Australia
2 July 2021 | Minutes to read: 3

Risks for Australian EdTech exports to China and how to overcome them

By Ruby Cheung and Vivi Chen

This article is part of an ongoing ‘Asia Pacific Insights Series’, co-authored by Vivi Chen, Cica Chen and Jim Xi  designed to give you quick and simple tips to access new markets and elevate your business.

When you’re selling a product or service to a different country, there are always extra risks and complications. With the rapid growth of EdTech in China, more Australian businesses are keen to export overseas.

Before taking the leap, ensure you’ve assessed all the risks economically, politically and environmentally. We dive into the top risk factors you should consider when planning to export your EdTech services to China.

China’s local competitors and giant investors

According to the Glocal Edtech Unicorn list[1] released by Holon IQ research in Feb 2021, Chinese enterprises (Yuanfudao, Zuoyebang and VIPKid) took three places among the five most valuable EdTech entities among the world. The same group released another report on venture capital (VC) that indicated in Q1 2021, China outpaced other countries and had the greatest VC funds from 2010 to Q1 2021 in the EdTech sectors. Their total VC fund ($28.38 billion USD) is more than all other countries combined.

What does this mean for Australian exporters?

Australian EdTech business need to select their subdivisions carefully before entering the Chinese market. Domestic VC and giant enterprises ramped up around 2015 and would already have partnerships with local competitors who have a good understanding of the demographics and market needs. You want to avoid competing in the same space unless you have a compelling ‘niche’ or service offering.

For example, K12 education has been the most competitive EdTech sector in China and has attracted the most domestic VC over the past two years. Plan ahead and do a competitor analysis to confirm your strengths and weaknesses before you invest money and time to export.

Over the next two years, we expect to see a wave of exits from startups failing to prove profitable structure. The domestic VC in China for Q1, 2021 reported a noticeable drop comparing to Europe and United States. This could be good timing for Australian exporters wanting to enter the market.

Products and services need to be ‘localised’

There’s a fine line between localising your product and keeping your brand’s authenticity. You need to consider culture, linguistics and customers. A foreign brand entering a market has more challenges than a local business. [2]

Take Uber as an example. Uber encountered problems with local variances and national regulations. The company requested credit card details to open an account, an issue for many Chinese users. Uber experienced issues with map coverage and China’s firewalls and after changing their core product, they sold their operations to a rival Chinese ride-share.

Despite dominating the market in other countries, foreign companies like Uber can be subject to even more regulation than their local competitors. By trying to reach a mass market  rather than their initial “niche” market comprising wealthy Chinese people and expats, they were presented with more challenges.

What does this mean for Australian exporters?

Although the EdTech sector is different, K12 education and culture between Australia and China has various nuances and attitudes that you need to consider. Students and parents in both countries have developed different user habits of EdTech apps. In China, K12 education is more result driven rather than interaction driven.

TIP:

Break down the elements that will make your product popular in the Chinese market. Research is your secret weapon. Look at historical data and what brands have worked or failed and correlation between successes in different segments, brand identity and positioning. The more knowledge you’re armed with, the better you can adapt your product or service to be attractive to local buyers.

The domino effect from trade tensions

Over the past year, China has enforced up to 200% worth of tariffs and sanctions on Australian products. Australian beef and lobster were blacklisted and other policies restricted exports on charcoal and timber from Australia to China[3].

Bilateral relations between the two countries has interfered with exports and many businesses have sought out alternative markets for their supply. There is uncertainty around the near-medium future which causes concern for importers-exporters. Despite the fraction, China’s government is committed to fast-tracking the growth of EdTech and rolling out policies to support AI-based learning solutions.

What does this mean for Australian exporters?

As trade disputes continue, Australian businesses can take measures to safeguard their exports to China. China’s 14th Five Year Plan presents several opportunities for EdTech services. When planning your market entry strategy, identify any particular threats and barriers to your market access. Areas like supply chain flexibility can also affect the viability of whether you can operate in another country.

What resources are available to Australian exporters?

There are a number of financial assistance programs available to Australian SMEs such as the Export Market Development Grant (EMDG). In this series we will continue to share industry updates and spotlight the latest grants and incentives. Stay tuned for our next article which will cover the top resources every exporter should know about.

Other articles in this series:

China’s growing EdTech market and opportunities for Australian tech exports
What’s ahead for China-Australia relations – the export opportunities for Australia businesses
Indonesia’s digital health boom and the opportunities for Australian healthcare providers

Risks for Australian EdTech exports to China and how to overcome them

Ruby Cheung

Over the past 19 years Ruby has been helping Australian SMEs, individuals and in-bound foreign entities to grow and expand their business.She provides advice on business strategy and planning, accounting solutions, outsource financial management, IPO support, global compliance and governance, taxation and commercial advice.

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Risks for Australian EdTech exports to China and how to overcome them

Vivi Chen

For over seven years, Vivi has specialised in helping high net worth private clients build and protect their superannuation. Vivi understands how a self-managed superannuation fund fits in a large family group and their financial plans. Vivi leverages strong networking relationships with the Business Advisory and Wealth team to create tailored solutions and deliver superior customer experiences. Vivi has in depth experience working within Asia Pacific markets and is fluent in Chinese (Mandarin). She uses her knowledge to help individuals plan and grow their retirement savings.

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