Cryptocurrency in the news: #11

Continuing from where I left off in May, some interesting articles that were sent to me and that I bumped into:

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I may have found the Drudge formula and Raymond Nize

Ray Nize and the Marine

Ray Nize, aka Robert Wenzel (left) and an anonymous Marine

[Note: scroll down to Part IV for sock-puppets and identities]

Yesterday I may have been given a SEO scheme purportedly devised by Robert Wenzel (just one alias, see bottom for other possible names) that supposedly allows its users to receive direct hyperlinks from sites like DrudgeReport.com.  The scheme remains unharmed and no hacking took place to retrieve it.

I would link to the website maintained by Robert called EconomicPolicyJournal.com (warning: IP malware) but users will inadvertently copy the entire contents of the website.  Modern browsers such as IE, Firefox, Safari and Opera — by default — copy the content of websites that are visited into a temporary directory.  This action instantly reproduces the exact CSS and HTML code on a given site and can be done without the express written permission of a site proprietor.  Yet the original site remains unscathed, all of the information and data — the digitized mathematical patterns — remain unharmed.

Anachronistically, Robert is under the impression that information is scarce.  Here is an example to illustrate that information is not scarce.

If you are reading this, please follow this short guide:

  • Step 1: Open up a copy of a word processor (MS Word, Google Docs, LibreWriter)
  • Step 2: Go to the homepage of your favorite website (TheOnion.com of course)
  • Step 3: Press Crtl – A   (this will highlight everything on this site)
  • Step 4: Press Crtl – C  (this will temporarily copy all of this content on to your computer clipboard)
  • Step 5: Go back to your word processor
  • Step 6: Press Crtl – V  (this will paste everything that was highlighted into the word document)

If you follow these instructions you will have successfully reproduced all information bit-by-bit without the original site losing anything.  The integrity of the original data remains disabused on the host servers of TheOnion.

Throughout each day, artificial intelligent scripts called “robots” or “spiders” continually scour the internet scanning, copying and pasting content — yet the sites they visit never are at a loss of property.  The reason why is information is not scarce in the economic sense (see Scarcity, Rivalrous and Against Intellectual Property).  Thus when robots and spiders created by Google, Yahoo, Bing and even Baidu to catalog the internet pore through your site, they are not “stealing” anything or acting as information pirates (nothing is stolen as the original remains unperturbed) but rather they are merely reproducing the exact data structures as they appear.  And thus sites that Google or Bing scan, are not deprived of the original data.  Or in layman’s parlance: no data or information is harmed in the making of this post.

Yet time and again (I would link to his sites but do not want users to inadvertently, accidentally download other IP malware) Robert contends that some kind of theft is taking place.  In other words, he contends that users have somehow physically taken something and he thus has the right to excise control over the patterns of data on your drives and ultimately the copies in your brain.  You see, taken to the logical extreme, to prevent a user from reproducing data you would need some kind of thought police, some kind of enforcement program to bore inside each brain, to prevent the various neurons, axons and dendrils from copying and storing the information in the lobes (a scenario that Charles Stross explores in his novels).  Or in otherwords, IP itself is a form of steampunk malware — imagined in the Age of Sail to protect existing business models and special interests by granting intellectual monopolies which would not exist in a free-market and are only enforceable via coercion (e.g., the state).

Part II

A friend of a friend of mine recently sent me some troubling information (that has been reproduced perfectly bit-by-bit — without any harm or destruction done to the original copy).  According to this contact, Robert Wenzel may have massaged part of a talk he gave at the Ludwig von Mises Institute.

Below is a transcript from Wenzel’s talk at the LVMI last month.  Here is what Wenzel said in the speech (see 28 minutes in) — An Examination of Key Factors in the Collapse of the Soviet Union:

“If a peasant handed over his surplus grain, the state would get what it wanted. Any who did not were labelled ‘kulaks’ and, therefore, were ‘enemies of the state’ and suitably punished – along with their grain being confiscated.

“He ordered ‘the destruction of kulaks as a class.’ . . . No one was quite sure, though, what was a ‘kulak’ and no one wanted to ask Stalin. . . .

“The kulaks were divided into three groups. . . [These were the groups]: those to be killed immediately, those to be sent to prison and those to be deported to Siberia or Russian Asia. The third category alone consisted of about 150,000 households, one million people. Stalin believed that such a brutal policy would persuade others in agricultural regions to accept the rule of Moscow and that resistance would end. Stalin wrote to [his aides] “We must break the back of the peasantry.”

Compare Wenzel’s passage to this excerpt from an online encyclopedia article, The Great Famine:

“If a peasant handed over his surplus grain, the state would get what it wanted. Any who did not were labelled ‘kulaks’ and, therefore, were ‘enemies of the state’ and suitably punished – along with their grain being confiscated.

“He ordered ‘the destruction of the kulaks as a class.’ No one was quite sure as to what determined a ‘kulak’ but no one in Moscow was willing to raise this issue with Stalin.

“The kulaks were divided into three groups. . . : those to be killed immediately, those to be sent to prison and those to be deported to Siberia or Russian Asia. The third category alone consisted of about 150,000 households, one million people. Stalin believed that such a brutal policy would persuade others in agricultural regions to accept the rule of Moscow and that resistance would end. Stalin wrote to Molotov, “We must break the back of the peasantry.”

Yet Robert holds firm positions on plagiarism elsewhere.  This next statement is copied and pasted, without the destruction or harm of the original information from Robert regarding Stefan Molyneux:

“That a plagiarist like Molyneux can simply grab another person’s writing and give the impression that it is his original writing, in my view, it is a sleazy move and theft.”

While his whole talk is long block quotes from cited sources, why did he lift this without attribution from an encyclopedia narrative?  Why is copying and reproducing okay to do in that circumstance, but not in others (e.g., copying a music file or movie)?

A similar instance occurred during a recent debate between Wenzel and a patent attorney in which Wenzel restated the definition of multivariable calculus word for word, without citing the source (Wikipedia).

Part III

A year ago, Robert claimed he spoke “at the invitation of the New York Federal Reserve Bank.”  At the time he claimed to have read these prepared marks at the NY Fed.  Yet the stark reality is that he only spoke to two other people at the Fed, including the acquaintance who invited him to lunch.  He has thus misled everyone by making it seem it was some kind of keynote speech:

This was not a “speech” at the in sense that Robert Wenzel was holding forth in front of large room full of Federal Reserve policy makers and analysts. I spoke with Richard Peach at the New York Fed: the “speech” was just Robert Wenzel having lunch in the dining room with two people — Richard Peach and one colleague — during which Wenzel read his speech to the two of them over lunch. This was not Netanyahu at the UN.

Wenzel’s claim is misleading, it is disingenuous.  I frequently walk nearby various CPC (Communist Party of China) buildings throughout the year.  I have even talked about free-market ideas with a couple of my Chinese friends near those buildings.  Yet it would be false of me to claim that I “spoke” at the CPC or that I gave a speech to Party officials.

Which brings us back to the Drudge formula.  Like all SEO, there is no ironclad mathematical formula to get on Drudge.  Hyperbolic headlines, purported insider scoops, specific keywords and posting first — are all part and parcel to the SEO/SEM industry.  That is how link-baiting sites like Business Insider and HuffingtonPost work.  Yet no matter who buys/copies/transfers the purported formula, the original remains as unharmed as the day it was first assimilated — no information was destroyed or stolen.  However Robert, like all people who communicate and convey information, must now compete with others who have observed and procured a non-scarce entity.

Part IV – unmasking the sock puppet

So who is this Robert Wenzel character (rw@economicpolicyjournal.com)?

  • There used to be a site called EconomicPolicyReview.com (2007-2008) run by Raymond Salter (rs@economicpolicyreview.com).  Here is a 2007 copy from TheWayBackMachine.  He wrote near identical copy to EPJ today.  The Phil Gramm post on EPJ (careful IP!) is identical to the one on EPR (same date even).  Here is a SS.
  • Prior to that was another similar site called EconomicsDaily run by Raymond Fuller (raymond.fuller@economicsdaily.com), here is a 2005 copy from TheWayBackMachine.  During this time, Fuller even was involved in a spat with Gene Callahan (who used to be affiliated with the LVMI).  Fuller also wrote similar copy and content as EPJ today.
  • From 2002-2005 another site, Menrohm.com was maintained by Robert Menrhom (rm@menrohm.com), here is a 2005 copy which discusses some of the same topics (Freakonomics) and quoting libertarians like Justin Raimondo.
  • In 2006 a Peter Stojan piece (SS) at LRC cites Raymond Keller (not Fuller) as a source of commentary.  Stojan’s company (montreauxadvisors.com) does not exist.  A 2006 copy of Raymond Keller’s site is up on TheWayBackMachine and Keller’s Blogger profile is expired but turns into (SS) Raymond Salter’s.  Keller also wrote about economics (Freakonomics) and talks about his letters to the late LRC publisher, Burt Blumert.

While it would be fallacious to connect those dots (guilt by association) consider the case of Los Angeles resident Raymond Nize, owner of Beacon Hill West and Nize Holdings.

In 2006 there was press release issued (SS) on behalf of Raymond Nize a supposed expert in economic forecasting who would be speaking at a World Economics Forecast Conference.  The conference did not exist nor was the book by the title that Nize supposedly wrote ever published (“Understanding Macro-Economic Forecasting: A guide for Business Executives and Investors”).  This same Nize may be the same poster at LVMI (see here and here and here).  If it is the same Nize (nize@nizenotes.com), then TheWayBackMachine also has a 2006 copy of yet another Blogger site that once again is written in similar style/copy as EPJ (e.g., macro economics).  Nize also commented on this post (SS) about re-finance mortgages in California but later removed his last name.  Nize’s other Blogger profile (SS) leads to a dead end pointing to a non-existent site about the 213 area code of LA — a common theme through many of these domains and aliases is they are usually affiliated with LA.  Looking through Technorati a site originally dedicated to indexing and searching blogs), Nizenotes is claimed (SS) by a mont99.  One mont99 (located in LA — room730@gmail.com) also has a profile (SS) at LibraryThing that includes favorites along the same genres/topics of all the other blogs thus far (libertarianism/Austrianism).  (Note: this mont99 is probably a different room730.)

All of these sites have very similar look, feel and commentary to EconomicPolicyJournal.com and a few posts that are on all of the sites (with small changes) plus EPR also shows history going back to 2002 while it was really created in 2007.  It is very likely that the same person is behind all of the Blogger sites but nothing besides the spartan aesthetic looks, content genre (all libertarian/econ), content layout (short blurbs/block quotes) and email addresses (similar style) confirms that.  EPR seem to have been picked up in 2009 by other people and then dropped again, the domain is unowned at the moment.

The smoking gun however, is a lawsuit filed (SS) on January 14, 2008 where Ray was named as a defendant in a case filed in California: La Jolla Cove Investors, Inc vs Stomar Partners, Inc, Jim Miller, Raymond Nize and Does 1-10 (case no: 37-2007-000642640CU-BC-CTL).  While I cannot weigh on the merits of the case (the plaintiff’s site is just one side of things… install Quicktime/IE for his 2nd monologue here), the plaintiff was apparently friends with Ray and his ex-gf.  Here is a picture (SS) of Ray with the plaintiff (also seen at the top of this post).  Compare that with his alias (Robert Wenzel’s) video from the LVMI speech last month (see side-by-side comparison at the bottom).  Furthermore, if you do a WhoIs database search on EconomicPolicyJournal.com, it is registered to EPJ Holdings — to a Los Angeles address (5042 Wilshire Blvd) and the registered phone number (213-2593-55XX) is an area code for LA as well (SS).

Possible known aliases:

  • Raymond Nize
  • Raymond Sabat
  • Robert Menrohm
  • Raymond Fuller
  • Raymond Keller
  • Peter Stojan
  • Raymond Salter
  • Robert Wenzel
  • Robert Wallach (see update 1)
  • Raymond Walkosz (see update 3)
  • Paul Trombley

According to a friend of a friend who tipped me off on this, he suspects that there are many more aliases out there.  I think it is more likely than not that Robert Wenzel is not his original name and probably even not his actual current name.  And it seems like EPJ was his biggest success story so he stuck with that name because of that.  Furthermore, it is hard to verify his claims of working at a hedge fund or in Wall Street itself let alone corroborate his purported predictions of booms and busts like the 2008 financial crash when he seems to have a history of backdating posts.

And while I personally have no qualms with people reinventing themselves or even leading multiple lives this entire escapade is beginning to look more and more like the Libertarian Girl hoax (see here and here) with a dash of bravado from Catch Me If You Can, a dab of whodunnit from The Usual Suspects and a smattering of interconnected cast members from Cloud Atlas.

Is Robert Wenzel/Raymond Nize the modern-day Keyser Söze?  Or is he a mere internet sockpuppet?

Update 1: another source just emailed the following information, there are two more similar sites.  EconomicBriefing.com (copy at TWBM and SS) and EconomicsBriefing.com (copy at TWBM and SS). The last one was active 2005 and 2007, with two different authors.  All linked to the alias, Raymond Sabat and a new one, Robert Wallach (rw@economicsbriefing.com).  The latter has the same Blogger layout and the former is an already known alias.  Both cover the same genre/topics and writing format as the other Wenzel/Nize aliases.

Update 2: Over the night (or during the day depending on your time zone) there have been a few other sightings/uncoverings.  It turns out a few years ago Bob Murphy accidentally uncovered one alias (Raymond Sabat) and didn’t know it at the time.  At the time, Wenzel/Nize outs the same persona (SS), calling it a “pen name” that he used due to “other business commitments.”  Another Raymond Nize sighting was discovered in 2006 at Econlib, in a comment discussing LA.  Robert Wallach (the new alias mentioned in the first update) was found to have published a piece over LRC (SS).

Update 3: Two weeks later a new source sent me new information regarding another Wenzel/Nize alias that was involved in penny stock scheme of a company called IVAY (Investigative Services Agencies).   At one point IVAY promoters used a notorious “pump & dump” message board (Investor Hub) — which was heavily active during February – March of 2007 during a price rise of over 100 percent .07 to .26 (see several hundred posts here).  Users stevo51 and creede claims to have spoken to Ray several times during this period: 1 2 3 4.  This company produced a number of PR notices claiming that “we [IVAY] anticipate hiring more than 400 new employees and a multimillion-dollar increase in revenues over the term of this contract.”  PR news source: 1 2 3  Keep in mind the company had $6,425 in cash as of December 31, 2006. The stock then got suspended March 8, 2007 as part of an SEC crackdown of 35 companies that were accused of manipulation and failing to disclose material information to the public.  According to the Rip Off Report complaint a police report was filed May 5 because of theft.  This IVAY firm involves yet another Nize/Wenzel alias, named Raymond Walkosz (rw@stomarpartners.com) who was the “president and founder of the financial public relations and investor relations firm Stomar Partners. Walkosz has represented companies trading on the American Stock Exchange, NASDAQ, the OTC Bulletin Board and the Pink Sheets.”  According to DeletedDomains (which tracks domain expirations), stomarpartners.com was vacated on March 10, 2006 and is empty today.   This same IVAY issued a press release listing 100 VIPs invited to a Beverly Hills gala; Raymond Nize was a named guest.  This same Nize may be the creator of an inactive LinkedIn profile (SS) which lists his residence as LA and industry as entertainment.  In addition, the case noted above (# 37-2007-00064264-CU-BC-CT), the outcome was judgment by default — the plantiff was awarded $95,439.95 damages and $10,809.55 prejudgment interest at 9.75%.  This case involved a stock sale agreement between the parties (Nize/Wenzel was a defendant).  In 2005, this same Raymond Walkosz alias published at least one more PR release, this time promoting another seemingly phantom company called Worldwide Manufacturing USA (website) that is another penny stock (OTCBB:WMFG), yet it does not seem as if the company produces or sold anything and its CEO, Jimmy Wang, has been thus far unlocatable.   See more details at the Acceleritas thread and at the Mises community forum.

Update 4: This blog has received trollish comments from a “Paul Trombley” (paul.trombley@yahoo.com).  A bit of cursory googling reveals that this same “Paul” has similar interests as Nize/Wenzel and even quotes Nize/Wenzel in various threads on sites like Mises.org.  See this post longer post here.

Robert Wenzel, Ray Nize, Marine

Robert Wenzel, Ray Nize (middle), and an anonymous Marine

 

 

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Shanghai BarCamp 2013

About a week ago I mentioned a Shanghai geek/tech event called BarCamp.  Unfortunately I was unable to attend, but a good friend of mine, Veli-Antti Ruismäki, was able to.  Here are some of this thoughts he emailed me:

I attended the Shanghai BarCamp on March 23 at the Hult Business School. A day of exhilarating topics ranging from agile project management to decision theory and negotiating tactics to gamification and 3d-printing meant I walked out with a ton of new ideas and refreshed views on things.  The event boasted 40+ topics so there was sure to be something for everyone. A must-go when they organize it again next fall.   Maybe I’ll even present something myself next time.

Have you attended any similar events or expos on the mainland recently?   Send me a message and share it with us.

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Self-publishing original content, academia, freebies and SEO

Three related questions — and some long answers — that may be of use to aspiring writers globally.

Julia on FB writes,

I wondered, of course, out of selfish reasons — how did you do it? Seriously — if I wanted to publish a book, what would I need to do? Do you have any advice for a novice writer?  I am becoming your number 1 un-official fan… or a groupie, if that’s allowed.

Groupies are more than welcome!  Perhaps one day there will even be roadies…

As far as the self-publication route and things to consider, the short and simple answer is compare Amazon’s KDP program, Barnes & Noble’s PubIt! program and Apple’s iBook program.  For cover art and illustrations you can hire some freelancer at Fiverr.  Finding an editor can be tricky but a few google searches could help narrow the options down.  Then most importantly: create fresh, original content and find your own voice (more on that below).  The longer Ned Flanders answer involves tying this in to a conversation I had a month ago with a French friend of mine who just finished defending his dissertation in physics.

CV from Paris writes,

Hi Tim, I’m starting to explore ways to publish my PhD, and I am not sure how to proceed. Since you are also publishing books, I would like to ask you some advice on the possible plans I have in mind. The desired outcomes are:

(1) Publish my PhD as it will be after the defense, at Vrije Universiteit Press (VUB) Press.
(2) Publish my PhD as it will be after the defense, or slightly improved with Springer.
(3) Publish my PhD as a popular book, which requires some rewriting to make it more accessible and concise.
(4) Publish both my PhD as it will be with options (1) or (2); and then make a more popular version (3).

What do you think? What would you advice? Do you see other options?

TL: DR

The too long, didn’t read response to CV is: because business-related content describes dynamic actors (e.g., consumers), in order to stay relevant content creators will probably need to publish and update more frequently than their counterparts in the hard sciences.

I had 3 or 4 professors in college who jokingly noted that the content of many science textbooks in nearly every classroom globally were out of date.  That is to say, because of the lengthy publication process (e.g., drafting manuscript, proofing, submitting to press, copy editing, etc.) that as cutting-edge as the content may be, it will inevitably take a couple years to reach the end-user, the student.1 This is not necessarily a priori, a bad phenomenon, at least not in the sciences.  For example, last week the team managing the Planck spacecraft (which is currently hanging out in L2 orbit) announced that the Universe is about 80 million years older than previous estimates.  This more refined date, while invariably helpful to the astronomical community is probably not a game changing discovery that nullifies the value of current textbooks (that is what standard deviations and sigma’s [σ] are all about).  Similarly most math books are still useful even if they do not include the latest calculation of Pi (π) from Shigeru Kondo.  For more commentary about this, be sure to check out In Defense of Teaching “Outdated” Material by Brett Lunceford.

On the other hand, business-related topics are inherently not scientific (human preferences change, laws of physics do not).  For example, gravity does not change due to seasonal differences in San Diego yet business models must evolve with economic trends and subjective tastes as well as take into account the dynamic impact from season and climate (e.g., when and where to sell winter clothes or advertise the upcoming spring lineup).  Because prices of supply and demand are effected by subjectivity and intertemporal choices (that is, valuation changes based on different points in time), certain business models may not work in other regions of the world (like the Barbie versus Hello Kitty example in Chapter 7).

Thus, I would argue that while general principles of marketing and management found in a standard college textbook may be applicable to many business operations (like conducting a SWOT analysis or how to motivate employees), other academic literature used in business schools have an increased diminishing utility due to the ever changing business conditions of a globalized world.  For instance, some consumer behavior generalizations made prior to 2004 are no longer useful or applicable in an always-on smartphone-filled social networked world filled with groupbuying websites and check-in-based discounts that simply did not exist a decade ago.  And the consumer behavior landscape will become altered in the near-future once more with the proliferation of wearable products like Google Glass.

While it may be useful to know how consumer spending changes over the long-run, for all intents and purposes those pre-2004 academic passages have become intellectual deadweight and probably do not need to be studied in-depth by the average MBA student (otherwise entrepreneurs would spend all their time studying the entirety of the past instead of creating the future).  Of course there is a fine line between learning from past mistakes like Dreyer’s Grand Ice Cream turnaround versus using Fannie Mae as a successful model to emulate (seriously, it was used in Good to Great).  This also raises another tangential issue: the idea that pop business books sold at bookstores which are typically written by experts with actual business experience and are therefore more practical to entrepreneurs and businesspeople versus subscribing to academic business journals which may be more abstract — which is argued at length in a ten year old AMLE journal article (which ironically is still applicable today): The End of Business Schools? Less Success Than Meets the Eye by Pfeffer and Pfong.  But this is a topic for another day.

While the academic writing and publication cycle is a different process then the world of popular media, my response to CV was as follows:

  • Do you want to work in academia?  If you plan to work in a college I recommend trying to get published in the best journal you can so that way you can improve your chances of getting tenure.
  • Do you want to eventually work at an NGO or some non-academic institute or even the private industry?  Then you would probably have to rewrite portions of each chapter to attract and satisfy that target audience.

Furthermore, since he is looking for a career in academia and because the material he is publishing is not necessarily time-sensitive, I would try to get published in the best, most prestigious journal that he can (perhaps breaking his dissertation into a few parts and submitting them to other journals).

Bringing it altogether

How does this apply to self-publication?  As Barney Stinson might say… wait for it.  And now the third person, Brian on TLS writes,

How can you afford to write a book with so much great information and then make it available for free?

Good question.  There are a couple answers to it, but to start with lets discuss opportunity costs.

Consider, for example, free apps or demos available on smartphones.  Why would a developer such as Rovio utilize scarce resources (time, capital, skilled labor) only to give Angry Birds away for free?  (Note: 25% of all global Angry Birds downloads come from China, see Chapter 13.)  Perhaps developers do this so they can get their name and brand out into the public, to build buzz so that they can later sell a future app.  In the case of King Gillette, while he did not invent the freebie business model he purportedly popularized it: he gave away the shaving handles with the intention that consumers would need to buy his blades to be of any use.  However, contra Chris Anderson, even that is arguably not the best utilization of resources either (see The Razors-and-Blades Myth(s) by Randal Picker). 2

I suspect that many aspiring writers never fully recoup the costs of their own self-published works.  In fact, based on my research over the past several weeks, very few self-published authors make a profitable return-on-investment solely from book sales when all costs are accounted for (many more may reach positive territory if consulting and speaking engagements are included).  Not only would you need to generate enough sales to cover the editing, illustrations, typesetting and promotion (like paid ads), but you would also need to generate more revenue than you would have earned in an alternate timeline, one in which you worked a 2nd part-time job instead of writing a manuscript (e.g., if you spent 20 hours a week working on your book unpaid, what other paid activities did you forgo?).3 These are the unseen opportunity costs and while it varies case-by-case, indie writers should do their own due diligence and cost/benefit analysis.  For instance, last summer Suw Charman-Anderson looked at some of the potential earnings and ultimately came to the conclusion that aspiring writers should focus on building content instead of endlessly promoting your first or second or third book.

What about SEO?

My own opinion of SEO is negative.  In theory it is no different than marketing or advertising.  However, if you spend much time in the industry it is pretty clear a number of SEO gurus treat it as a get-rich-quick scheme.  That if you could manipulate passages and content around special keywords, epic floods of traffic will head your way and with it, advertising dollars.  But this is a fallacy called post hoc ergo propter hoc conflating cause and effect.4 Readers want useful relevant content, not spam.  Keywords do not create lasting readership, content does.  If you are following the advice of some SEO evangelist, then others are probably too and thus all of your content is diluted and becomes indifferent mush from the background noise that is all the other like-minded echo-chamber bloggers doing the same thing.

Specifically, consider the opportunity costs of trying to game and trick the continuously changing algorithm systems.  Every minute spent trying to tweak SEO keyword placement is another minute you could have spent creating original content for an audience.5 Which raises another question: if other people like the gurus are telling you what do and say, you are not finding your own unique voice and style — which is a necessary process each writer must undergo independently, one in which there are ultimately no shortcuts.  Thus for some, SEO becomes a self-defeating, downward spiraling process.

At South-by-Southwest (SXSW) held a couple weeks ago in Austin, Guy Kawasaki asked Amit Singhal (a VP at Google) how companies can improve their search rankings.  Singhal’s response was:

“We at Google have time and time again said—and seen it happen—that if you build high-quality content that adds value, and your readers and your users seek you out, then you don’t need to worry about anything else,” Singhal said. “If people want that content, your site will automatically work… you could make a bunch of SEO mistakes and it wouldn’t hurt.”

In other words, original content is king.

Thus to answer Brian’s question, while I won’t go into specifics today, I do have a long-term plan that does not involve the traditional book publishing model in order to recoup all the seen and unseen costs of producing the content.  A hint: while it does involve creating regular fresh content, it does not involve SEO or books sales.  After all, the web copy is free.

  1. For the exact steps see: Waiting for It from The New York Times and The Book Production Process from About.com []
  2. While Chris Anderson does raise some interesting points in Free: How Today’s Smartest Businesses Profit by Giving Something for Nothing I think that his overall thesis is fundamentally flawed as dissected by Fernando Herrera-Gonzalez in Is Our Future Really $0? []
  3. For good measure you should also calculate how many hours were spent searching and adding your book to e-book promotion lists.  Also, an argument could be made to differentiate leisure activities that produce goods and services versus intentional work, but that is the exception to the rule. []
  4. This is similar to the disconnection inherent to Cargo Cultism, see Chapter 20 []
  5. As Senator Dirksen might have said, a minute here, a minute there, pretty soon, you’re talking real time. []
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Chapter 9 – The education market

[Note: below is Chapter 9 from Great Wall of Numbers]

Over the past four years I have had a chance to live and work throughout China.  This was done in the capacity as an instructor, teacher and professor at a variety of colleges and schools across the country.  Along the way I have met numerous fellow travelers, international teachers and businesspersons who have worked across the wide expanse of China’s educational systems.

I say systems because there is a cornucopia of private international schools, public schools, specialized Montessori schools and a seemingly infinite amount of training centers called bǔxíbān (companies and institutions that typically offer after-school programs such as EFL, GRE, GMAT, art, business and math training).  These all exist to meet the demand of an extraordinarily large population that culturally values formalized schooling for educational attainment.

For example, in 2006 there were an estimated 16.7 million students studying at 336,200 elementary schools and 21.2 million students studying at 361,300 junior high schools (the reason for the relative decline and difference in the cohort sizes has to do with the one-child policy).123 More than 9 million high school seniors take the national college examination (gaokao) each year, the top percentage of which typically then study overseas.4 And approximately 8 million college students now graduate each year in China, a rate that has quadrupled since 2002.5

In addition, as I mention below, there are a number of extra-curricular training centers called bǔxíbān that cater to the growing domestic demand for foreign educational services.  For instance, in 2011 more than 20,000 Chinese high school students took the SAT as part of their quest to study overseas.67 With 58,196 test-takers from the mainland, one in five people who took the GMAT in 2011 was from China – a 45% increase from the previous year (and up from 11,000 in 2008).89 Both tests are conducted entirely in English.  New Oriental Education – among many other training centers – alone trains and tests up to 200,000 students a year in standardized tests like TOEFL and SAT.1011

EFL market

In January 2009, then-Premier Wen Jiabao stated that there were roughly 300 million English learners in China.  For perspective, there are 600 times more Chinese studying English than Americans who study Mandarin.12 From primary school through the first two years of college, nearly every student in China is required to take English.  One of the subjects tested during the gaokao, the annual national college entrance exam, is English.  And with great commitment comes great costs.  In 2002 the estimated price tag on EFL education was $1.4 billion and according to a 2009 McKinsey & Company report, “China’s foreign-language business is worth $2.1 billion annually.”13 As I mention below, this is substantially lower (5x) than their peers such as Japan and South Korea.

Who teaches these EFL courses?  According to People’s Daily, approximately 100,000 foreign teachers and experts are recruited each year to work on the mainland.1415 But before jumping on a plane and starting a new EFL division of your company overseas consider that not only would you need various licenses to start up a new firm, but that the EFL market is already sorting the wheat from the chaff.16 For example, a large number of nation-wide EFL providers including: Disney English, Wall Street English and English First (EF) are owned and operated by foreign companies.  EF is actually the world’s largest EFL company, with 34,000 employees and more than 500,000 paying students globally.  New Oriental Education and Ambow Education were both founded by Chinese nationals.17 They rank among the top EFL providers in China and are even traded on the NYSE.

So like all business startups, be sure to do a SWOT (strengths, weaknesses, opportunities, threats) analysis and identify what your company can provide that is not already being serviced.  Even with these well-funded incumbents, a case could be made that entrepreneurs (both foreign and domestic) can still create a profitable business model, catering to specific niches (e.g., first-contact health care providers, hospitality managers, financial and securities traders, lawyers and paralegals).18

While some have argued that EFL might be bubble activity, there is arguably a lot of organic, bottom-up support for this drive into English.  For instance, according to Jun Liu, English professor at the University of Arizona, as of 2007 about “40,000 foreign companies have been set up within China and employ 25 million people.”19 As a consequence a lot of the day-to-day operations are conducted in English, such as emailing, accounting, finance and sales.  And this outward push from within organizations can be illustrated by firms such as Air China – the third largest carrier in China – which has introduced an incentive program for its employees to learn English from a large TEFL provider.  Similar incentive programs exist at foreign-owned multinationals such as Eli Lilly, Metro (a large German supermarket chain) and Intel.  On a governmental level, in a bid to help tourists and foreigners, one such firm – English First – was even hired to teach taxi drivers and volunteers during the Shanghai 2010 Expo; they were also the official trainers for the 2008 Beijing Olympics.

And with a goal of becoming distinguishable and eventually an international brand, most businesses and large SOEs have adopted English names such as China Unicom, Lenovo, Agricultural Bank of China, China National Petroleum, State Grid and China Railway.2021 As I mention later in Chapter 12, this push outward presents an opportunity for US companies and institutions to help market and educate Chinese firms looking to do business overseas.  On this note, in June 2012, Shaun Rein, the author of “The End of Cheap China,” made the case that China will continue to need American education and American educators.22 He makes a persuasive call for US-based educational entrepreneurs as well as educational companies and institutions to set up shop on the mainland.  And if you do not, someone, perhaps even your competition will.

What you and your firm can do

For perspective, South Korea, which invests more on EFL education than any other country, collectively spends between $10-$15 billion a year on EFL education; one 2005 estimate put the figure even higher, 1.9% of GDP (approximately $16 billion).23 And with a number of domestic programs similar to its neighbors, Japan spends about $8 billion a year on EFL.24 Thus with a population ten times the size of Japan and a GDP six times the size of South Korea, there is a lot of potential room for EFL growth in China, which as noted above, spent $2.1 billion on EFL in 2009.

How much do these programs at a language center typically cost?  I spoke with a high level Chinese manager in charge of operations at a large EFL training center in Pudong, Shanghai who has had 20 years of experience working at Disney English, Wall Street English, EF, Web English and Huapu (the latter two are Chinese-owned and managed).  According to her, “ten years ago it was a seller’s market as there were relatively few language centers and as a consequence they could charge enormous tuition fees, upwards of 400,000 RMB [$64,000] a year primarily because there was and still is a large demand for authentic face-to-face experiences.  In return the centers provided one-on-one intensive training with laowai – native English speakers – for hours each day.  Today, because the market has matured over the past decade, the average high-end language package now costs about 30-40,000 RMB [$4,800-$6,400] annually in larger cities like Shanghai and Beijing – which is still a somewhat high amount considering the annual wages for most urban residents is less than $9000 a year.  Yet, there still a number of firms such as RISE and baite (百特英语) that specialize in providing English-only, total immersion environments for their customers – at a substantial cost.”

One of the ongoing issues that any service provider in any country must continuously deal with is figuring out the right price point for attracting potential customers.  Online education is one way to create flexible rates; as a consequence several EFL programs are now available at substantially lower costs compared with ten years ago (e.g., 500 RMB per month).  Another example is while the value of an EFL package is subjective based on each individual’s preferences, there are ways to make repayment easier.25 Take for instance, payment plans.  At some language centers they are now allowing customers to pay by installment.  And according to this same source, even though 10-20,000 RMB [$1,600-$3,200] a year is now considered a “reasonable sweet spot” in the mind of the typical middle class worker in a Tier 1 city; some of these consumers still would like flexibility and assistance and thus providing month-to-month billing allows them to achieve a win-win compromise.

Catering to specific clientele

In November 2012 I spoke with Cathy Su, a six-year marketing veteran at English First (EF) and Fujian native, about education-related business opportunities in China.  According to Su, “parents will go to great lengths to sacrifice themselves for their child’s educational future.  For example, in order to send their children overseas, many are essentially price inelastic.  Some are willing to invest and spend substantial amounts in order to help their children get an overseas education.  They do this for multiple reasons, yet in every case, the students all need both coaching and training to prepare for standardized tests like the SAT, GMAT and TOEFL in order to matriculate overseas.”

While there are cultural components (such as li or 禮) to this seeming inelasticity one of the key issues that Chinese families currently face is as Charles Zhang (the founder of internet giant Sohu) recently explained in an interview,

“I believe the US system is definitely better than the Chinese system. First of all, China just has way too many people. The entire system becomes very competitive and thus opportunities are limited. Education in China is not education; it is selection. Of course, the biggest selection process is the national college entrance exam, the Gaokao. The Chinese system naturally must prepare children to study for this inevitable exam, but the preparation is the complete destruction of creativity.”26

Zhang’s comments were similarly echoed by Paul French, the Chief China Market Strategist at Mintel who recently noted that, “[t]here simply aren’t enough places at enough good universities for all the Little Emperors capable of attending and passing the required exams.”27 Little Emperors (八零後) are single children born and raised under the one-child policy.  And due to this confluence of scarcity and demographic pressures, this ultra-competitive labor market has motivated parents to push their only child to accumulate other degrees and certificates (see below).  For example, according to a report from Mintel, “three-quarters of middle-class Chinese parents expect their child to earn a postgraduate degree, while only 32% said they would be happy if their child stopped at the undergraduate level.”28

This sentiment was similarly noted by Wendy Bao, with whom I also spoke in November 2012.  She is originally from Zhejiang and has worked throughout EF over the past 10 years in positions such as a product manager, market analyst and in business intelligence.  According to Bao, “Chinese parents care more about education for kids than themselves.  Or rather, if there was an investment decision between the two, Chinese parents will invest more in their children’s education and extracurricular activities because they see their progeny as more important than their own personal achievements.”

Such sacrifice is illustrated by the family of Wu Caoying, who now attends a three-year polytechnical school.  Growing up in Shaanxi province, she is the only child of her parents.  Her father works in a coal mine, earning $500 a month and her mother earns $12 a day “tying little plastic bags one at a time around 3,000 young apples on trees, to protect them from insects.”29 Together they have scrimped and saved for their daughters education and spend more than 50% of their monthly earnings so that their daughter could attend a boarding school during high school and can now matriculate to the polytech.  In return, Caoying is expected to help take care of her parents after they retire.

While part of the education-centric ethic stems from various Confucian teachings (e.g., xiushen or修身) that most Chinese are taught from a young age another reason why foreign degrees are sought is that this highly competitive labor market has led to credentialism (e.g., obtaining a certificate or degree merely to collect it for your resumé and CV).30 As a consequence Cathy Su also thinks that because of this education ethic, that in addition to traditional EFL training there is essentially an insatiable demand for niche services such as SAT coaching.  This may be especially true since the middle class is expected to grow from 300 million today to an estimated 600 million by 2020.31 And as I noted in Chapter 6, with a growing middle class comes growing disposable incomes.  Furthermore, wealthier Chinese families are increasingly looking to send their children abroad in part because of the hyper competitive domestic climate and due to the perceived creativity-friendly environment at Western institutions.  For example, a 2012 report from Hurun regarding high net worth individuals (there are approximately 2.7 million HNWI in China), “85% plan to send their children abroad for education.”3233

And what do these Chinese students do after completing their degrees?  While many of them obtain permanent residency, others return to the mainland (see ‘brain drain’ in Chapter 19) as future innovators and policy makers.  For instance, several of the largest internet companies in China were founded by Chinese nationals who attended US institutions for college and graduate school.  Charles Zhang (Sohu) graduated from MIT; Robin Li (Baidu) graduated from SUNY Buffalo; Joseph Chen (Renren) graduated from University of Delaware, Stanford and MIT; Gary Wang (Tudou) graduated from Johns Hopkins and the College of Staten Island; James Liang (Ctrip) graduated from Georgia Institute of Technology; Victor Koo (Youku) graduated from Stanford and UC Berkeley; and numerous executives in the management teams at Sina and Tencent attended a US college.  In addition many others at Alibaba attended other Western institutions or joint ventures like the China Europe International Business School, the first business school to offer an MBA on the mainland.3435 Harvard has several programs designed specifically to educate and facilitate information exchange with future Chinese policy makers.  One of its programs called China’s Leaders in Development brings in “50 to 60 official each year.”36 Its Kennedy School has trained 150 Chinese officials since its program began in 1998.  All told about half of the 668 Chinese students in the 2012-2013 school year at Harvard are enrolled in the Graduate School of Arts and Sciences.37

In fact, while the legal issues are still being sorted out, there may be opportunities for both non-profit and for-profit traditional brick-and-mortar schools in larger mainland cities.  For example, many Chinese families are faced with a dilemma in terms of educational options on the mainland.  On the one hand they can send their children – or usually the only child – to public schools.  While some of the public schools are opening special classes for students wanting to study abroad (SAT, AP, A-level prep), public schools are usually considered substandard due to lack of funding and rote memorization learning methods.  Another viable choice is for families to try and help send their kin overseas yet this is financially cumbersome to most middle-class families.38 A third option is private schools, yet there are currently very few private schools on the mainland, thus the other two options above place many families in an uncomfortable bind (e.g., they would like their children to receive the best education possible but have limited choices).

This may be changing however.  Two years ago Wellington School, a 150-year old British school, was replicated in Beijing.39 For £15,000 a year ($23,800), Beijing parents can now send their children to this new school based on the British public school system.  Oxford International College (unrelated to Oxford University) charges up to $41,700 a year in its private schools located on the mainland and also emulate the British education system.40 And while it take  some time before such imports are more widely accepted, the only other alternative currently is international schools, though while relatively popular, they are also both very exclusive (you typically need to have a foreign passport to be eligible) and prohibitively expensive ($10,000-$35,000 a year).41 Yet the trend towards international schools is growing.  According to Reuters, there are now 338 such schools (up from just 22 twelve years ago) whom collectively enroll 184,073 students.42

Or conversely perhaps your firm can help place Chinese students in American schools.  For example, according to the Association of Boarding Schools, “about 5,600 students from China [are] enrolled in its 285 member schools in the US this academic year [2012-2013].”43  According to the US Department of Homeland Security, in 2010-2011 the amount of Chinese students studying at private schools in the US was 6,725, up from 65 in 2005.44 In terms of costs, some international programs like Leman Manhattan Preparatory School in Manhattan cost $68,000 a year (30 out of the 40 international students at Leman are currently from China).45 Other boarding schools in the New York metro area cost an average of $46,875 a year.  As a consequence, the opportunities for foreign experts and entrepreneurs looking to wade into both sides of the market may be viable, even for administrative tasks.

For instance, US institutions and organizations collectively spend $980 billion annually on education, twice as much as China.4647 Due to a variety of factors including large spending per capita, US institutions continue to attract foreign talent.  For example, there were 765,000 foreign nationals studying in the US in 2011 – including 158,000 Chinese (there are now 194,000 Chinese studying in the US).4849 And according to the US Department of Commerce, these foreign students contributed $22.7 billion to the economy and many stay after graduation (Chinese students alone added $5 billion to the US economy in 2012).50  Thus in an effort to  improve both the quantity and quality of its graduates as well as raise its standing on league tables and rankings, every level of the Chinese government is implementing plans to invest ever larger sums of funds into education; including recruiting foreigners (for comparison, 24,000 Americans studied in China in 2011).51

Yet, with the administrative, marketing and teaching prowess gained from over six decades of being at the top of the international educational marketplace, managers and entrepreneurs at US institutions could conceivably capitalize on their skill bases and leverage them in China’s expanding market.5253 A year ago, in March 2012, Stanford University opened the doors to a new joint venture, Stanford Center at Peking University making it one of the first permanent higher education facilities to open on a Chinese campus.54 NYU has set up the first Sino-US joint venture university that will award a double bachelor’s degree (from both the local Shanghai branch and NYU in Manhattan).  Classes began in the fall of 2012 and students from the mainland will pay 100,000 RMB ($15,948) a year to attend.55 And Julliard, the performing arts conservatory, is building a campus in Tianjin (southeast of Beijing) catering to students aged 8 to 18.56

At the same time however, enthusiasm should be tempered as a joint Yale University – Peking University undergraduate program “collapsed” this past July due to “high expenses, low enrolment and weaknesses in its [Yale] Chinese-language programme.”57 Similarly, Duke University’s venture with Wuhan University has run into several major problems.  The construction of the new Duke Kunshan joint campus has been delayed five times over the past three years due to “slow” and “shoddy” workmanship.58 Thus success in this segment is not necessarily a foregone conclusion.

Another role that foreign administrators may be able to utilize is that of an agent, or admissions consultant.  According to one estimate, “8 out of every 10 Chinese undergraduate students use an agent to file their applications.”59 These agents in turn will help candidates fix their admissions essays, find the best references to write recommendation letters and otherwise guide clients through a streamlined process to foreign-based colleges.60 Maybe you and your company can utilize your expertise to work with new clientele.

However, as touched on above, the mainland education industry can also be tricky.  For example, in order to be granted a license, certifications have to be recognized by the Ministry of Education.61 Online-awarded degrees and certifications are typically not accredited by the Ministry.  As a consequence you may have to set up a physical brick-and-mortar office in order to do business within the Chinese marketplace.  In addition, alternative certification programs such as Microsoft’s MCSE, Cisco’s CCNA, Huawei’s HANA and others like Certified Nutritionist are increasingly prevalent – so as long as they are recognized by what the Ministry deems as a legitimate institutional authority.

For instance, what if your company trains and educates workers in an ISO management process in the US?  If you wanted to expand into China you may need to reinvent your firm on the mainland by creating a brick-and-mortar office location before you can legally market within China.  A consequence for failing to do so would be the trials faced – according to a source at the company – by the University of Phoenix, which despite its 35 years of history, was originally not seen as a legitimate degree awarding institution in China.

National Quality Assurance (NQA) is one of the largest ISO registrars in the world and an Accredited Certification Body (ACB) that coordinates with regional sub organizations to train, audit and certify organizations and companies in ISO 9000 family of quality management certifications.  SNQA is the organization in charge of verifying, confirming and auditing ISO 9001, ISO 13485, TL9000, BRC-CP and several other standards on the mainland.62 In January 2013 I spoke with Jason Jia, who is managing the new Wuhan, Hubei office for SNQA.  Jia is originally from Anhui but has spent the last 3 years working in sales for SNQA.  He noted that, “there are long-term opportunities for foreign ISO experts that can provide to mainland firms such as training and auditing services.  However one of the challenges facing these same companies is that communication issues are usually a big problem.  In addition, the maintenance and foreign labor overhead expenditures relative to local labor are usually cost prohibitive and as a consequence the daily maintenance fees are typically so high that most Chinese firms cannot afford it.  For example, we as a certification organization pay the auditor company a daily training and on-site verification fee and this quickly adds up when taking into account the relatively higher per hour costs charged by foreign companies.”

Recruitment

One lively human resource area within the education labor market provides large compensation packages yet has relatively few candidates: if you have internationally recognized awards, Chinese institutions will hire Western superstar teachers to improve their table rankings.63  For example, three years ago Jiao Tong University in Shanghai scored a coup, recruiting French virologist Luc Montagnier, who discovered HIV and subsequently received the Nobel Prize in 2008.  Another case is, Rao Yi, who grew up in China but spent 22 years at Northwestern University before being lured back to become the dean of Life Sciences at Peking University.64 All told, the Chinese national government in a project dubbed the “1,000 talents program” (see more below in Chapter 15) is offering perks and bonuses up to $150,000 in an attempt to lure “foreign-educated Chinese scientists, academics, financial experts, and M.B.A.s.”65 And according to Wang Huiyao, head of the Center for China and Globalization, approximately 15,000 individuals have come to the mainland through this program.66

At the same time, if your goal is acting as an intermediary and talent recruiter, expectations should be tempered with a dose of reality.  For example, Pat Sullivan, an accountant and chairman of international recruiting at Young Harris College told me in March 2013 that there are a number of obstacles created by current US immigration policies, which put numerous roadblocks in the way of foreign students seeking to study in the United States.  According to her, “The paperwork required for US Visas, health certificates, assurances of financial solvency, and other forms are always more time consuming than one would expect.  Planning for the arrival of foreign students must begin months in advance and requires the active participation and assistance of the host educational institution.”

Consequently, for those entrepreneurs looking to open up a new seminar or class room system, several questions need to be answered: where will you find customers who are willing and able to pay?  How will you build, manage and incentivize a sales force team to convert leads into customers?  Who will teach and design the curriculum for the courses?  Where will these seminars and courses be held?

In terms of taxes, there is one other challenge for foreign-owned companies that is not entirely unique to the EFL industry, yet should be recognized and addressed.  As mentioned above, each province has its own legal requirements for business licenses and certifications.67 For example, in Shanghai, in addition to a college degree a foreign teacher is required to have at least 2 years of previous teaching experience as well as a TEFL certificate from an authorized institution.  On the business end, due to relatively strict capital controls (e.g., individuals are limited to $50,000 in transfers annually) it can be relatively complex to repatriate your profits and assets from schools as there are also numerous taxes, tariffs and levies that do and do not apply specifically to educational companies.  While not explicitly discouraged, creative accounting, subcontracting and the “Hong Kong shuffle” (see Chapter 10) have become increasingly popular tactics by EFL firms to reduce tax liabilities.6869 Thus it is recommended that you speak with an attorney or tax expert before you invest in a new EFL program.

Cloud education

In terms of educational activities irrespective of being indoors or outdoors, according to its September 2012 report, Distimo noted that the popularity of English-based apps in China for the iPhone still remains very high.70 It is the 2nd largest installed language for apps overall and thus foreign entrepreneurs – including those in the education industry – may be able to turn this embedded built-in language base to their advantage.  Because the userbase is already largely familiar with Romanization, that is one less problem to be concerned with.  You might consider creating online virtual EFL classrooms based on apps for smartphones and tablets or rolling out cloud-based video courses that can be viewed by anyone with an internet connection.

In fact, one point Wendy Bao explained to me was that online classes and programs like Khan Academy will be the future of education.  Khan Academy is a popular non-profit educational organization that focuses on making micro lessons on a variety of topics and has delivered more than 200 million lessons online.71 In Bao’s words, “while online courses may have a slower uptake in China due to a limited – yet growing – telecommunication infrastructure, because of their inherent flexibility for being offered and accessed throughout a wide variety of time slots, this will enfranchise rural and urban students who can now utilize global knowledge databases.  These same students – who due to their inland locations and schools lacking the funds would otherwise not have access to experts including foreign instructors whose language skills are highly sought after and could be substantially cheaper via telepresence.”

Yet again, one challenge, as Bao mentioned, is that the telecom infrastructure is still relatively limited in bandwidth.  For example, as I note later in Chapter 15, according to their Q3 2012 speed survey, ChinaCache, the largest domestic content delivery network (CDN), notes that while the overall speeds are a little slower than previous speed rankings, Shanghai currently leads the country in average speeds at roughly 3.44 Mb/s and Beijing is 10th at around 2.5 Mb/s.7273 Akamai Technologies (a global  content delivery network provider) ranked China’s average internet-connection speed at 94th globally, at 1.6 Mb/s.74 In addition, depending on the regulatory and monitoring issues discussed in Chapter 20 with the Great Firewall, quality of service and bandwidth may decline as you leave the larger Tier 1 cities.  Thus entrepreneurs should take these factors into account while making a business plan.

In December 2012 I spoke with Eric Azumi, vice-president of information systems at EF.  According to him “the online market is just now beginning to be tapped.75 There have been limitations that continue to be overcome including computational and bandwidth issues that arise in every country but especially in China.  Voice recognition services similar to Siri will probably be the next technology incorporated into this segment and eventually, as the online industry matures, it will be commoditized.  What I mean by that is that at some point all competitors will have very similar software stacks in terms of features and functionality, yet there is always room for value-added services – especially as more direct-teacher training is replaced with mobile learning.”

Azumi gives as an example, the technical changes over the past 15 years as online classrooms evolved from text-only, to incorporate audio, then video via telepresence (e.g., webcams) and as he predicts in the near-term, real-time voice recognition.  Yet again even with all of these competitive forces with large, well-funded, experienced incumbents he thinks that “because of the relatively low barriers to entry just about anyone can still set up an educational center in China and elsewhere, especially if they cater to niche groups or provide a unique environment such as how coffee shops in Japan have been turned into English conversation centers that provide both relaxed and informal way of improving language skills.  And because people by-and-large still insist on face-to-face time, the general acceptance of online education will take time to diffuse here and around the globe.  Furthermore even with the advent of on-demand instructional services there are still many opportunities for traditional schools in 2nd & 3rd Tier cities which are still nascent markets that have not been exploited yet.”  These technological challenges and opportunities related to cloud computing are further expanded on in Chapter 13.

Yet for those willing to face these technical challenges, the financial rewards could be lucrative.  According to one recent estimate, up to 380 million people in China will “need high-quality education and training resources across the country” from 2012 to 2017.76 And a large percentage (~30%) of these people are expected to utilize online services and tools, creating a potential market worth an estimated $11 billion in revenue.  However, to temper any get-rich-quick enthusiasm, the amount of investment into Chinese education companies fell to $46 million in 2012, less than a quarter of the previous year.77 Why?  David Chen of AngleVest – a venture capital group focusing on angel rounds – noted that “the timeframe for growing an education business can be drawn-out, and a challenge for fund managers who have to achieve returns by a specific date.”78 Thus once again, while there is potential revenue there is also required patience for returns on investment.

Takeaway: The education market in China has the potential to be both large and profitable.  However, gone are the days when you could merely jump on an airplane, get off and instantly set-up a market-leading company.  The industry has become increasingly competitive with both professionalized workforces and various rules and regulations such as licensing and certification guidelines.  But as long as the Chinese economy and population continue to grow, there should be continued opportunities for entrepreneurs and companies who have done their due diligence.  This chapter does not discuss guanxi, a cultural phenomenon involving personal connections within the hiring and deal making process in all Chinese business transactions.  But that is a very complex topic worthy of several copious volumes and touched on in Chapter 10.


Endnotes:

 

  1. Number of Elementary Schools Shrink in China as Population Ages from Xinhua []
  2. Age will weary the Chinese miracle from BusinessSpectator []
  3. More specifically, “Despite a 40% increase in population since 1976 the number of primary school students has gone down by 33%, from 150 million to 100 million, and there were half as many primary schools in 2010 as there were in 2000.”  See 停止计划生育政策的紧急呼吁 from Eduzx.net []
  4. The peak was 9.5 million in 2006.  It has declined in part because of the one-child policy and also because many students are matriculating overseas for education.  See More students choose to study abroad from People’s Daily and The gaokao: still life’s most important test? from China Daily []
  5. The number of higher education institutions doubled in ten years, from 1,022 to 2,263 in 2011.  This includes a combination of both universities and junior colleges.  For comparison roughly 3 million students graduate from US universities and junior colleges each year.  There are now 11 times as college students in China as it had in 1989.  See China’s Ambitious Goal for boom in College Graduates from The New York Times, China’s Graduates Face Glut from The Wall Street Journal, Chinese Graduates Say No Thanks to Factory Jobs from The New York Times and A work in progress from The Economist []
  6. Testing time for study abroad from China Daily []
  7. Currently there are no SAT test centers on the mainland due to restrictions by the government.  Thus students wanting to take the SAT must go elsewhere, typically Hong Kong.  See ”洋高考”来势凶猛国内高校面临挑战 from Sohu []
  8. See Chinese Flock to the GMAT from The Wall Street Journal and China Outperforms U.S. on GMAT from The Wall Street Journal []
  9. This growth in GMAT testing and overseas matriculation is one of the reasons why US institutions that provide MBAs have grown from 26,000 to more than 168,000 annual graduates from 1970 to 2009.  There are a number of mainland based MBA schools as well including the top ranked Cheung Kong Graduate School of Business in Beijing.  See Is the MBA Obsolete from Forbes, China Best Business School Leadership MBA from Forbes and Game Changers: Guanghua Cai from Fortune []
  10. China’s Test Prep Juggernaut from BusinessWeek []
  11. New Oriental is currently involved with a class action lawsuit that alleges the company did not clearly state that students in franchises (which the company does not own) were counted among the overall headcount (e.g., headcount inflation).  See New Oriental faces class law suit in the US from China Daily and New Oriental Sinks as Block Renews Allegations: China Overnight from Bloomberg []
  12. An education exchange would strengthen ties with China from Politico []
  13. Chinese Learn English the Disney Way from The Wall Street Journal []
  14. China to recruit foreign experts through Internet from People’s Daily []
  15. In addition to traditional formats and courses, the EFL market in China also includes: IELTS, TOEFL, SAT, GRE, GMAT and LSAT. []
  16. For a step-by-step procedure, see Starting a Business in China from the World Bank.  See also New Path for Trade: Selling in China from The New York Times []
  17. Ambow is currently facing a lawsuit by investors who accuse it of fabricating acquisitions to bolster its revenue numbers.  See Ambow Education Investors Pursue Lawsuit as Shares Plunge from Bloomberg []
  18. Teaching English in China: What You Need to Know from Yahoo! Voices []
  19. The Impact of English in China by Jun Liu []
  20. As I note in Chapter 14, through the mass consumption of Western entertainment, the Romanization and Latinization of both mainland businesses and cultures continues.  And yet this is not the only area in which Western culture is absorbed on the mainland.  According to Yasmin Haskell, “The Chinese already appreciate the importance of these sources [European sinologists]. Several years ago they were sending local students on scholarships to learn Latin at European universities. Today, as I am reliably informed by a senior American colleague, they are training up thousands of Chinese teachers of classics – not the Chinese classics of Confucius and Lao Tzu, that is, but those of ancient Greece and Rome.”  See We must look to an ancient tongue to understand Asia from The Australian []
  21. Another on-going long-term opportunity for brand marketers is working with these large SOEs as they internationalize and go abroad.  While they typically dominate their specific market segments domestically (in part because of their monopolistic privilege) they have had uphill challenges in expanding abroad.  See BCG: Chinese State-Owned Firms Not So Muscular Abroad from The Wall Street Journal []
  22. China Needs American Education. Here’s How to Bring It There from Forbes []
  23. See English language education in Korea, fad or the future? from Yonhap and The Economics of English by Hyo-Chan Jeon []
  24. See Japan Launches primary push to teach English from The Guardian, The Economics of English by Hyo-Chan Jeon and Elementary Schools to get English from The Japan Times []
  25. The economic term for this is the “subjective theory of value” in contrast to the classical “labor theory of value.”  See Chapter 4 entitled The Subjective Theory of Value by Thomas Taylor []
  26. An Interview With Charles Zhang, CEO of Sohu from Agenda []
  27. China’s Middle-Class Parents Underwhelmed by Undergrad Degree from The Wall Street Journal []
  28. Ibid []
  29. In China, Betting It All on a Child in College from The New York Times []
  30. As one of my Chinese mentors in Singapore explained, the cultural component should not be overlooked or downplayed.  There is a Confucian virtue called xiushen (修身 or self-cultivation, improvement, rectification) which has been enshrined at a deep cultural level across the Chinese populace that Western education, especially at tertiary levels, and particularly in the fields of science, technology, management, marketing and finance will probably see strong demand for years to come.  This is not simply a calculation concern (to improve one’s income potential), but even more so a cultural phenomenon. []
  31. 600 million middle-class Chinese by 2020: think tank from Xinhua []
  32. See p. 10 The Chinese Luxury Consumer White Paper from Hurun []
  33. The target schools abroad, especially in the US are elite institutions like the Ivy League.  See Chinese flock to elite U.S. schools from CNN []
  34. To be even handed there are also several successful domestic tech firms founded by homegrown talent that did not matriculate overseas such as Jack Ma (Alibaba) and William Ding (NetEase). []
  35. USC’s Marshall School of Business has a joint international venture with Jiao Tong University in Shanghai, offering an executive MBA since 2004. []
  36. Harvard Trained Communists Vie for Power as Party Gathers from Bloomberg []
  37. Ibid []
  38. Some of these new “special” programs (preparatory courses often taught by foreigners) are called “American-Chinese cooperation programs” and are being implemented at public schools, yet they also have their own admissions hurdles.  For example, they all require their own entrance examination and some of these programs charge up to 100,000 RMB ($15,000).  See “洋高考”来势凶猛国内高校面临挑战 from Sohu []
  39. See British public schools exported to China from BBC and China creates a replica of famous British public school Wellington College near Beijing from Daily Mail []
  40. An Oxford in Changzhou? International schools spread across China from Reuters []
  41. SMIC Private School in Shanghai is estimated to cost around $11,000 a year whereas the British International School in Shanghai purportedly costs $30,000 per annum. []
  42. An Oxford in Changzhou? International schools spread across China from Reuters []
  43. Spreading their wings early from China Daily []
  44. Ibid []
  45. Ibid []
  46. Can U.S. Universities Stay on Top? from The Wall Street Journal []
  47. Various levels within the Chinese government are attempting to recreate the education boom laid forth by the G.I. Bill through their own $250 billion a year initiative.  See China’s Ambitious Goal for Boom in College Graduates from The New York Times []
  48. Chinese boost for US colleges from Shanghai Daily []
  49. It is not just US colleges that have benefited from this international student pool.  According to an Al Jazeera report, “British universities receive more students from China than any other country outside of the European Union.”  There were 67,235 Chinese international students in the 2010-2011 cohort in the UK.  See Chinese students choosing to study abroad from Al Jazeera []
  50. Students from China add $5b to US economy from China Daily []
  51. Ten Years of Rapid Development of China-US Relations from Xinhua []
  52. Prior to World War II, the leading institutions of both the sciences and social studies were in German-speaking countries.  German, not English, was the lingua franca of the academic world for nearly a century. []
  53. One tool that all administrators and application departments in any country can now utilize to screen potential candidates is IntialView which is an interview platform that is becoming increasingly popular among both by applicants and administrators (38 out of the top 50 US colleges now accept interviews from this platform).  See China’s InitialView gains traction as most top US universities now accept its candidate interviews from The Next Web []
  54. Stanford research center opens at Peking University from Stanford []
  55. Shanghai NYU will open for fall of 2013 from Shanghai Daily []
  56. Juilliard to Bring New York-Style Teaching to China from The New York Times []
  57. Foreign universities: Campus collaboration from The Economist []
  58. Duke Kunshan University delayed again, following communication and funding problems from The Chronicle []
  59. Forged Transcripts and Fake Essays: How Unscrupulous Agents Get Chinese Students into U.S. Schools from TIME []
  60. While there are many genuine applicants, foreign admissions consultants should be aware that considerable amounts of fraud have taken place in this subindustry.  In fact, one report in 2011 based on a survey of 250 Beijing high school students matriculating to the US “concluded that 90 percent of Chinese applicants submit false recommendations, 70 percent have other people write their personal essays, 50 percent have forged high school transcripts and 10 percent list academic awards and other achievements they did not receive.”  See A Chinese Education, for a Price from The New York Times, The China Conundrum from The New York Times and Busted: Fraud in China by Tom Melcher []
  61. For a step-by-step procedure, see Starting a Business in China from the World Bank.  See also New Path for Trade: Selling in China from The New York Times []
  62. SNQA []
  63. Chinese Universities Send Big Signals to Foreigners from The New York Times []
  64. ‘Sea turtles’ reverse China’s brain drain from CNN []
  65. Steal this Scientist from The Daily Beast []
  66. Reverse brain drain: China engineers incentives for “brain gain” from Christian Science Monitor []
  67. For a step-by-step procedure, see Starting a Business in China from the World Bank []
  68. For a concise explanation see PRC Taxes on Hong Kong & Foreign Companies: Clarifications, Changes, Challenges & Opportunities from Orrick, Herrington & Sutcliffe.  And while not exactly the same, there is a similar method of reducing tax liabilities used by numerous multinationals; see ‘Double Irish With a Dutch Sandwich’ from The New York Times and Google Revenues Sheltered in No-Tax Bermuda Soar to $10 Billion from Bloomberg []
  69. See In Reversal, Cash Leaks Out of China from The Wall Street Journal and The Mechanics of Moving Cash Out of China from The Wall Street Journal []
  70. According to Distimo, “Applications with Chinese as a language in the top 200 were responsible for the largest share of the free downloads in China at 73 percent. English was responsible for only 69 percent of the free downloads among the top 200 in China.” See App Distribution Becomes A Global Game: The Shift Of Power & Impact For Developers from Distimo []
  71. One Man, One Computer, 10 Million Students: How Khan Academy Is Reinventing Education from Forbes []
  72. ChinaCache Releases Third Quarter 2012 China Internet Connection Speed Rankings from China Web Report []
  73. For comparison, the average download bandwidth in the US is 11.6 Mb/s.  See International Broadband Data Report (Third) from the Federal Communications Commission []
  74. China’s ‘Wall’ Hits Business from The Wall Street Journal []
  75. To be balanced I should point out that there are several other competitors that offer online language learning services including TellMeMore and GlobalEnglish. []
  76. Tencent Eyes Growing Online Education Market in China from Caijing []
  77. China Investors: We Don’t Need No Edukation from The Wall Street Journal []
  78. Ibid []
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