Challenges and Opportunities in Brazil's Education Sector
1. Essay: What do you believe are the greatest challenges facing the sector or industry you would like to
specialize in at IE? What role do you hope to be able to play in this sector or industry in the medium
term?
Rodrigo Magalhães
2. List of Contents
2
I. My Background with the Education Industry
II. The Education Industry in Brazil: Quick Overview
III. Comparison of K-12 (Elementary to High School) and Post-
Secondary
IV. Challenges of Education Industry
V. Where do I Feel Like Contributing?
3. 3
My History with the Education Industry
3
Kondor Investimentos
At Kondor Investimentos I started to study companies within the Education Industry,
but with a narrow focus, mostly comparing short term financials of post-secondary
companies to look for trading opportunities
2011-2012
Kondor Equities
At Kondor Equities, where a much deeper researching focus prevailed, I started to
become fascinated with Education. It is an industry that combines a noble purpose
with excellent financial fundamentals. Besides, it is still on its early stages, and
presents enormous challenges, like improving overall quality at affordable prices (for
both basic and post-secondary education)
2013-2014
Consultancy in Education
Together with an acquainted with a long track-record as senior executive and board
member of large education companies, started to provide consultancy to a multi-
national american company interested in starting businesses in Brazil. The idea is
that, if things materialize, I will occupy a leading position in the company’s new
branch in Brazil
2015 -
4. List of Contents
4
I. My Background with the Education Industry
II. The Education Industry in Brazil: Quick Overview
III. Comparison of K-12 (Elementary to High School) and Post-
Secondary
IV. Challenges of Education Industry
V. Where do I Feel Like Contributing?
5. 5
The Education Industry in Brazil: Quick Overview
SOURCE: Census 2013
0
10
20
30
40
50
60 53
60
4,8
16.1
13.7
8.4
9.7
7
Nº of Students (mm)
Brazil has almost 60 million students,
most on the K-12** segment
**K-12 stands for Kindergarden through 12th grade (in reference to US school system)
87% 88%
86% 84% 83%
13% 12%
14% 15% 17%
2005
2006
2007
2008
2009
2010
2011
2012
2013
Public Private
K-12 breakdown (public & private)
The Basic Education (K-12) in Brazil is experiencing
two trends:
1) A very slow decrease in total number of
students, due to demographics
2) A shift from public to private education, due
to the very low (and still deteriorating) quality
of public education
6. 6
The Education Industry in Brazil: Quick Overview
The Post-secondary segment is growing sharply
Total post-sec. Students (million)
National Education Plan Goals
3.0
4.0
4.6
5.3
5.9
6.7
7.3
0.0
2.0
4.0
6.0
8.0
2001 2003 2005 2007 2009 2011 2013
Law approved by government in 2014
ENEM* Applicants
4.2
5.2
6.2 6.5
7.8
8.7
2009 2010 2011 2012 2013 2014
*ENEM is an exam taken by students with intention to apply
for University admission
2013 Goals to 2020
Net Enrollment Rate 15,10% 33,00%
Gross Enrollmeent Rate 28,70% 50,00%
Postsecondary Students 7,5 million 12 million
Nº of contracts signed under governamental
financing programs (000)
33 76
154
376
560
731
0
200
400
600
800
2009 2010 2011 2012 2013 2014
7. List of Contents
7
I. My Background with the Education Industry
II. The Education Industry in Brazil: Quick Overview
III. Comparison of K-12 (Elementary to High School) and Post-
Secondary
IV. Challenges of Education Industry
V. Where do I Feel Like Contributing?
8. 8
Comparison: K-12 and Post-Secondary
Concentration
Private K-12 (Elementary to High
School)
Private Post-Secondary EducationIndustry Characteristic
Very Fragmented
Regulation LOW
Deliquency Rates LOW
Pricing Power HIGH
Public Financing NONE
Tuition Growth Above Inflation YES
Private Increasing Share over Public YES
Capital Intensive LOW/MEDIUM
Undergoing Consolidation
HIGH
HIGH
YES for High End
YES
MEDIUM/HIGH
Recently YES for
Low End*
*As we will see later, easily available public financing is causing increase in tuition prices above inflation for low income players
YES for High End NO for Low End
NO for High End YES for Low End
9. List of Contents
9
I. My Background with the Education Industry
II. The Education Industry in Brazil: Quick Overview
III. Comparison of K-12 (Elementary to High School) and Post-
Secondary
IV. Challenges of Education Industry
V. Where do I Feel Like Contributing?
10. 10
Challenges
K-12 (Elementary to High School)
Challenges ahead for the two industries
Post-Secondary Education
THE CHALLENGE:
Prices are soaring way above
inflation, with little advance in
learning outcomes
TECHNOLOGY:
BETTER LEARNING
OUTCOMES:
- Individualization of
learning (Big Data)
- Blended Learning
- More engagement
from Student
- Treating knowledge
as a constant and
time as a variable
- Teachers have more
free time
COSTS:
- Changes in mindset:
flexible hours, flexible
classroom sizes,
flexible curriculums
(different kids have
different curriculums)
- Higher
students/teacher
ratio
- Higher scalability
THE CHALLENGE:
Efficiently allocating public money
Public
Universities:
- Attended
mostly by
students from
wealthy families
who could afford
private
institutions.
- Have high cost
per student
ratio
→ Highly
inefficient use of
public resources
Private Universities:
Niche
players:
High
tuitions for
wealthy
individuals
No public
money
involved
Mass
players:
Many
students
financed
with public
money
MUST BE
GOOD AND
EFFICIENT!
(Next Slide)
Possible Solution
11. 11
The Education Industry in Brazil
Some thoughts on the post-secondary challenge
Brazil is on the very early stage of the for-profit post-secondary industry:
- It was only in 1996 that legislation allowed post-secondary universities to be for-profit
- It was only from 2010 onwards that government backed students-loan program took off
However, Brazil is already witnessing a similar trend than the one observed in the U.S.A
- Easy credit lines are causing large increases in tuition prices
- Students are getting loaded with high debt and degrees with low employability
How can we avoid going over the same path? Making sure for-profit mass universities actually
educate people (i.e people are able to be more productive after graduating)
- Create a solid mechanism to measure value added during university
- Rank (publicly) the courses or universities that add more value and make financing
more easily available to them
- Create incentives for students to enroll in the more effective institutions, thus punishing
(through less financing) universities that charge high tuitions and/or provide litlle value
to students
- Eliminate 100% financing to increase price sensitivity in students
- Channel funding for carrers the country needs more (i.e: Engineering)
12. 12
The Education Industry in Brazil
Some thoughts on the K-12 challenge
Schools still have an Industrial Age mindset: Examples: a) Short times (periods) set apart by sound
signals b) classrooms in standardized structures for absorption of content c) very early in the
morning start, even if detrimental to ability of concentration of young people
Some apparently immutable things at school might in fact change: a)Why kids, just because they
are the same age, have to be at the same class in all different disciplines? Shoudn’t they be
allocated according to their learning point in each different discipline? b) Do all kids need to go
to school every day? c) Should all the kids have the same curriculum lenght for every subject?
All this new things may completely change the economics of the business!
Technology can allow schools to escalate: “thanks to the use of technology and personalized
lessons plans, we can offer each individual in a room of 50 students a much better learning
experience than most schools can with classes of 20”1
Potential Issues: a) Connectivity b)Increased Costs c)Teacher’s ability with technology
This is not a new think...
→ American Philosopher John Dewey in 1915 : “The traditional school forces youngsters into a
restricted area, a melancholic silence, a forced atitude of mind and body”
1: Summit Schools’ principal: SOURCE: GERA letter Nº 1 (http://www.geraventure.com.br/en/letters/files/1-blended-learning.pdf)
13. List of Contents
13
I. My Background with the Education Industry
II. The Education Industry in Brazil: Quick Overview
III. Comparison of K-12 (Elementary to High School) and Post-
Secondary
IV. Challenges of Education Industry
V. Where do I Feel Like Contributing?
14. 14
Where and How Do I Feel Like Contributing?
Post-SecondaryIndustryBasicEducationIndustry
Parents too conservative. They will pay whatever it costs and use
the best, but from proven methods only
It is in this segment, that I see room for new experiences. Dream
of creating an affordable great school, through scale, best
practices, experiementation with technologies. Is this segment,
price matters. Must have a good value proposal.
Enormous room for improvement (due to very low base). That
should come from basic efficiency gains in public management
and less prejudicy from government towards private initiaves
Unreplicable public universities or niche for-profit universities:
Private-pay model. Students pay expensive prices and get quality
education. Fair deal, but only viable to small part of brazilians
Challenge lies in lower income level: Brazil is still learning.
Entering a new industry fascinates me.
There is huge demand, that must be met with quality. Public
financing plays a key role, and public money must be intelligently
channelled.
A solid regulation framework is still to be created
e
15. 15
Where and How Do I Feel Like Contributing?
Join a top performer post-secondary institution in Brazil
My Goals
- Be able to have an active role in the development of a sound framework for public financing
- Help making my Institution a top performer, able to provide good quality education for middle
class students
- Develop a sustainable private student-financing system, still nonexistent in Brazil
My Current Project
How can I.E help me? By Providing...
- Knowing international experiences
- Contact with out of the box ideas
- Innovative thinking
- Networking
- Entreprenership
- General Managament
- Leadership Skills
- Behavioral Fitness
required skillsvaluable knowleadge andThe Mindset, together with
- Strategy
- Operations
- Project Management Skills
- Actual Implementation Strategy
Editor's Notes
Aqui eu quero mostrar the evolution of the process in which Education entered my life.
The combination of an interesting business with a strong human touch and still in its early stages captured me.
Things started as an analyst, delving deeper and deeper in the sector, first in its economics, then its history, value chain, stakeholders, and value creation process.
After I left Kondor, it was clear to me where I wanted to go and since January 2015 I am actually working exclusively with education, but still in a risky venture, that may or may not turn into my entry door in a leading company and in an interesting position.
So, we are talking about a vast Market, with 60 millin students, 53 in basic education and 7 million in post-secondary.
IN the basic education, we are talking about a huge majority of poor kids that have to go to public schools. These schools are of very low and getting worse in quality, so those parentes who are able to afford private schools transfer their kids.
So, despite a demographic trend of less youngsters in school age, private students are increasing, and as expected, private Market is answering with new supply.
The post-secondary education in Brazil is booming, since governement has recently (15 years) started to relly on private institutions to play a revelant role. In addition, a new and very bold financing program made it possible to many middle class new adults to afford a post secondary degree.
This new booming environment made it possible to private players to become traded in the stcok Market, accelerated Merger and acquisitions, to sum up, created na efeverescent new Market.
Before we see the challenges that basic and post secondary markets face in the booming momen that both are going through I thught it was a good idea to make, in a very summarized way, make some remarks abut them:
First and perhaps most remarking difference is the fragmentation: While the K-12 business is played by hundreds of schools from 20 to 3000 students, that just now is staarting to see some investors trying acquiring diferente schools to form a chain, post secondary is formed by few players that can have Thousand of students. The Market leader in Brazil, Kroton, has 1 million students, considering oon campus and distancce learning a 15% mkt share (no school come close to that) . While the scale gains of having several basic schools is still to be proven, in universities, the advantages of scale are clear.
So, here we get to the point, the challenges facing the future of both, K-12 and post-secondary education:
For K-12, we have one worldwide common challenge. We are stuck for 200 years in the same model. We just dont evolve. In Brazil, we have na additional issue, costs. Private schools have constantly had costs increases abov inflation, and this goes straight to tuition, sine parents will do whatever they can to provide their kids with good education. But this must eventually stop. And I point out here that technology may be the tool for achieving that.
In the post secondary industry, the challenge is in the eficiente allocation of public capital. Being such a new industry, as mentioned, we are still learning what Works, and what doesnt. Relying on private players to increase enrollment in post-secondary was clearly a good decision, since before that, we were stuck in a model of public universities offering very few seats that were filled by wealthy students, who had had a good basic education and could pass through the highly competitive process, creating a waste of public money and human capital.
But the private players focused on low income also face the issue of providing good education at accessible prices. Since (as is common in the whole world) many students need public financing to be able to afford 4 or 5 years of education, if these universities do not provide good education, we will be merely donating tax payers money to univeristy owners without reapong any social benefits in the long run.
So, here we sumarize and presente some possible solutions in the regulatory front to ammend the problem
And here we go a bit further on how technoloy can effectively change education for the better. One must however say that it is taking much longer than expected...we highlith some potental reasons for that
And here I make a point that in both basic and post-secondary education, the challenges lie in the lower income, where you have more students.
In the K-12 basic education, despite habving the same problem, the price increase is not such na issue, since parentes can afford to pay higher prices to have whatever Works. Middle class parentes however, are trying to escape from public schools, but have limited budgets.
SO, here I mention my current plan. If my current venture worrks, I will join a leading mass education player in Brazil. This will allow me to attack the issue of efficiently allocating public money in a eficiente manner, through a combination of accessible prices and good education.
And I outline wat I expect from I.E
