Emerging BRIC Nations: Shared Services Model May be Solution for Education

Amarpreet Bhamra 2017
Posted: 01/14/2013

The BRIC (Brazil, Russia, India and China) nations are widely touted, across various reports, as the emerging economic powerhouses for the world economy in the next decade. The BRIC countries comprise more than 2.8 billion people or 40 percent of the world’s population, cover more than a quarter of the world’s land area over three continents, and account for more than 25 percent of global GDP. Moreover a Goldman Sachs report states that the BRIC economies are likely to reach over half the size of the G6 (US, UK, Japan, Germany, France and Canada) by 2025. China and India are expected to become the first and third largest economies by 2050, with Brazil and Russia capturing the fifth and sixth spot (Goldman Sachs report).

These are enormous numbers, the impact of which simply cannot be ignored.

Within the BRIC nations the steady economic growth of India and China has been aided by the expansion of the middle class and rising consumption levels. However to sustain the economic growth trajectory both India and China need to increase spending on key social indicators like education and healthcare.

The education sector is significant, as it shapes talent and influences human capital, which further contributes to the quality of economic output. A few past and current trends within the Indian educational sector are detailed below:

• growth of private schools (largely English speaking) in urban centers catering to the middle-class

• expansion of private schools with international syllabi (IGSCE) including facilities like air-conditioned classrooms, doctor-on-duty, nutrition experts etc.

• evidence of schemes like Education For All Movement (Sarva Shiksha Abhiyaan) to open new schools in areas without them and to expand existing school infrastructures and maintenance

• growth of private institutes offering job-oriented vocational courses in metropolitan centers and emerging urban centers

• emergence of private universities as per University Grants Commission

• establishment of universities by conglomerates like Wipro and HCL

• emergence of chain of pre-schools by corporates (Alpha Kids by Camlin Group)

• potential plan by reputed universities like Harvard and Yale to have Indian footprints (Foreign Education Bill)

• emergence of multi campus model like Birla Institute of Technology and Science and Amity

• increasing collaboration by educational units with foreign universities

• evidence of investments in education by private equity like Tutor Vista and FIITJEE

I believe that the education sector across all developing or emerging economies would do well to leverage shared services, as they expand their scope and are under pressure to deliver the kind of multi-skilled workforce demanded by multinationals setting up operations in these countries.

To support a viable shared services business proposition in education you need to consider the following:

  1. the set-up of the educational centers is characterized by core functions (represented by teaching and administration) and non core functions (represented by transport, legal, banks, library, student services and finance). Both the core and non core activities are housed internally and tend to increase operating costs.
  2. a majority of the finance departments transact admission fees, asset costs and petty expenses manually. All educational units execute financial transactions like payroll, deposit of fees, maintenance funds, vendor payments and taxation by cheques with banks. They fall short of a single interface to enable visibility and transparency of data, thereby incurring potential financial risks. Some key financial tasks like budgetary planning, working capital, cash flow management and financial planning are subject to individual interpretations.
  3. student records are documented in multiple spreadsheets in computers or stored in paper files. As a result retention and retrieval of data is largely manual and cumbersome due to absence of a consolidated database.
  4. there is a constant inflow and outflow of faculty and the entire talent chain operates manually. The counselor’s time is largely invested in short listing, follow up on interview schedules and manual storage of candidates profiles.
  5. there are only a handful of educational units that have invested in trained manpower to manage their technical side. Furthermore, many educational centers are engaged in upgrades of computer labs and information technology systems.
  6. administrative tasks are largely people dependent and are subject to variations across the different campuses. The management of facilities and transport is lacking in standard procedures.

Comparing statistics on the educational sector across all BRIC nations:

BRAZIL
  • A Compounded Annual Growth Rate (CAGR) of 5.5% during 2010-2013 is forecasted for higher education (free-press-release-com)
  • The aim is to raise enrolments from the current 900,000 to 1, 5-million by 2030 which will lead to an increase in the higher education from 16% to 23% by 2030 (bdlive.co.za)
  • The Brazilian Social Services for Industry (SESI) are investing R$1.5 billion (US$750 million) to create 23 new Innovation Institutes designed to support business innovation and research (us-brazil.org)
  • As for public expenditure in education as a percentage of GDP, Brazil also recorded a considerable increase from 3.9% in 1995 to 4.5% in 2005 (OECD Directorate for Education-2008)
  • Education is a $15 billion industry in Brazil with approximately $500 million spent annually on marketing (investor.quinstreet.com)

RUSSIA

  • The percentage with higher education increased from 3.94% in 1995 to 10.12% in 2006
  • According to UNESCO data, enrollment in any kind of pre-school program increased from 67% in 1999 to 84% in 2005
  • The Russian government is to allocate up to 137 billion rubles (US$4.1 billion) to the development of education from 2011-15 under a new federal target programme (universityworldnews)
  • Education and science are priority investment areas for Russia, believes First Deputy Prime Minister Igor Shuvalov while delivering a speech at the APEC (Asia Pacific Economic Cooperation) CEO Summit (english.ruvr.ru)
INDIA
  • The Associated Chambers of Commerce and Industry of India (ASSOCHAM) projections reveal that with government planning to spend around 5% of India’s GDP in next 5 years on education, the market for primary, secondary, higher secondary including colleges and universities in totality could exceed $ 50 billion by 2015 (www.indiainfoline.com)
  • The pre-school segment is valued at $300 million currently and is expected to be a $1 billion market by 2012 (at a CAGR of 36%) (Education in India-Securing the demographic dividend by Grant Thorton)
  • The size of the kindergarten to higher secondary (K12) industry is expected to increase from $24.5 billion in 2008 to $50 billion in 2015 (with an estimated CAGR of 14%) (Education in India-Securing the demographic dividend by Grant Thorton)
  • The size of the higher education industry is expected to increase from $8.7 billion in 2008 to $32 billion in 2012 as the private sector takes a greater stake (Education in India-Securing the demographic dividend by Grant Thorton)
  • The education spending in 2010 accounts for 5% of private consumption and is expected to rise to 9% by 2025 (Education in India-Securing the demographic dividend by Grant Thorton)
  • The vocational segment has emerged as a $2.65 billion market that is expected to grow rapidly into one worth $3.6 billion by 2012 (CAGR of 25%) (Education in India-Securing the demographic dividend by Grant Thorton)
CHINA

  • The total number of people enrolled in higher education to increase to 36 million in 2020 as compared to 30 million in 2009 (kpmg.com/cn)
  • The total number of students enrolled in primary and junior secondary education to increase to 165 million in 2020 as compared to 158 million in 2009 (kpmg.com/cn)
  • The kindergarten enrolment to increase to 40 million in 2020 as compared to 27 million in 2009 (kpmg.com/cn)
  • The budgetary outlay in 2010 was at RMB 216 billion as compared to RMB 198 billion in 2009 (kpmg.com/cn)

Given this backdrop, is there a role for shared services centers to explore this market? How can the shared service centers improve the user experience in education? What are the potential benefits of shared service centers? Will shared services enable processes to transform the education sector?

To begin with, within the education sector, shared services centers could be leveraged in the following areas:

  • Finance and Accounting
  • Payroll
  • Human Resources
  • Benefits
  • Facilities Management
  • Student Services
  • Information Technology (IT)
  • Administration

The buy-in has to be earned after meaningful discussions with numerous stakeholders from both the private and public sector. The shared services model needs to be backed up with adequate analysis on forecasted hard and soft benefits as detailed below:

  • Secure efficiency gains
  • Optimize early payment discounts
  • Improve upon existing levels of customer satisfaction
  • Reduce operating costs
  • Standardize business processes and reduce variations
  • Enhance the quality of services
  • Enhance visibility into cash flow management and working capital
  • Enabling new career opportunities
  • Preserve bandwidth to improve quality of teaching and research
  • Strengthen vendor relationships leading to higher satisfaction
  • Minimize potential financial and regulatory risks
  • Enable transparency through standard IT platforms

A cross functional body of professionals with experience in education, shared services, information technology, legal, finance, taxation, government and regulations should oversee the roadmap for implementation. The process may greatly benefit by observing best practices from similar proof of concepts in other countries. For example:

  • The University of California is going live with a shared services center to include payroll, workforce administration and leave management,this year.
  • The University of Berkeley is considering a shared services model for human resources, information services and finance activities with the aim of providing a more efficient and effective working environment for faculty, students and staff. The HR shared service center was operational as of July 2010 and caters to approximately 3000 clients across three major divisions (the Office of the Chancellor, Administration, and Information Services and Technology).
  • A survey of 230 colleges in UK has revealed that over half of them (60.7%) are considering a move to shared service centers.
  • As per Rowan Miranda, associate vice president for finance, at the University of Michigan "up to 12 schools in the United States have implemented, or are implementing, the shared services model on a university-wide level. Yale and other frontrunners in this transition may face resistance because people are unfamiliar with the system. But administrators at colleges and universities will eventually be unable to ignore the long-term cost-cutting advantages of the system."
  • The Yale shared service center for finance was started to reduce strain on faculty and staff by streamlining administrative tasks. "But the onset of the recession in 2008 forced administrators to reexamine their priorities, and shared services became part of efforts to reduce a $350 million budget deficit the University faced from its declining endowment" as stated by Shauna King, Vice President for Finance and Business Operations.

The footprints of existing shared service centers in India and China in other industry verticals could be a starting point for the education sector to develop its own platform. To sustain a competitive advantage it is imperative for BRIC nations to leverage a polished and well-endowed global talent pool. This can be supported by providing qualitative academic inputs and developing a conducive environment for skill development and research. The faculties should, therefore, be distanced from repetitive and mundane tasks and focus on nurturing talent and sharpening skills. The entry of shared service centers offers a potential pathway for faculty to invest its precious bandwidth in improving the standards in education.

The moment has arrived for BRIC nations to plant the seeds of Shared Service Centers and nurture their potential to expand their economic footprint on the global stage.

Join the SSON today as a FREE member and never miss out on important industry news again!

Amarpreet Bhamra 2017
Posted: 01/14/2013

member

Join for Free

EVENTS OF INTEREST

United States
February 25 - 27, 2018
The Peninsula Manila, Makati City, Metro Manila, Philippines
March 18 - 21, 2018