kaplan entering chile - timothy raditya solichin

8/3/2019 Kaplan Entering Chile - Timothy Raditya Solichin

1/24

ENTERING CHILE

Group 8, MW 4 PM

Kevin Song

David Shu

Kayla Wolonsky

Timothy SolichinMalea Malik

Stephanie Tong


2/24

Table of Contents

EXECUTIVE BRIEF 3CHILE COUNTRY ANALYSIS 4

CHILE MARKET ANALYSIS 8COMPANY OVERVIEW 11

ENTRY STRATEGY 14RECOMMENDATIONS 17

APPENDIX 19


3/24

Executive Brief

As a global leader in English Language training, it is imperative that Kaplan have a strong

presence in Latin America. We believe that South America has the highest potential forgrowth and revenue based on Kaplans Core Competencies. Due to the Chilean cultural

emphasis on strong education and low barriers to entry, and due to Kaplans software-

based teaching system, Kaplan should enter Chile as a wholly-owned, greenfield

organization.

Why Latin America?Certain nations within South America have significant economic growth as well as

government stability. These key factors will allow Kaplan to penetrate the market with its

experience in Brazil, Columbia, Panama, and Venezuela. We believe that the next Latin

American country Kaplan should enter is Chile. Because Kaplan already has experience

in South America, it can bring the knowledge it has from those markets to Chile, to work

to their best advantage. Many Latin American markets are similar in many aspects, so

the things that work in those markets will work in Chile, giving Kaplan an advantage over

its competitors.

Why Chile?Chilean education expenditures have increased considerably in the last 5 years, nearly

doubling from 2001 education expenses. The country has a relatively large middle and

upper class, and the population is young, with almost 40% of citizens under the age of

25. A 2004 free trade agreement between the United States and Chile has fed the strong

trade and interaction between the two countries, making English language learning

imperative to younger generations.

The StrategyWhile Kaplan will enter Chile as a wholly-owned institution, Kaplan will be partnering with

local universities for classroom space and other tangible items, as it has done in other

countries. While in Chile, Kaplan will offer ESL programs two different ways: In-classsessions with a licensed professional, and online as a form of independent study.

|3


4/24

CHILECOUNT

RYANALY

SIS


5/24

Why Chile?Chile is an emerging economy with high level of growth potential. Chiles long-standing

relationship with the U.S. and the governments outlook on foreign investment willallow Kaplan, as a U.S. firm, to be welcomed into Chile in offering high quality

education services.

Kaplans various product and service offerings will provide a high level of value toChiles growing education industry. Not only is there great economic growth potential,

but as a fast developing nation, Chiles education industry is rapidly developing andrequires the level of sophistication in education that Kaplan offers.

Chiles focus on improving its education sector through government subsidies willpromote education services from private firms such as Kaplan in increasing English

Learning Programs as well as Higher Education Programs. Kaplan will also find itrelatively unproblematic in replicating its competitive advantage and business model in

Chile which will be further discussed within the report.

Almost 40% of the Chileanpopulation is under the ageof 25. This indicates that thenation is still a developing

country leaning towardmanufacturing and serviceindustries1.

Comparison Between US and ChileEducation Sector

As Chile transitions into a developed nation, the global education standard has shown

promising results in Chile. As Chile develops its education industry, there are similar

characteristics between both Chile and the United States that will allow Kaplan to replicate its

business model and competitive advantage within Chile2.

These similarities are promising for Kaplan as they will be able to bring and build Kaplans

business model that will resemble Kaplans business model within the United States. Despitethe subtle differences that Kaplan must initiate through adaptation, Kaplans strategy of

entering Chile will be reinforced by the similar characteristics of the United States and Chiles

education sector.

Similarities between US and Chile Education Sectors

Highly Subsidized by Government Mandatory Requirements of Primary and Secondary Levels of Education

Highly Subsidized Public Universities High Enrollment Participation of Primary and Secondary Level of Education

25 and under

25 - 45

45 and over

|5


6/24

Macroeconomic Attractiveness

Close Chile-U.S. Relations

Chiles economic ties to the United States enhancthe need for foreign language proficiency and

boost demand for tertiary education that is alignewith international standards. The United States isboth a major supplier and major market (Exhibit1), making English vital to Chiles businessrelations.

Market Structure

Chile has a relatively large, educated middle clas

GDP of $15,500 (2010 est.) Adult literacy is at 920% of the population is disadvantaged (Exhibit 3approximately 12 million people within our poten

Market Accessibility

86% of Chileans live in urban areas, with 40% of tlocated in Santiago. This makes the Chilean capitsite for Kaplan.3

National Economic Growth

Chiles annual real GDP growth rate was -1.5% inexpected to be 3.4% in 2010 as Chile rebounds freconomic downturn.4

e

d

, with a per capita

%, and less than), leavingial target market.

he populational an ideal launch

20094, but isom the global

|6


7/24

Administrative and EconomicSimilarities Will Allow for a SmoothTransition into the Chilean Market

Using the CAGE analysis, it can be seen that the distancebetween Chile and the United States are low on all

dimensions, making Chile a desirable destination forKaplans ESL learning programs5.

Cultural: Medium

Language differences exist, but thisfeeds directly into Kaplans businessmodel

Very traditional society that placesheavy value in education and socialstatus

Significant immigration has created aculturall and racially diverse society

Prejudice based on class status isprevalent in the urban centers inwhich Kaplan would be enteringEducation in Chile is of high standards

Administrative: Low

2004's The United States-Chile FTAsignificantly decreased administrativedistance between US and Chile

Eliminates tariffs and opens markets,reduces barriers for trade in services,provides protection for intellectualproperty, ensures regulatorytransparency, and guarantees non-discrimination in the trade of digitalproducts

Geographic: Low

86% of Chile's population lives inurban areas6

Urbanization will allow Kaplan toquickly and effectively target alarge market without concern oftransportation

Economic: Low

The large middle and significantupper class offers Kaplan amarket income structure verysimilar to that of its other targetmarkets

Barriers to EntryChile has had a long established relationship with the

United States that allows for many businesses, especially

within the services industry to enter into Chile.

Furthermore, the Chile-United States Free Trade

Agreement extensively covers the service industry. These

broad ranges of coverage will be beneficial for Kaplan asthere are no administrative barriers that Kaplan faces in

entering Chile.

Barriers to entry in Chile for the economic sector are

fairly low. However, there are still certain factors that

contribute to some level of difficulty that Kaplan may

face when entering into Chile7:

With the lack of strong IP protection, Kaplan will face

challenges in retaining the brands competitive

advantage, especially within the software market. Kaplan

must focus on offering its services through its

ESL/Education Programs rather than in the form of

Kaplan software programs.

Weak enforcement of Intellectual Property(IP) Protection

Piracy of Kaplan Products and Software Medium Level of Competition in ESL

Programs

|7


8/24

CHILEMARKETANALYSIS


9/24

0.00

1,000,000,000.00

2,000,000,000.00

3,000,000,000.00

4,000,000,000.00

5,000,000,000.00

6,000,000,000.00

7,000,000,000.00

8,000,000,000.00

9,000,000,000.00

10,000,000,000.00

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

Chile Education Spending in US$13

Chile education Spending in US$

Chile Needs Kaplan to Act as a Leader in the Private Education and ESL Sector, Furthering Their

Current Initiatives

Education spending in Chile is largely privatized,

with private funding making up 48% of total

education spending8. This makes Chile a highly

desirable market for foreign companies.

Government spending on education is relatively low

at 3.3% of GDP9. However, the high level of private

funding makes total spending toward education

6.4% of GDP, comparable to levels reported by

Mexico10. Close to 75% of the total students in Chile

study in private institutions.

Chilean consumersOnly 2% of Chileans graduating from high school speak English well enough to

pursue work or studies in English11.Within the 18-24 age range, around 38% ofChileans are enrolled in tertiary education. Of these students, 55% entered

universities, 26% entered professional institutes, and 18% into technical trainingcenters5.

Students from the richest 40% of households make up 70.2% of studentpopulation in universities, 51.3% in professional institutes, and 45.5% in

technical training centers12.

2011 6,863,317,613.00

2012 7,345,698,983.00

2013 7,861,984,043.00

2014 8,414,555,678.00

2015 9,005,964,254.00

Projected Education

Expenditure in Chile ($US)12

|9


10/24


11/24

COMPANY

OVERVIEW


12/24

Expanding Opportunities Worldwide

With an increasing global demand for higher education and English language training, Kaplan International has grown to be one of thelargest providers of academic English language instruction worldwide. Kaplan International institutions give international students theopportunity to experience a Western-style education without leaving the comforts of home. Today, 20% of Kaplans total revenue comes

from its international operations14.

Program Offered

- ESL In-Class- ESL Online (Independent Study)- English language Study Abroad- Test preparation services- Financial services, business and legal training

programs

- Undergraduate and postgraduate degrees, studyabroad

While Kaplans financial services, business and legaltraining programs are highly regarded in Europe andin the Asia Pacific, the majority of Kaplansinternational locations focus on the teaching ofEnglish as a Second Language (ESL)15.

|12


13/24


14/24

E

NTRYSTR

ATEGY


15/24

Target Santiago

Over one-third of the Chilean population and 45%of Chiles GDP come from its capital, Santiago16.Therefore, Kaplan will target Santiago for entry,

with future plans of moving into other densely

populated cities17.

Kaplan has used two different entry strategies in the past:

1. GreenfieldPartnership with Educational institutions

Kaplan would use current university infrastructure for ESL classes. This is amore cost-efficient option which also allows Kaplan to have a wide reach of

possible students. However, because of profit sharing with the university,this will be less profitable. Also, with the sharing of computer hardware,

there is the risk of intellectual property theft from the university.Wholly owned brick-and-mortar

Self-owned facilities will allow Kaplan to make more profit. Also, a Kaplan-owned storefront will increase the reputation of Kaplan to Chilean consumers;

companies that own property are seen as more reputable. A Greenfieldoperation will also be a greater investment that holds greater risk.

2. AcquisitionWhile Kaplan has entered other international markets through acquisition inthe past, the acquisitions were focused on the entry into financial, legal and

business training industries. The acquisition of an ESL education facility wouldnot be desirable, as ESL companies are heavily defined by intellectual capitaland educational learning programs. The costs of training and implementing a

Kaplan-style educational program would be considerable.

What Services to Bring

Financial services, business and legal training programsChile does not use the US accounting method, GAAP or the USbar exams. Therefore, Kaplans financial and legal trainingprograms will prove largely irrelevant to Chile.

Test preparation servicesDemand for US standardized test preparation (SAT, ACT, etc) is

low; the number of Chileans who study internationally in theUSA is low.

English language study abroadKaplan currently gives Chilean students the opportunity to studyEnglish at English-speaking campuses. However, these servicesare run out of Kaplans Brazil branch.

ESL in-class and onlineLow English fluency and increasing demand for English-competent workers makes ESL the most desirable service toextend to Chile .

Chile Population Distribution

Santiago

Valparaiso

Concepcion

La Serena

Antofagasta

Temuco

Entry Options

|15


16/24

WOFEGreenfield

Total controlAll learning

No culture clash

More expensiveSlowRisks

WOFEAcquisition

QuickerTake out rivalsTotal control

Market Access

RebuildingFinding the right company

Valuation/PremiumNot a blank sheet

Sunk costsPolitical risks

Exporting

Low cost

Trade barrierTransportation costs >

marginNo control of brand

Licensing

Low costsLow riskFlexible

Access to market

Brand Risk

JV

Access to marketShared riskQuicker

Complement productlines

Partner conflictOwnership distribution

problem

Finding the right partner

Entry Options

Looking at 5 possible methods of entry, it is best for Kaplan to enter as a WOFE Greenfield. Although it is more expensive than the other options, due to the

industry relying more on intellectual property and staff rather than facilities, the start-up costs are mitigated.

For the Partnership with Educational Institutions options, it would be best to target Chiles Traditional Universities, a group ofpartially government-funded institutions that hold the highest prestige within Chiles domestic universities.Of Traditional Universities that are based within Santiago, there are three choices:

Universidad de Chile18

- Founded in 1842, it is the oldest educationalinstitution in Chile.

- Population: 24235 undergraduate, 6086graduate, 4128 Masters, 930 Doctorate

- Ranked 6th in Latin-American Universities- Notable alum: 19 Chilean Presidents, Nobel

Prize winners Gabriela Mistral and PabloNeruda

- Facilities: 100% Wi Fi coverage and IP phonesystem in all the faculties and institutes;availability of video-conference/streaming

Pontificia Universidad Catolica de Chile

- Founded in 1888- Ranked 3rd in Latin America19- Population: 19040 undergraduate, 3808

graduate, 96812 alum

- 89% of enrolled students place in top 10%percentile in country

- Facilities: Four campuses in Santiago, eachequipped with Wi Fi coverage and computerlabs

Universidad de Santiago de Chile20

- Formerly known as the State TechnicalUniversity, it is known today as a prestigioustechnical school

- Focuses on science, technology, and artsand humanities

|16


17/24

R

ECOMMEN

DATIONS


18/24


19/24

APPENDIX


20/24

Assuming certain parameters, it is a realistic estimate that Kaplan can capture 1% of the ESL market from the first year of operations in Chile,

with future projections of 20% market share in 5 years. Due to the low variable cost and ease of replication of both ESL courses and learning

materials, Kaplan can have returns within its first year of operation. Kaplan can have $2 million net profit in its first year of operations and $35

million net profit by the end its fifth year, with the assumption of normal economic growth and 20% market share by the end of 5 years.

Projected Sales and Income for ESL online courses

2011 2012 2013 2014 2015

Market Share 1% 5% 10% 15% 20%

Sales Volume 1370 6850 13700 20550 27400

Unit price $1,200 $1,200 $1,200 $1,200 $1,200

Sales $1,644,000 $8,220,000 $16,440,000 $24,660,000 $32,880,000

Cost of

operations

$50 $68,500 $342,500 $685,000 $1,027,500 $1,370,000

Excluding

admin and

sales

FC $200,000 $200,000 $200,000 $200,000 $200,000

TC $268,500 $542,500 $885,000 $1,227,500 $1,570,000

Gross Profit $1,375,500 $7,677,500 $15,555,000 $23,432,500 $31,310,000

Administrative

and sales

$30 $41,100 $205,500 $411,000 $616,500 $822,000

Net operating

Income

$1,334,400 $7,472,000 $15,144,000 $22,816,000 $30,488,000

Tax (17%) 226848 1270240 2574480 3878720 5182960

Income after tax $1,107,552.00 $6,201,760.00 $12,569,520.00 $18,937,280.00 $25,305,040.00

Exhibit 1: Profitability Analysis

|20


21/24

Assumptions on the calculation of profitability analysis:

- Only in Santiago, population of 5,883,000- The target market is between 10-40 years of age (2,741,395)- The upper 50% of income level in Chile (1,370,697)- Only 10% have the current need and the potential ability to pay Kaplan. This is about 2.3299% of Santiago

population (137,069 people)

- Flat tax rate of 17% and there is no change for the next five years18- GDP per capita is adjusted to Santiago, which produces 45% of Chiles GDP- $19887 GDP PPP- Education spending annually on average is $ 1,272 which is about 6.4% of $19,887, assuming similar spending on

half of which is spent on public institution

- Chiles Gini index of 52.4 indicates that distribution of income is very uneven. Therefore, it is assumed that thespending capability is likely to be above $1,272

- Kaplan would want $200 per person monthly and $1200 annually

Parameters for Profitability Analysis

|21


22/24

Exhibit 2: Chiles Import and Export Partners

Exhibit 3: Income Disparities in Latin American Countries, Compared to Extremity

|22


23/24

Exhibit 4: Annual Marketing Budget

Full time marketing Staff 3*13000 39000

Online and Print Materials 10,000 10,000

Incentive Plan for Campus

Representatives

1-10 new students $5

10-30 students $8

more than 30 students $10

- The total marketing budget, $50,000, is already included in the fixed cost of Kaplans total budget- Kaplan will engage in lean marketing. Print advertisements and flyers will not be utilized heavily.-

Kaplan should offer incentive based marketing to university educators in Chile. Teachers who could bring new students toKaplan are given $5-$10 per new student, depending on the number of students

o For up to 10 students Kaplan would pay $5 per student, for the next 50 students, $8 per student and beyond that$10 per student flat commission rate.

o This type of incentives will bring each marketing representative $50/month, which is approximately 5% of theirmonthly income. All marketing representatives are part-time positions.

- The incentive program is included in administrative and sales.- Kaplan will print basic materials for $10,000 annually for posters/ sales materials to be distributed to the region.- This technique is used by Kaplans JV partner in Indonesia22

|23


24/24

References

1US Census Bureau: International Data Base (IDB) - http://www.census.gov/ipc/www/idb/country.php2http://www.usp.ac.fj/worldbank2009/frame/Documents/Publications_regional/324690CL0Human0resources0LCSHD078.pdf3The World Bank Urban Population (%) http://data.worldbank.org/indicator/SP.URB.TOTL.IN.ZS4The World Bank Chile Data http://data.worldbank.org/country/chile5Euromonitor International GMID: Chile Consumer Trends and Lifestyles; Economy, Finance and Trade http://www.portal.euromonitor.com/6http://www.nationsencyclopedia.com/economies/Americas/Chile.html

7 USTR - Chile: Foreign Barriers - http://www.ustr.gov/sites/default/files/uploads/reports/2009/NTE/asset_upload_file167_15463.pdf8http://www.uis.unesco.org/template/pdf/EducGeneral/Factsheet07_No4_EN.pdf9https://www.cia.gov/library/publications/the-world-factbook/geos/ci.html10https://www.cia.gov/library/publications/the-world-

factbook/rankorder/2206rank.html?countryName=Mexico&countryCode=mx&regionCode=na&rank=76#mx11 On the Quality of Private and Public Education: The Case of Chile Juan-Pedro Garces - http://www.econ.uconn.edu/Graduate/CV/JP_Chile.pdf12The World Bank Tertiary Education in Chile

13 World Bank staff estimates using data from the United Nations Statistics Division's Statistical Yearbook, and the UNESCO Institute for Statisticsonline database. http://stats.uis.unesco.org/unesco/ReportFolders/ReportFolders.aspx?IF_ActivePath=P,50&IF_Language=eng14Kaplan Corporate Brochure 201015Washington Post Company 10K16http://www.citypopulation.de/Chile-Cities.html17http://www.ibm.com/smarterplanet/us/en/smarter_cities/article/santiago.html18 Universidad de Chile official website: http://www.uchile.cl19 Pontificia Universidad Catolica de Chile website: www.uc.cl/english/prospectus/html/factsandfig.html20Universidad de Santiago de Chile: www.usach.cl21http://www.taxrates.cc/html/chile-tax-rates.html22Lilis Setiadi, Associate Director and Head of Sales, Schroder Investment Management (Indonesia)

|24