The Rise and Fall … And Rise Again of New Oriental: Lessons we can learn from a Chinese Business.
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One of the more remarkable things about working in China and with Chinese partners, is the speed and the kind of diligence with which things are done here. After all, the popular phrase “China Speed” (中国速度), while recently quite politicized, really doesn’t come from nowhere.
As China’s economy has grown in size and strength, so have its domestic companies, and when competing with their Chinese counterparts, foreign companies must stay on top of their game at all times. Tough competition, however, should not be a concern for foreign companies in China. Robust competition, when under fair conditions (!!), drives innovation and quality, which ultimately benefits the end customer.
“China Speed” is also a trait of the Chinese people themselves, diligent workers who are eager to improve their livelihoods and who radiate a natural sense of optimism even in the face of adversities. “办法总比困难多” (“There are always more means to solve a problem than there are problems”), they say. Arguably, it is this very ability of the Chinese people to adapt to any given circumstance, good or bad, that helped China become what it is today.
As a western company or businessperson, it is likely that we’ll experience some sort of cold awakening when first setting foot in China. After all, things here are done with “Chinese characteristics”. However, there are lots of lessons we can learn and adopt elsewhere in life or in business. Chinese people and businesses alike are exceptionally agile, and when others only see doom and gloom, they see an opportunity. Hence it is important for western businesses to study their Chinese counterparts carefully and adopt similar traits when necessary.
In the light this, I’ve briefly summarized the rise, the fall and the transformation of one of China’s largest private tutoring companies, New Oriental (新东方), describing their response to COVID-19 and an ever-changing business environment in China.
The Rise.
New Oriental became synonymous with a period of economic reform and the policy of opening-up (改革开放) in China. For years, New Oriental offered English language courses to a generation of young and adventurous Chinese students, many of them pursuing their studies overseas at some of the world’s most prestigious universities.
New Oriental was China’s first private education institution listed on the US stock market, marking the birth of the Chinese after-school tutoring industry, an industry worth 800 billion yuan ($123.7 billion) by 2019. In the following years, a total of 11 Chinese education companies went public on the US stock market. As of June 2021, New Oriental boasted more than 100 schools, nearly 1600 training centers across China and a net income of $3.1 billion.
Education in China was booming. A growing middle class combined with a deep-rooted belief by Chinese parents to provide children with the best possible education made for a perfect market. For Yu Minhong, the founder of New Oriental who in late 1993 started his first training school in Beijing teaching TOEFL and GRE (English language) courses, things went exceptionally well.
The Fall.
During a speech given at the 2016 annual meeting of the China Green Company, Yu Minhong joked to Jack Ma, founder of Alibaba about their companies’ future: "Alibaba may still be around in 10 years, but it certainly won’t be around in 100 years. Education, however, will still be here in 100 years, and so will be New Oriental." (俞敏洪： “10年内，阿里巴巴可能会在，100年后肯定不在。而100年后教育会在，新东方也会在”).
In retrospective, both New Oriental and Alibaba probably would have hoped for smoother ten years.
When COVID-19 first hit China in early 2020, businesses were shut, sometimes even for months straight, and tutoring businesses like New Oriental felt the absence of students in the classroom. New Oriental’s response to COVID, however, was a prime example of the Chinese understanding of a crisis – the word crisis (危机) itself being composed of the characters for danger and opportunity. The company made a push for large-scale online tutoring and reported an annual net income of $3.579 billion that year, a year-on-year increase of 15.6%.
Unfortunately, things wouldn’t stop there.
In July 2021, the Chinese central government issued the so called “Double Reduction” policy (双减政策), an educational policy that aims to reduce students’ study burdens. As a result, private tutoring for most academic subjects was either forbidden or heavily regulated. This sweeping overhaul left businesses struggling, most of them shutting doors and the one’s still running turning non-profit. Hundreds of thousands of employees, as well as people associated with the sector had to reorientate their careers, and parents were left puzzled about how their children would perform in their upcoming exams.
While the Chinese government said that this “clean up” was necessary to regulate a bloated private education sector and would help bring talented teachers back into the classrooms of state-run schools, analysts doubt that keeping the difficulty of school and exams the same, while cutting means of extra tutoring would really help to reduce students’ stress.
There’s no doubt that more pressing issues within China had a significant influence on the sudden implementation of the policy; a declining birthrate that dropped to a record low in 2021, an aging population and a decreasing workforce, just to name a couple. While those issues are not unheard of in other countries, they pose a significant challenge to China’s modus operandi.
As for New Oriental, the company yet faced another existential crisis. Yu Minhong would later disclose that in 2021 New Oriental’s market value dropped by 90% and operating revenue decreased by 80%. As a result, 60,000 employees were dismissed, and the company was hit with expenses exceeding 20 billion yuan ($3.14 billion).
Seeking transformation.
So, we once again return to the phrase: “there are always more means to solve a problem than there are problems”.
In August 2021, just a month after the passing of the “double reduction” policy, New Oriental started a newly branded learning platform called “blingo” (新东方比邻中文), offering online Chinese classes for Mandarin learners outside of China. While the number of Mandarin learners outside of China – around 20 million people estimated by China Daily – is only a fraction of the English language learning population in China, for crisis-stricken New Oriental it nevertheless is a market worth getting a slice of without having to deviate too far from a familiar recipe.
However, the company’s true transformation happened within China. In late 2021, New Oriental launched a marketplace called “Dongfang Zhenxuan” (东方甄选), selling a variety of agricultural products online, supposedly earning a 25% to 35% commission on sales. New Oriental has gone a long way from helping students pass their exams, to selling fruit, meat, and vegetables online, and it certainly wouldn’t have worked out without the right amount of imagination and risk taking.
On December 28, 2021, Yu Minhong personally started his very first live stream, selling up to 5 million yuan worth of goods the same day. Dongfang Zhenxuan was off to a promising start and New Oriental could once again build on their experiences as an online platform. Nevertheless, New Oriental still has a long way to go, and whether or not the company can return to old strength is still up for speculation.
For now, Yu Minhong shrugs off the difficulties of the past year: “Our business [Dongfang Zhenxuan] has just started, and our daily sales are still very small, only a couple of hundreds of thousands of yuan. But with a start and a goal, there is no retreat, and we have a reason and the motivation to move forward", he says.
