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Why Chinese education companies are chasing US teachers

Forbes logo Forbes 9/2/2017 Yue Wang, Forbes Staff

© Pupils do exercise in a classroom in China’s Hebei province.(Photo by VCG via Getty Images)

If there is one thing Jing Jing thinks her 4-year-old daughter Jenny should start learning early on, it would be English. The 31-year-old college professor, who lives in Beijing, wants Jenny to speak the language just like a native, so she can become a global-minded person and have more job opportunities when she grows up.

To that end, Jing doesn’t want just any English teacher for her daughter. She pays 5,980 yuan ($750) for a total of 48 online courses where a certified U.S.-based instructor tunes in through live video to remotely teach Jenny every week.

“Learning from a native speaker will give Jenny the right accent,” Jing told Forbes. “The younger she starts the better, because she will accept English as a normal way of communication.”

In China, there are tens of millions of eager parents like Jing. Unsatisfied with Chinese classrooms’ stilted teaching style – and armed with the belief that good English skills are a necessity in the increasingly global China – they want to connect directly with teachers from the U.S. The demand has given birth to a multi-billion dollar online education market, where Chinese startups scour the U.S. and Canada to bring local language curriculums and instructors to their home country via live streaming technology.

Read More: This Former PhD Student From China Turned A Tutoring Chain Into A Billion Dollar Fortune

The process works like web conferencing. During lessons, which usually last for 30 minutes, students sit in front of their computers and watch their teachers speak while they’re halfway across the world. The tutors will go through teaching materials designed by their Chinese employers, who often borrow from U.S. elementary school curriculums, while using quite a lot of hand gestures to explain basic English to Chinese children mostly aged between 5 and 12.

Last year, the market for online language lessons in China stood at 30 billion yuan ($4.5 billion), according to consultancy firm iResearch. Between now and 2019, it is projected to grow more than 20% a year to reach 52 billion yuan ($7.8 billion), when the country’s entire online education sector will be valued at 270 billion yuan ($41 billion).

“Chinese people, especially those born after 1980, grew up with much more exposure to foreign culture,” said Zhang Yiwei, an analyst with consultancy firm JMDedu. “When they become parents, they want their children to speak English very, very fluently.”

Related video: US-style teaching for Chinese students? (provided by CNBC)

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Investors are taking note. In August, VIPKid, a Beijing-based online English tutoring startup, raised $200 million from prominent investors including Chinese gaming and social media giant Tencent Holdings and investment firm Sequoia Capital China. The firm, which says it expects to generate 5 billion yuan ($750 million) in revenue this year, is said to be valued at $1.5 billion, four years after it was founded in 2013. China Online Education Group, also known as 51 Talk, went public in New York last year. And iTutorGroup was valued at $1 billion in a 2015 funding round that included Goldman Sachs and Singapore sovereign wealth fund GIC.

“The market’s growth rate totally exceeded our expectation,” said Jack Zheng, an investor at Beijing-based venture firm Zhen Fund, which backs both VIPKid and 51 Talk. “Three years ago, companies offering such live courses made no more than $100 million in revenue. Now the top 20 firms can get like $2 billion.”

Another driving factor for this industry is China’s uneven education landscape, according to Zheng. After years of rapid urbanization, the best education resources are concentrated in a few cities, resulting in the rest of the country increasingly turning to online alternatives.

According to Stanford University’s Rural Education Action Program, 84% of high school graduates in Shanghai go to college. This compares with less than 5% in the country’s rural areas.

In the meantime, Americans are embracing such teaching opportunities, attracted by good payments that are better than what an average teacher would earn in the U.S. According to a 2016 report from the Organization for Economic Co-operation and Development, the U.S. ranks 11th out of 13 member countries in high school teacher salaries – behind countries like France, New Zealand, Estonia and Chile.

Take Mikell Brown, a stay-at-home mom based in Utah, as an example. Brown, who has been teaching at VIPKid for seven months, said she learned about the opportunity through a friend. Now, she teaches 2.5 hours every day and gets paid $20 per hour. The only downside is adjusting to the time difference between U.S. and China, meaning she has to wake up at 5 a.m. to greet her Chinese students.

“It has given me purpose,” Brown told Forbes. “I feel like I have these Chinese babies and I love them.”

© Mikell Brown and her husband. Both are VIPKid teachers.

Kira Pipkin, who works at a local bank in North Carolina, agrees. Pipkin said she came to know VIPKid through an advertisement on Facebook, and her past four months with the company have paid off financially.

“I absolutely love it,” she told Forbes. “It allowed me personally to pay off debt and provided an amazing experience.”

But for companies like VIPKid, it isn’t all smooth sailing. Competition, for example, will get much tougher, as more companies jump on the e-education bandwagon to provide similar services, analysts said.

That means that, for now, no one is making money from connecting American teachers with Chinese students, as companies are spending heavily on marketing to raise brand awareness. Sales and marketing costs, for example, took up 60% of 51 Talk’s operating costs in 2016, when it recorded losses of $70 million, according to a company filing.

“The market is still at its early stage,” said Liu Jing, associate dean at the Cheung Kong Graduate School of Business in Beijing, “In the future companies will compete for teachers, and their payments will definitely be driven up.”

Read More: Will China’s Educational System Strangle Economic Growth?

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