher cost and collect more tuition fees from
students.
(2) Outbound Logistics
All courses of English First are taught in the form of small size classes.
According to Mr. Cui, “More and more EF’s courses will be taught
focusing on the one-to-one form, particularly in the training of high
levels English and various professional English”. Generally speaking,
for the English training, the fewer students in a class, the more
opportunities they have to communicate with teachers. In addition,
teachers in small size class might also have more chances to meet
students’ demand. As a result, a better teaching quality could be
guaranteed from aspects of both students and teachers.
(3) Operations
The Unique Teaching Method
Designed by English First’s Academic Research and Development
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team at a cost of 40 million US dollars, the English teaching
method—Efekta combines the very best in teaching with the very
latest in technology (English First Official Website). Compared with
traditional English teaching method, Efekta is a system contains
teacher-led classes and on-line tutorials at the innovative language
labs (iLabs), which could offer student faster, flexible, targeted and
personalized tool to sharpen their English. In addition, Efekta also
offers weekly Life Club activities to every EF student, such as coffee
clubs, distinguished speakers, conversation corners, dinners and
parities.
Not like many Chinese local English training schools, English First does
not offer courses concerned with Chinese domestic examinations,
such as the college English Test and University Entrance English Exam.
As Mr. Cui said that, “All courses of English First are concentrating on
the ability to communicate with English, but not how to pass exams”.
It is notable that the training courses related with IELTS, TOEFL and
GRE are still offered by English First and most foreign English training
schools. It is because that English native speakers normally cannot
really understand the English exams with Chinese characteristics,
which is basically focusing on the vocabulary and grammar. For
example, in 2006, Sina.Com reported a test that five English native
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speakers just took an average score of 71% in the exam of university
entrance 2005. All these five people were foreign teachers or students
of Wuhan University.
As this example shown, although foreign English training schools have
their unique advantages, it is still quite difficult for them to enter the
training market of domestic examination. The most significant reason
is probably the great difference between western and Chinese local
English teaching system. Consequently, English First and most foreign
English training schools pay all their attention to how to enhance
students’ English communication capability.
Specific Upgrading System of English Learning
Every student of English First must have a test before they started
courses. In fact, English First has a scientific upgrading system for its
students in different levels. Briefly, there are New English Parade
Starter, High Flyer and Trailblazer three stages for students under 15
years old. There are also eight grades for students over 15 years old,
which are Introduction, Beginner, Keystage, Waystage, Threshold,
Independent User, Competent User and Proficient User. All the courses
of English First’s are set up scientifically on the basis of these eleven
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different grades. By doing the test before the course, every student
would know which grade he or she belongs to and then choose the
specific right course. English First is actually very confident about this
system and Mr. Cui promised “Our courses is 100% covered by our
learning guarantee, if you don’t progress ONE level in 72 hours you
will study for free”. With this upgrading system, English First could
make a clear objective for every student and also build up the
customer loyalty gradually.
Learning English Abroad
As an international English training school, which has over 500
braches in more than 10 countries, English First has a great
advantage to send its students learning English abroad. In fact,
English First makes use of this advantage and offers series of ways to
learn English overseas, such as EF Language Travel, EF Educational
Tours, EF High School Year, EF International Language Schools, EF
Academic Year Abroad and etc.. To live and study in the native
English-speaking countries, it would be a unique opportunity for these
students who plan to enhance their English communication capability.
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5.1.3 Relative High Cost
Through the differentiation strategy, English First provides students
with courses or service that have its own features. Because of its
uniqueness, differentiated courses or services are sold at a premium
price on the basis of relative high cost. For instance, 95% of English
First’s teachers are English native speakers with the TEFL Certificate
of London Trinity College. To employee such a large number of
qualified foreign English teachers will definitely increase English First’s
cost. In addition, to establish the Efekta system: a scientific English
learning system with high technology, such as the using of multimedia
and Internet, a great amount of money has to be invested. As a result,
English First has focused on the customers with high-level incomings.
In general, English First stands for the differentiators in China’s
English training industry. These firms using the differentiation
strategy seek to differentiate their products from the competitors’
goods or services along as many as possible. Many foreign English
training schools like Web International English and Wall Street English
(WSE) seek competitive advantage mainly through the differentiation
strategy owing to their unique advantage, such as the good reputation,
experiences, high technology, capital and etc..
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5.2 New Oriental English Training School
5.2.1 Background
Yu Minhong established New Oriental School in 1993. At the beginning,
New Oriental School had less than ten teachers and only offered
training on TOEFL and GRE. In 2006, New Oriental has become a New
York Stock Exchange landed company that has total revenues RMB
169.0 million (US$ 21.6 million) (Annual Report of New Oriental 2006).
Its wide range of educational programs and services include English
and other foreign language training, test preparation courses, primary
and secondary school education, educational software as well as
online education (New Oriental School official Website).
Compared with other English training schools, New Oriental is the
pioneer of China’s English training industry. It is also probably the
most famous English training school in China. It means a legend of
English training industry, and people should not do research on
China’s English training without it. According to New Oriental School
Official Website, since it founding in 1993, New Oriental has had over
4.5 million student enrollments, including approximately 1 million in
calendar 2006. Currently, New Oriental has a network of 35 schools,
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130 learning centers and more than 2,400 teachers in 33 Chinese
cities (Figure 5.1). Because of the purpose of this dissertation, the
next research is briefly focusing on the English training department of
New Oriental School.
Figure 5.1 New Oriental Schools in China (New Oriental School official
Website)
5.2.2 Value-Creating Activities Associated with the Cost Leadership
Strategy
(1) Operations
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Large Size Class teaching Method
Most courses of New Oriental School are taught in large size classes.
It is a most significant method that New Oriental uses economies of
scale to reduce its costs. According to Mr. Geng, a manager of New
Oriental in Shenzhen, “The large size class teaching method is a
tradition for us from our earlier training concerned with TOEFL and
GRE. Compared with the small size class teaching mode, which is
usually adopted by foreign English training schools, we believe that
our method is more Chinese situation and more suitable for Chinese
students in most courses”. Normally, classes range from 50 to 500
students, depending on level of instruction and student demand. For
some popular courses, such as TOEFL, GRE, CET Four and Six, more
than six hundreds students might sit in one classroom (New Oriental
School Official Website). Obviously, the large class teaching method
will decrease the costs of New Oriental related with human resource
and facilities.
(2) Human Resource Management
In addition to economies of scale, New Oriental School also reduces its
costs through human resource management. As introduced by Mr.
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Geng, “more than 60 percents of our teachers are Chinese that have
the experience of studying abroad”. These teachers not only have a
better understanding of the culture and life in English speaking
countries, but also know the difference of English learning in different
countries. With these experienced teachers, the teaching quality of
New Oriental School could be guaranteed firstly. Moreover, compared
with employing qualified foreign teachers, the costs of employing
Chinese teachers will be at relatively low level.
5.2.3 The Value Chain Analysis Associated with the Differentiation
Strategy
(1) Firm Infrastructure
Although Mr. Yu Minhong was a university lecturer before he
established New Oriental School, the English teaching method of him
and his New Oriental School is completely different from the
traditional ways in China. Firstly, the New Oriental method does not
just focus on vocabulary and grammar. The capabilities of English
listening, reading, writing and speaking are firstly put to the same,
even more significant position in China. From this point of view, New
Oriental School is not just a milestone in English training method; it
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also had an important influence on the whole English education.
The second point is New Oriental’s unique exam-related training
method. This method has definitely achieved great success and could
be proved by the scores its students. According to New Oriental
School Official Website, there are 8 students got full score in GRE and
25 in TOEFL during in its 13 years’ history. Up to 2006, no more
training schools in China could achieve such a success. Mr. Gao also
admitted that “A large number of students were directly attracted by
the scores our students got earlier”.
Moreover, as Mr. Yu hongmin’s humorous, energetic and enthusiastic
teaching style well accepted and had a definitely positive effect; this
teaching style has become the characteristic of New Oriental School.
Thanks to the humor and energy, harmonious atmosphere is made in
class and obviously has good influences on students’ English learning.
(2) Operations
The Diversity of Products and Services
As Mr. Gao, the market director of New oriental School in Beijing, said
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that “We provide a comprehensive range of education services and
products to address the needs of students of all ages… from Kids
English program, summer campus, primary and middle school
education to various of professional English training. We offer lifelong
education begins as early as age 5”.
As New Oriental School’s Official Website suggested, English training
is at the core of New Oriental’s business. There are two main parts of
New Oriental School’s English training products: language training
and test preparation.
Firstly, for the reason that students come from a wide range of
educational background and have differing goals, motivations and
abilities, New Oriental’s English language offering is divided by age
group and student’s particular study needs. There are Kids (Age 5-12),
Middle and high School Students (Ages 12 –18), English for Adults
(Ages 18+) and Elite English Personalized Study (All Ages).
In addition, test preparation programs are designed for students to
prepare the major exams used by educational institutions in China
and Abroad (Table 5.1). In fact, with more ten years’ experience of
TOEFL and GRE training, test preparation is probably the most popular
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program in New Oriental. The test preparation program focuses on, as
Mr. Gao said, “the quality instruction and test-taking techniques
designed to help students achieve high scores on the most widely
used admissions and assessments tests”.
International
Exams
·GRE · GMAT ·IELTS ·BEC ·TOEFL
·TOEIC
Domestic Exams
·CET Four ·CET Six
·National English Test for Entrance into Master’s
Degree Programs
·National English Test for Entrance into University
·Professional Title English Test
·Public English Test System
Table 5.1 Exams that New Oriental’s Test Preparation Related (New Oriental
School’s Official Website)
Last but not least, compared with many foreign English training
schools, which are mainly focusing on high-level incoming customers,
such as English First, Web International English and Wall Street
English, New Oriental’s tuition fees of many courses are very
competitive. In fact, New Oriental has target customers of both
low-level incoming (such as students and wage-earners) and relative
high-level incoming (Such like “white collars”). This point is also
shown by it courses’ set up. Not only CET Four and CET Six training
that mainly focused on university students, but also going abroad and
Elite English training are provided by New Oriental School.
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To sum up by Mr. Gao, “New Oriental will be a teacher and advisor,
whether the task is preparing for the Chinese high school or college
entrance exams, getting ready to take the international exams for
overseas universities, or learning the skills most valued by today's
employers. Furthermore, we are reaching adult students with our
Adult Practical English and ELITE English programs, occupational test
preparation and online education”.
(3) Marketing and Sales
Extensive Public Relation
After more 20 years’ reform, China’s economic system and social live
has changed significantly. However, the role of government as the
controller
of
most
important
social
resources
and
business
opportunities did not change dramatically. Indeed, guanxi, which is
one of the major dynamics in the Chinese society where business
behavior revolves around ‘relationships’, can perform considerable
function
in
material
purchasing,
personnel
training,
quality
supervising and sales in China. As a result, any English training school
in Chinese society, including both local schools and foreign investors,
inevitably face guanxi dynamics.
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As a Chinese local English training school, New Oriental has
incomparable advantages to make a good relation with Chinese
government. In fact, New Oriental School has been the English
training supplier of Beijing government since 1997. Many branches of
New Oriental School also have contracts with local governments to
provide training services.
Besides, just like Mr. Gao said, “New Oriental is always taking an
active part in various socially useful activities because we never forget
our social responsibilities”. For instance, New Oriental had a free
lecture tour in the west of China in 2006, which was given by New
Oriental’s famous English teachers to encourage people to study
English. They went to more 40 universities and high schools and had
more 100,000 audiences. There is also a free lecture tour in the
second half of 2007 in the middle and east part of China, which is
organized by China Communist Youth League, China Students
Federation and New Oriental School (New Oriental School Official
Website). By maintaining a harmonious relationship with both
government and society, New Oriental has made a very positive public
image, which contributes a lot to its success.
Last but not least, New Oriental always cooperates with many famous
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companies or organizations to strengthen its brand. For example, in
2005, any customers spent certain amount of money on Taobao.Com
(China’s largest on-line shopping website) could gain a free on-line
English courses of New Oriental School. Such way of promotion is a
frequent method adopted by New Oriental School.
(4) Services
Due to the increasing importance of customers, New Oriental School
pays great attention to the customer services. All students of New
Oriental School have the right to enjoy certain extra services. New
Oriental School provides free information concerned with foreign
universities’ application and scholarships to its every student.
Furthermore, there are also free lectures focusing on how to live and
study abroad existed in all branches of New Oriental School.
5.3 Some Middle and Small Sized English Training Schools
Compared with foreign English training schools (such like English First,
Wall Street English and Web International English) and large Chinese
local English training schools (such as New Oriental School), a huge
number of middle and small sized English training schools meet
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customers’ minimum demand through cost leadership strategy. To
take the College English Test training as an example, there were about
5 millions people took part in the CET Four and Six in 2005 (Ministry of
Education of People’s Republic of China). This was a really huge
market for the whole English training industry. However, because
most of these 5 millions people are universities students located in all
parts of China, and they might not able to afford the tuition fee and
the accommodation costs of some famous English training schools in
large cities, thousands of middle and small sized English training
schools were established in many cities of China. As Mr. Wang, the
famous marketing expert summarized that “As an immature market,
there are not laws enough to regulated and protect China’s English
training industry. Consequently, the entry barrier of this industry is
relatively low and various investors flooded into this market”.
Most importantly, such kind of middle and small sized English training
schools can provide essential training mainly concerned with domestic
examinations to students at very competitive prices and they are
really popular in many parts of China. In fact, this kind of middle and
small sized English training schools do not need much investment like
English First and New Oriental School. They just require a few
teachers, classrooms and some basic advertising, such as handing out
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leaflets to attract students. According to Social Survey Institute of
China (SSIC), China had over 50,000 English training schools in 2005;
and more than 80 percents of them were middle and small sized
training schools.
5.3.1 Value-Creating Activities Associated with the Cost Leadership
Strategy
(1)
Human Resource Management
Considering the human resource costs, most middle and small sized
English training schools normally employ the English teachers of high
schools and universities. Even students of universities could be
employed as English teachers in specific small training schools. In
addition, quite a lot of these schools just have teachers, and no
management and marketing professionals at all. As a result, this kind
of training schools have the lowest human resource costs in China’s
English training industry and most of these schools can just provide
basic trainings for the preparation of domestic exams, such as CET
Four and Six, National English Test for Entrance into Master’s Degree
Programs and National English Test for Entrance into University. These
schools generally do not have courses related with going abroad tests.
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It is because that people who have the plan to go abroad usually have
the financial capability to go to famous English training schools in
large cities and take training courses with higher quality.
(2) Operations
As most teachers of these middle and small sized English training
schools are English teachers of high schools and universities, even
students of universities, most courses of these schools are quite
flexible and seasonal. Their courses are also organized depending on
the timetable of its major customers: students of universities and high
schools. Consequently, a large number of this kind of training schools
only have their training courses during students’ summer and winter
vacation. Middle and small sized English training schools’ flexible and
seasonal operating way may efficiently reduce the costs of daily
operating when there are not enough students to take their training.
(3) Marketing and Sales
Compared famous English training schools, in order to control the
costs, basic advertising such likes distributing leaflets and students’
appreciation are the main method of many middle and small sized
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training schools to attract customers. Numerous leaflets are handed
out to students in high schools and their parents, and university
students. Besides, students’ appreciation is another advertisement
for these training schools. Students’ friends and classmates could be
attracted to the training schools by their recommendation.
5.4 Summary
Currently, there are three main types of training schools in China’s
English training industry based on the different competitive strategy.
Most foreign invested English training schools, such like English First
English
training
school
and
Wall
Street
English,
adopt
the
differentiation strategy because of their advantages of capital,
technology and experience. Consequently, they have a relative higher
costs and mainly focusing on customers with high-level incomings. In
contrast, there are many middle and small English training schools
running on the basis of cost leadership strategy. For the purpose of
costs reduction, they normally only have basic training services and
most of them are flexible, seasonal, and even temporary. With a really
competitive price, these schools mainly provide courses and service to
customers with low-level incomings, such as students of universities.
The third types of schools are some Chinese large English training
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schools. Making New Oriental School as an example, it provides
various high quality courses and service with a competitive price to
customers with different incoming levels. This type of schools prefers
a strategy that combined cost leadership strategy and differentiation
strategy.
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Chapter 6. Current Problems and New Tendencies
6.1 Main Problems of Current China’s English Training Industry
Today, over millions of Chinese people are taking various kinds of
English training every year. However, as more and more multinational
firms and organizations race to set up branches in China, China’s
supply of experienced, English-speaking workers is rapidly dwindling
(Canada.Com, 2006). “There is intense competition for well-educated,
English-speaking, professional staff,” said Diana Barkley, the director
of public affairs for Methanex Corp. Partly to avoid this problem,
Methanex, the world’s biggest methanol producer, decided not to
establish its Asia-Pacific headquarters in mainland China’s hot spots
such as Beijing and Shanghai when it moved from New Zealand at the
beginning of 2006.
According to a report released in 2006 by the international
employment services company
Manpower Inc., most
Chinese
employees only have low English-language skills, and those who do
meet companies’ standards for high-level position tend to be very
difficult to retain, especially when they are presented with higher
salaries,
career
advancement
opportunities
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competing firms. Although Chinese students and workers recognize
the necessary to learn English and English training is being more
popular, the shortage of fluent English-speakers is still a big issue.
Just like Mr. Wang, the marketing expert said, “despite a population of
more than 1.3 billion and the rapid developing English training
industry, China is facing a critical English-speaking professional
shortage”. This part is going to explain what leads to the conflict
between the shortage of English-speaking professionals and the rapid
developing of English training industry.
6.1.1 Disadvantages of Learning English in China
Chinese students’ English is often called “deaf and dumb English”
which means their listening and speaking abilities are very low. It’s a
common phenomenon that Chinese students still have difficulty in
communicating with native speakers of English even though they
have learned it for more than 10 years. Companies often complain
that a college graduate student working there who has passed CET
Four or even CET Six (which is the higher level) cannot speak with a
foreigner. Many Chinese students studying in the UK or Australia find
it difficult to use English to study and live even if they’ve got quite high
scores on the IELTS exam. There are several reasons for this problem:
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First of all, the English environment in China is different. In China,
both teachers and students are working, studying and living under the
condition, which is quite different from that in English speaking
countries. For instance, Chinese immigrant students in the UK can
learn English more quickly than those in China. It is because here in
the UK English is their essential language. They enjoy a much better
English environment as well as have English high motivations. What
those students in China need is this authentic language environment,
which is quite difficult to create in China. This point is an inherent
disadvantage to teach and study English in China.
Secondly, the examination-oriented education is also one important
reason for Chinese students “deaf and dumb English”. For a long time,
China’s traditional examination-oriented teaching is mainly focusing
on the vocabulary, grammar and test related skills. It must be
admitted that the examination-oriented education could raise the
scores of students effectively. New Oriental School’s success in its
early stage was heavily dependent on its examination-oriented
teaching mode. However, these test related skills may not improve
the English communication capability and are criticized frequently by
foreign English teaching professionals.
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The third reason is easy to be ignored, which is Chinese students’
interpersonal style. Traditionally, Chinese students have more
introverts than extroverts. They are shy and normally do not
communicate with others actively. Definitely, this way has bad
influence on both English teaching and studying.
6.1.2 Quality Difference within the Same Training School
China is huge country, covering more than 9.6 million square
kilometers, with a population of 1.3 billion. In order to expand their
business in China, many English training schools opened as many
branches in as many locations as possible. For example, many foreign
English training schools employ franchising as the main mode. While
Chinese local English training schools, such as New Oriental School
normally wholly own all its branches. No matter what kind of mode do
these English training schools choose, there is an inevitable problem:
the quality difference between different branches.
Take English First as an example, Mr. Cui introduced that “We have a
very rapid speed of expansion and more than 60 Chinese cities have
our braches right now. We are also planning to open 100 new
branches in the next 2 years”. Compared with the high speed and
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relatively lower costs of franchising, there are also potential
disadvantages for the franchiser. The teaching quality of English
First’s branches possibly varies depending on the quality of different
franchisees. If the franchise is run badly it will damage the franchiser’s
reputation.
Being different from these foreign invested training schools; New
Oriental School completely owns all its branch schools. Its branch
schools located in every large city and most second-tier cities.
However, the difference of teaching quality is also existed. That is why
the courses of New Oriental Beijing School are so hot. Many students
come from different cities of China, even these cities have New
Oriental’s branches located, would prefer paying more money to go to
New Oriental Beijing School to make sure a high quality. Mr. Yang, the
manager of Global IELTS English training school (a large English
training school has 56 branch schools in China) admitted that the
same situation happens in his school.
Many English training schools are taking steps to eliminate this quality
difference. As Mr. Gao said, “We noticed this problem and have
already take measures to deal with it. We have laid down that every
our famous teacher must have a teaching tour to the branches located
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in second tier cities. Besides, all teachers of New Oriental branch
schools will have the opportunity to be trained in Beijing to ensure the
teaching quality of branches”.
6.1.3 Immature Market
Since China’s English training started at the end of 1980s, it is still a
relatively new industry in China. In general, China’s English training
industry has experienced a rapid growth in the past 20 years; however,
it is still far from mature. There are no specific laws to regulate and
protect China’s English training industry and the structure of this
industry is always changing. In the immature market China’s English
training industry, there are several bottlenecks limiting industry’s
further development.
Low Industry Entry Barrier
In China, most English training schools do not need a high investment.
Any people who get a few teachers, classrooms and the basic
advertising to attract students may operate an English training school.
When government examines the application of establishing English
training school, it is mainly focusing on the facilities, but not the
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quality of training. As a result, a large proportion of numerous China’s
English training schools are middle and small sized training schools.
Many of these schools are seasonal even temporary. In 2007,
163.Com (A China’s Portal Website) reported that a middle sized
English training school, which had four branches in Shanghai, went
bankrupt suddenly in 2005. Thousands of its students who had paid
their tuition fees cannot ask their money back. In 2004, there were
about 200 English training schools closed down. It is very difficult to
protect students’ benefits.
The Fixed Teaching Method and Materials
According to Mr. Wang, the marketing expert, “One important
bottleneck for China’s English training industry is the lack of
innovation”. It should be admitted that most famous and large English
training schools, such as New Oriental School, English First, Wall
Street English and etc. have the financial and technological possibility
to develop new English teaching method and materials and indeed
they are doing so. However, as the largest group of China’s English
training schools, middle and small sized training schools normally
have to use the fixed teaching method and materials.
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There are two basic reasons for such a situation: firstly, as the cost
leaders in the China’s English training industry, there must be a loss of
competitive advantage to the innovation of newer teaching method
and materials. In addition, the second reason is the shortage of
related intellectual property laws of regulations to protect the new
teaching method and materials. For example, Miss Sun, the manager
of a middle sized English training school in Qingdao admitted that
there are parts of teaching method and materials are similar to
English First’s to some extent. Last but not least, the shortage of
management and training professionals is another significant reason.
All my interviewees from English training schools admitted that there
is a degree of shortage of both management and English training
professionals in their schools because of the high-speed expansion.
For instance, the certificate of TEFL (Teaching English as a Foreign
Language) is very hot these years due to the dramatic increasing
requirement of English teaching professionals.
Just making a name changing or simple imitations, these middle and
small sized training schools may also enjoy the innovation of teaching
method and materials. As a result, teachers in this kind of training
schools teach the students with the same method and the same
handout year after year. Even the jokes in class could be repeated to
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different students. Without outstanding operating features and their
own teaching system, many training schools damaged the benefits of
students.
Exaggerated Advertising
Advertising is an essential tool used by English training schools to
attract students. Without related laws to regulate training schools’
advertisements, there are many English training schools put forward
exaggerated advertisements in order to attract more students. This
problem is more popular in middle and small sized training schools,
particularly in the seasonal and temporary ones. A typical example is
some training schools’ promises to refund the tuition fee of specific
test-oriented courses when their students do not pass the exam are
just pie in the sky. These schools have all the excuses; some
temporary schools even may go bankrupt to avoid refunding. The
other popular example is that many training schools cheat customers
by advertising their teachers own some academic background or
certificate that they do not have at all. These training schools are
more focused on a short-term operation and easily neglecting the
damage of long-term profits. Just like Mr. Wang said, “fraudulent
advertising has become a very serious problem for China English
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training industry’s further development”.
6.2 New Tendencies of Development
6.2.1 The Tendencies of China’ English Training Industry
China’s English training industry will face an increasingly fierce
competition for the future. Summarized by Mr. Wang, the famous
marketing expert, “ Currently, more middle and small sized training
schools are going to close down; some successful middle sized
training schools are starting to establish new branches in second-tier
cities; while these famous brands are concentrating on building core
competencies and national expansion”.
Many middle and small sized English training schools, which seek
competitive advantage through the cost leadership strategy, are
probably facing the fiercest competition. The cost leadership strategy
determines: first of all, these schools have a loss of competitive
advantages to innovation of teaching method and materials. Secondly,
these schools normally cannot detect changes in customers’ demand.
It means once customers have new needs on the training, they will
not choose these schools any more. In addition, competitors could
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imitate these schools’ basic, standard and inexpensive training
courses and services easily. As a result, although there are a large
number of new English training schools established every year, there
are also many training schools go bankrupt at the same time.
Most successful middle sized and a few large training schools are
focusing on expand the market of their nearby cities. As Miss Sun
introduced that Amio English training school, which has its main
business in Qingdao (a second-tier city in Shandong province), has
established branch schools in another three main cities in Shandong
province. According to Mr. Yang, Global IELTS English training school
has similar actions since 2002. More than 20 branch schools were
established gradually. Thanks to the expansion to nearby second-tier
cities, these kinds of training schools have a new opportunity for
development.
Different from other English training schools, these famous brands are
paying more attention to build their unique core competencies and a
nationwide expansion. For example, Mr. Cui said, “ As the largest
foreign invested English training provider, English First never slows
down its innovation of teaching system, developing of technology and
improvement of curriculum provision. A certain percent of our
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revenue will be spend these activities every year”. Beside, in the
development process of market, these industry leaders have put
brand image building, which is a crucial contributor to the long-term
profitability, at the top place. These schools normally are very active
to take part in various socially useful activities in order to make a
harmonious public relation and strengthen their brands. For instance,
New Oriental School offers a free lecture tour to thousands of high
school and university students every year to encourage learning
English.
6.2.2 The Tendencies of Customers
In the process of English training market’s development, customers
are also becoming more and more rational. Firstly, customers’
attitude towards going abroad is becoming careful gradually. English
training is associated with this attitude closely. When people were
eager to go to North America at the beginning of 1990s, it was also
“golden days” of training concerned with TOEFL and GRE. Due to the
US’s more strict Visa policy, British Commonwealth became the new
hot destinations for Chinese people who plan to go abroad.
Consequently, IELTS related training started its prosperity. However,
when more students found that studying abroad cannot guarantee
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better career opportunities, now people are more careful before they
make decisions of going abroad. This also makes the development of
China’s English training “clamed down’ and more scientific.
6.2.3 The Tendencies of English Training
Since customers are becoming more rational, more of them have had
a better understand of the disadvantages of Chinese traditional
examination-oriented
English
teaching
method.
Social
Survey
Institute of China had a report in 2005, 42.7% of about 2,000
interviewees were taking English training course of practical
communication. This figure increased greatly compared with the
figure of 2004. It means that people are gradually noticing the
importance of self-enhancement English.
Because more and more international firms would like to set up their
branches in China, numerous professional English speakers are
needed in different industries. It is the direct reason of why courses of
various professional English, such as accounting English and business
English are set up in many English training schools. The training of
related tests (BEC, TOEIC, BULATS and TOPE) are also becoming
popular. As a result, although examination-oriented English training is
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still playing an important role in the whole industry, different kinds of
self-enhancement English training might have a brighter future.
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Chapter 7. Conclusion, Recommendation and Limitations
7.1 Conclusion and Recommendation
The research in this dissertation is focusing on the current situation of
China’s English training industry and how different English training
schools can develop competitive strategies when facing the more
fierce competition. In the past 20 years, China’s English training
industry has experienced a real high-speed development and
achieved undoubted success. The business environment provides
great opportunities for this new industry.
Since to the economic reform in the late of 1970s, China’s connection
with the outside world has been more and more close. The economy of
China kept an outstanding development in the form of stable GDP
growth
and
booming
international
trade.
Because
numerous
multinational firms came to China and started their business, more
English-speakers workers were needed. Moreover, government also
has policy to promote English by setting laws or regulations. For
example, Ministry of Education of China established College English
Test system to enhance English teaching in universities. In addition,
the entry into WTO, 2008 Olympics in Beijing and 2010 World
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Exposition in Shanghai make the whole English training industry more
prosperous. All these reasons resulted the great development of
China’s English training industry.
According to the previous literature review and the empirical study,
creating a competitive advantage, which is based on environment
analysis, is the most essential thing for every English training school
in this industry. As value chain analysis is used to identify and
evaluate the competitive potential of resources and capabilities,
Training schools’ value chain may also used to examine how their
competitive advantages were made. To create more perceived value
through cost leadership strategy, there are many activities could be
completed to reduce costs. Employing Chinese teachers even
university students instead of foreign English teachers is a good
example of how the human resource management activities can
facilitate successful use of the cost leadership strategy. As operation
activities, the use of economies of scale, such like New Oriental
School’s large size class teaching, can also reduce costs effectively.
Moreover, basic advertising such as leaflet handing out may be
another choice for English training schools that have a plan of costs
reduction.
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Rather than costs, a training school using the differentiation strategy
always concentrates on investing in and developing features that
differentiate training courses or services in ways that customers’
value. There may be a limited number of ways to successfully use the
cost leadership strategy. In contrast, actually anything a training
school can do create perceived value is a basis for differentiation. In
China’s English training industry, there are also various value-creating
activities associated with differentiation strategy. Many training
schools gain competitive advantages by primary activities, including
inbound logistics, operations, outbound logistics, marketing and sales
and service. Making New Oriental School as an example, it is not only
focusing on the diverse courses’ setting, but also the public relation’s
building and service development. Besides, the support activities,
including
firm
infrastructure,
human
resource
management,
technology development and procurement, are also used frequently
to achieve differentiation. For instance, English training schools may
employ well-qualified foreign teachers, or invest more in developing
new teaching methods and materials as using the differentiation
strategy to earn above-average returns.
By examining the value-creating activities associated with English
training schools’ strategies, there are three main types of schools in
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current China’s English training industry. The first type of schools is
cost leaders, which only provides basic training courses at low prices.
These schools are mainly middle and small sized training schools. In
addition, there are also differentiators that offer some unique courses
and services to customers with relative high incomes. Most foreign
English training schools belong to this type of schools. The last type of
schools are those combined differentiation and cost leadership
strategies and supply high quality training at a competitive price.
These schools are normally large and powerful. China’s first education
company listed in the US — New Oriental School is a good example.
During the process of research, several problems have been found
that limit the further development of China’s English training industry.
Firstly, there are several disadvantages of training English in China,
such as the English environment, the examination-oriented education
and Chinese students’ interpersonal style. Secondly, due to the
high-speed expansion, the quality difference between different
branches has become a serious problem that might damage the
reputation of training schools. The last problem is that the market is
still not mature enough and industry structure keeps a rapid changing.
Without related laws and regulations, the industry entry barrier is
quite low and thousands of small training schools flooded into this
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market. Consequently, most of these training schools do not have the
capability of innovation of teaching method and materials. The
exaggerated advertising is also becoming very popular in English
training industry.
To deal with these problems, a few suggestions will be given for the
China’s English training industry’s development and investors who
plan to establish new training schools. For the development of the
whole industry, government would have to issue related laws from the
following two aspects to regulated and protect the long-term profits of
English training industry. The first response should be to make a
higher entry barrier. Both facilities and teachers’ qualification should
be examined carefully before operating license was given. In addition,
how
to
eliminate
training
schools’
activities
of
exaggerated
advertising must be considered.
For most investors who want to run English training schools
successfully, the first thing should be making a clear understanding of
the business environment and its own capabilities. It is because that
the research in this dissertation has indicated that every successful
English training school must have a correct competitive strategy on
the basis of careful environment analysis. In addition, all English
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training schools should put teaching quality and brand image building
at a very significant place. The cases of successful training schools
have proved that these two factors have a positive relationship with
training schools’ long-term profits.
7.2 Limitations and Further Study
In researching process in China’s English training industry, due to the
limited time, financial support and knowledge scope, there are some
limitations existed. Firstly, the entire six interviews carried out in this
research were conducted via telephone, but not a face-to-face way.
Obviously, the effect of a telephone interview might not be as good as
a face-to-face one. It is because of the lack of visual contact. Research
has shown that in face-to-face situations communication relies on
non-verbal signals and tone of voice. On the telephone, the tone and
rhythm of the conversation is as important as the words themselves
(European Social Fund). The second point is the size of the interviews
might be not large enough compared with the whole English training
industry. Due to the limitation of time and financial support, only four
representative English training schools and six professional or experts
were selected. It is possible that the findings of this research were
influenced by the incomplete data taken from the small sample.
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Besides, in China, it is normally quite difficult for student researcher to
have opportunities to communicate directly with senior executives of
large firms. It is also nearly impossible to obtain firms’ inner data.
That is why secondary resources played an important role in this
research. Last but not least, this paper does not think about the
question that how long will English training industry existed. Within
the context of globalization, because China is being more powerful
and playing an increasing important role in international society, the
usage of Chinese as a language has been recognized by more
foreigners. According to Chinanews.Com (2007), there were more
than 2,100 universities in over 85 countries had the Chinese language
courses in 2005. In spite of that, China’s education system is always
changing
for
the
purpose
of
improving
students’
English
communicating capability. As a result, researches on China’s English
training industry’s future may require more efforts in further study.
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Appendix
Appendix A. The Interview Questions
1.
Since 1990s, China’s domestic English trainers have achieved
great success. However, starting from 2000, the entering of some
foreign training companies has become a serious challenge. What
do you think of current English training market in China? (从 90
年代开始，国内英语培训行业已经取得了辉煌的成绩。但是从 2000 年开
始，国内英语培训行业一直面临着国外同行进军中国所带来的严峻挑战。
您如何看待当前的英语培训市场情况？)
2.
According to current market situation, China’s English training
market is still dominated by domestic brands. What do you think
are the core competences of domestic brands? (根据目前的市场情
况，国内培训品牌还是占有领先地位。您觉得国内培训品牌在中国市场的
核心竞争力体现在哪些方面？)
3.
What advantages do you think foreign English trainers have over
domestic companies in China’s market? At the same time, what
kind of problems foreign firms have that need to be improved? (您
觉得国外培训品牌在中国市场有哪些优势？又有哪些地方需要提高和改
进？)
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4.
With the maturing of the English training market, consumers’
perceptions towards English training are changing as well. What
do you think are the main changes? How should trainers adjust
their strategy so as to better meet consumer needs? (随着英语培
训市场的日益成熟，消费者对于英语培训的观念也在改变。您觉得这些改
变主要体现在哪些方面？培训公司应该如何调整公司战略来更好满足消费
者的需求？)
5.
Both China’s accession to WTO and Beijing Olympics in 2008
implicate that the connection between China and the world is
becoming closer and closer. What do you think this means for
English training industry in China? (随着中国加入 WTO，以及 2008
北京奥运会的举行，中国和世界的联系越来越紧密。您觉得这对于英语培
训行业来说，更多的意味着什么？)
6.
Currently, some foreign trainers have realized localization in
China with the purpose of cost reduction. Do you think the
domestic firms can still maintain their low-cost advantage? How?
(现在国外培训机构通过本地化等手段来降低其成本。您觉得国内培训机构
还能保持其低成本优势么？又如何保持呢？)
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7.
In your opinion, should trainers focus on cost leadership or
differentiation in current English training market? (您觉得现阶段中
国英语培训市场，保持低成本和做特色产品哪一个更重要？)
8.
Would you please give some suggestions to English training
companies on how to keep competitive in China’s market? (您能
否给几点建议，关于如何保持培训机构的竞争力？)
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Appendix B. The List of Interviewees
David, Cui
Male
Chief Inspector of English First (Shanghai)
Geng
Haochuan
Male
Branch
Manager
(Shenzhen)
Gao Zhe
Male
Market Director of New Oriental (Beijing)
Sun Yingqian
Female
Manager of Amio: A Middle-Size English
Training School (Qingdao)
Yang Fan
Male
Manager of Global IELTS English Training
School (Beijing)
Mr. Wang
Male
Famous Marketing Expert,
China Marketing Association
110
of
New
Oriental
Member
of