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Monday, 23 November 2020

Education franchising: the (relatively) low-risk strategy that could boost Egypt’s internationalization drive

The state of education franchising in Egypt and how it could help its internationalization drive: Franchising international schools in Egypt is increasing — and sector leaders say it’s poised to accelerate. It’s an effective way to import knowledge and expertise without relying on major investments from international partners, says Hatem Zaki, Executive Board Member of the Egyptian Franchise Development Association (EFDA). With internationalization key to Egypt’s education strategy, franchising could bring knowledge and respected brand names into the country, sources argue.

International education franchises are still recent and few: The British Columbia Canadian International School appears to be the oldest K-12 international school franchise in Egypt — here since 2004, says Vice Chairman Karim Mostafa. Malvern College Egypt, set up in 2016, is a franchise of Malvern International, operated with Azazy International Group, says CEO Azza El Sherbiny. Kent College West Cairo is due to open in 3Q2022. Saxony International School Egypt is set to open in 2021-2022 as a franchise of German holding company Saxony International School, in partnership with CIRA and education management company Eduhive, says Mostafa, who is also Eduhive’s CEO. The Global Academic Foundation was inaugurated in December 2019, a franchise of the University of Hertfordshire.

So how exactly does education franchising work? The franchisee (the Egyptian business) pays the franchisor (the international school or its owning company) an initial start-up fee and annual licensing fees. In exchange, the franchisee can use the franchisor’s curriculum, educational resources, name, trademarks, and methodology.

This means that the franchisee — along with the investors and banks financing it — assume almost all the financial risk: The franchisee invests in building the school or university, and pays additional costs to the franchisor. These include annual fees usually comprising 7-12% of their annual revenue, according to Mostafa.

Egypt’s government and banking sector urge caution: Egypt currently has no specific franchising law. The government wants to promote franchising, but ensure franchisors entering the market are legitimate with real value propositions, says EFDA’s Zaki. Banks also want clear definitions to safeguard loans and rights granted, he adds.

It’s a smart play for foreign schools seeking access to global markets… Schools are using franchising to expand globally, with the MENA region and Asia being popular destinations. These are expanding markets, where franchisors know they can capitalize on their names to jump start school business ventures, says AIS Director Kapono Ciotti. Franchising offers financial benefits to schools wanting to diversify their income streams, but educational value is also an important driving factor, says Allan Walker, Malvern’s Director of International Schools. Educational opportunities that come from having a global group of schools increase Malvern’s profile and visibility, ultimately feeding into its long-term success, he adds.

…with relatively few responsibilities: These mainly have to do with quality control and supplying educational content. Because access to knowledge, trademarks and resources can be revoked, the franchisor assumes minimal risk, notes Zaki. The franchisee — or in the case of SIS, Eduhive operating as a third-party partner — assumes responsibility for compliance with all local regulation around building construction, taxation, and curriculum approval, says Mostafa.

While franchisees have to contend with the high costs made worse by covid-19: CAPEX required to open and run a school can see a return on investment in around 7-10 years, multiple sources say. This year, there’s an extra challenge in the form of covid, with schools expected to see increased costs of at least 8-10% (possibly 10-12% for international schools) because of blended learning — including sanitation measures, construction needed for social distancing, running online platforms. This would also include possible FX losses from any depreciation of the EGP, we noted in June.

Franchisees are undeterred, however: Covid is a temporary setback, and franchisees factor in potential obstacles when planning and budgeting, says Moustafa. Long-term vision is a must when entering into a franchising arrangement, he adds.

Franchised schools also risk being bound by central offices that don’t understand local contexts and curricula, says Ciotti. AIS wasn’t established as a franchise because of this risk: “The ethos of [parent company] ESOL Education is that schools should be grounded in the culture they operate in.” Quality control and accountability are crucial, Walker agrees: “It doesn’t work to try managing a foreign institution from thousands of miles away or to imagine that everything in Cairo should be a carbon copy of the UK.” Malvern aims to give local leadership teams the tools to ensure high quality education, to advise them on day-to-day management issues, and to undertake regular inspections, he says. “I don't accept that it isn’t possible to ensure that educational standards are met by teams in different locations.”

But risks are generally outweighed by benefits, which include not building a curriculum or methodology from scratch, in addition to being part of a global brand, say sources. “You’re buying 160 years of experience in the blink of an eye,” says El Sherbiny. Malvern College Egypt exchanges experience and even staff with other members of the Malvern global franchise community, she adds. With Egypt’s international student numbers plummeting after 2011, franchising could help attract international students and expertise, argues Zaki. Operationally, franchising could reduce work for schools just starting up, says Ciotti.

So why hasn’t education franchising taken off in Egypt yet? Partly because the phenomenon itself is still very new, says Walker. But Egypt appealed to Malvern because it’s relatively economically advanced within MENA, its demographics are favorable to the education business, and education is culturally very important to Egyptians, he adds.

Proponents of the model say it looks set to grow as it adds value to the local education system. International school franchising is likely to grow because the model works, and has considerable benefits, says Mostafa. Franchising in general raises the bar for quality among local markets, argues Zaki, who believes education franchising can boost competitiveness among local schools and universities.

But some say new regulation is needed: Dedicated franchising regulation covering registration, rights and responsibilities, intellectual property, and disclosures — but leaving room for franchising partners to determine their relationship — is essential for education franchising to grow, Zaki says. The EFDA is currently engaged in discussions with the government, lawyers and other stakeholders to try to iron out these issues, he adds.

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