Back to school ... and back to business

Dubai: Rema Menon, an education counsellor in Dubai, finds it difficult to view education as 'business'.

"After all, to get into it is for pursuing something noble," she says. "If you are running schools, it shouldn't be for profits."

But she says she cannot ignore what's happening around her. The reality is that Dubai is growing exponentially and there will be a vast need of quality schools for different income segments to cater to the children of families constantly coming in, Menon says.

"In fact, more and more builders should think of constructing projects in terms of communities and include schools in their package," says Menon. "However to ensure a minimum standard the government should have a stronger system of checks and balances. Unfortunately in the present scenario, there are many schools that charge a lot but do not deliver quality education."

The majority of them are profit-driven organisations, say experts and from the business perspective, maximising financial returns is a key concern of school management.

When it comes to providing quality education, the picture is mixed. Irrespective of the curricula offered and fees charged, there are, not surprisingly, good schools and poor schools. How well 'for-profit' schools have been able to balance the twin objectives of business and academic success is a debate in itself.

In recent years, more and more private investors are entering the school education sector. Out of a total of 219 schools in Dubai, 132 are private and 16 started up in the last five years, according to GRMC Advisory Services, a private consultancy here. And private enrolment in Dubai has grown to 117,741 students or about 79 per cent of the total.

Schools apply different fee structures, which are usually related to the curriculum offered. Dubai private schools' annual fees range from about Dh3,000 to more than Dh50,000, reflecting a variety of curricula, including Indian, Pakistani, British, American, UAE and International Baccalaureate, among others.

Sometimes it's not the curriculum that determines the fee structure, but rather a range of other provisions. For instance, Global Education Management Systems (GEMS), which manages 22 schools in the UAE and abroad catering to more than 50,000 students and spanning different curricula has three tiers of fees: premium, mid-market and budget.

"The only difference is in the extracurricular facilities and the premium, state-of-the-art technology provisions. Variations in fee structures arise solely from those differences, says Sunny Varkey, chairman of GEMS. "We offer the same level of quality education irrespective of the fee structure."

Ziad Azzam, CEO of Beacon Education, which runs four schools in Dubai for the upper income bracket does not dispute that financial return is an important aspect of their operations. Beacon manages schools for a private joint-stock company named Taaleem.

"Once the school comes online, the head of the school (the principal) is almost like a CEO of a business unit. That head has a budget that he has full control over and he has targets, both financial and in terms of bringing excellence in education," Azzam says.

There is no tension between having an internal rate of return as part of a business plan and delivering quality, Azzam says.

"If we can't deliver a product that is better than existing schools and others coming up, we will be out of business."

Azzam welcomes more schools coming up. "The unfortunate aspect of several private schools that have been low on quality is that they have been able to get away with it. And that's because the competitive market has not been there so far," he points out.

With more schools coming online, that situation is beginning to change. The rate at which new schools open is driven by demand, which is rising fast.

"The upcoming residential communities in Dubai and Abu Dhabi will create additional demand for educational facilities. Over the medium term, ample opportunity exists for developing schools," Yadav says.

Whereas demand exists for all kind of schools within Dubai, the rising cost of living means that middle and low-income segment expatriate families are opting for home-country curriculum schools.

"For [such] schools to be profitable, they either have to have limited or have significant enrolment levels such as some of the large Asian schools which have students in excess of 5,000," Yadav observes. "The key factor governing the profitability of premium schools by contrast is that while they rely on higher fees to meet high operating costs, the others try to reduce operating costs by offering relatively limited facilities and lower teacher salaries.

So how and when do these differing models break even?

While cautioning against generalisation, Yadav says that "Given the demand and prevailing fees for premium schools, it is likely that they can easily achieve a payback in four to six years, thus making them a very lucrative investment."

Dubai International Academy, one of the newly opened schools offering International Baccalaureate Programme curriculum, caters to the upper income bracket children. The annual average tuition fee at the Academy is Dh34,100.

Avi Bhojani, managing director of the Dubai International Academy, puts overheads in the following categories: real estate costs 25 per cent to 35 per cent; wages 30 per cent to 45 per cent; books and consumables 10 per cent to 15 per cent; utilities 5 per cent to 7 per cent; other administration costs 10 per cent to 15 per cent.

"If a school is lucky, it will make a 5 per cent to 10 per cent profit," Bhojani says.

Schools increasing tuition fees blame the rising cost of living, including spiralling rents. Many well-established institutions that rarely made increases in the past had to do so in the last two years.

"People think that when school fees are increased it's actually a mark-up on our profits," says Varkey. "In actuality, an increase is a necessary adjustment to the rising inflation in the UAE."

Bhojani says over 40 per cent of the Academy's overheads are linked to real estate costs (school plus teacher accommodation).

"If real estate costs go up by 25 per cent, school fees have to go up by 10 per cent," he says.

Experts believe that the government fixing a ceiling (on raising fees) has both positive and negative impacts.

"It's positive [since it] has a significant impact on family's disposable income," says Yadav. "On the other hand, it permits all schools to increase fees to a certain limit (20 per cent in three years) irrespective of market dynamics. Ideally, school fee should be determined by the market."