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17 March 2020
The UK education sector is undoubtedly facing numerous headwinds but, from the outside looking in, this sector is in fact a success story for 'UK plc'.
A British education is internationally regarded as the gold standard. This is reflected in the dominance of British international schools – there are over 4,300 British 'international schools' (ie, schools located outside the United Kingdom which teach a curriculum that would be wholly or partially recognised in the United Kingdom and which have a British ethos), and they make up over 45% of the international school market.(1)
There are numerous factors driving this growth, including:
One option for international growth is to enter a new market and establish a new school using a school's human and capital resources. However, the reality is that almost all private schools choose not to do this and instead appoint a local partner. This approach allows for:
Done correctly, the execution of a school's international franchising strategy can become a core asset, helping to secure its long-term future as a global education brand and hedging the impact of economic and regulatory risks back home. Indeed, a number of UK private schools increasingly rely on their international income to fund capital investments in the United Kingdom, as well as increasing the availability of bursaries to support social mobility.
Appointing a well-resourced, suitably qualified and highly motivated local partner to make the school a success in their own country removes the otherwise intensive capital requirements and associated risk profile on the licensor school. Such partners often have a strong understanding of the local educational market and have good ideas about how a school's curriculum and other systems may have to be adapted to local needs.
However, these types of relationship are complex, high value, long term and subject to changing regulations. A licensor school should countenance this type of venture only with a full understanding of the risks and commitments involved.
Having taken the decision to consider international expansion, a school must empower a select number of governors and senior management at an early stage to investigate opportunities and develop and implement robust procedures. Below are some of key issues to explore during this planning phase.
The international strategy must be underpinned by strong IP rights. A school should carry out a brand audit and ensure that its brand is fully and appropriately protected by way of trademark registrations and that those marks are held in the most tax-effective manner. This is a costly exercise, but the cost (financial and loss of opportunity) of dealing with pirates and cyber-squatters far outweighs the upfront protection costs.
Identifying school ethos
Schools should invest in documenting their most valuable yet intangible asset – their ethos. In addition to a brand and a curriculum, a franchisee will also expect to benefit from a school's research and development in issues such as:
In the context of franchising, these operational aspects are often documented in a manual which sits alongside, and is referenced heavily in, the principal franchise agreement.
Developing the commercial model
A school would ideally seriously consider what it is prepared to offer and deliver to a prospective partner before it embarks on its first deal. A licence to operate could take the following forms:
Each variation will have a different risk and reward profile and a school must have an understanding of its appetite thereof and its ability to resource an expansion plan – in terms of both financial and human resources. This article discusses the third option.
Many schools are regularly approached by potential partners offering to establish the school abroad. Finding a potential partner is rarely a problem. The problem is finding one with:
If a school fails overseas, it is most likely due to the recruitment of an unsuitable partner. Therefore, schools must spend time not only preparing their prospectus to attract potential foreign partners, but also profiling their ideal partner and implementing an appropriate recruitment or screening process rather than committing to the first individual willing to pay.
Not all countries have the same potential for all schools. A country that allows one school to thrive (perhaps due to its heavy focus on academic achievement in exams) may be extremely challenging for a school that is more focused on sport or offering a more rounded educational experience. Educational establishments must be contextualised within the norms of the potential target market, including with regard to:
A good partner will be able to help the school to overcome at least some of these challenges and localise the curriculum and other systems in an appropriate manner. However, some schools will find it difficult to succeed in some countries and common sense dictates that a school should focus on the easy-win markets before tackling the more challenging ones.
It is highly likely that a school will license a partner to open a single campus, or possibly a few campuses, in any particular jurisdiction. Multi-level structures such as master franchising (common in the retail, food and beverage and services sectors) are rarely appropriate for international schools.
Therefore, a development licence will likely be required. However, each market and each partner is likely to require an adaptation to this basic structure. For example, joint ventures are possible and can be structured to allow the school to hold an equity stake in the operating company without the corporate governance burden imposed by a typical joint venture. The more sophisticated a structure, the higher the cost of implementation in terms of both professional fees and infrastructure, so the school needs to carefully weigh up the potential return on investment that it will receive through each possible structure.
Whatever structure is adopted, it is essential to ensure that the legal documentation re-enforces the values of the school and the economic drivers of its business model, as well as minimising any inherent risks to the school.
Key considerations for a licence agreement are as follows:
These aspects must all be caught in the manual and the licence agreement or a separate edtech agreement which sits alongside the franchise agreement.
There is no one-size-fits-all solution to international expansion. Such ventures must be carefully structured to reflect the needs of the school, the target market and the partner. The most appropriate structure must be determined at the outset, as restructuring an international licence is a complex, costly and time-consuming exercise.
At its core, the legal relationship between the school and the local partner is that of a licensor and licensee. Therefore, it is imperative to choose to work with experienced legal counsel who are specialists in licensing (as opposed to specialists in corporate or regulatory law, for example), know the international landscape and have walked down this path before.(2)
For further information on this topic please contact Gordon Drakes or David Bond at Fieldfisher LLP by telephone (+44 20 7861 4000) or email (firstname.lastname@example.org or email@example.com). The Fieldfisher LLP website can be accessed at www.fieldfisher.com.
(2) This article is part one of a two-part series on international expansion in the education sector. For part two, please see "Guide to international expansion in the education sector – part two".
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