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Education External Environment Analysis

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About this sample

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Words: 1582 |

Pages: 3|

8 min read

Published: Jun 5, 2019

Words: 1582|Pages: 3|8 min read

Published: Jun 5, 2019

Table of contents

  1. Pestel
  2. Political
    Economic
    Social
    Legal
    Key Drivers
  3. Conclusion
  4. Industry Environment Analysis
    Bargaining Power of Suppliers (Low)
    Bargaining Power of Buyers (Low)
    Threat of Competitors (High)
    Threat of Substitution (Moderate)

G8 Education Limited, founded in 2006, is a provider of early childhood care and education services and facilities across Australia and Singapore. The company is a profit organisations owned by shareholders, and is the largest AXS-listed child care operator in Australia. Through acquisition, it has various brand names under its umbrella. G8 Education owns 495 centres in Australia, with almost 80% in Queensland, New South Wale and Victoria and 21 in Singapore; compared to the market leader, Goodstart Early Learning which has 649 centres across Australia..

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The company has a total of 9927 employees. According to its 2017 annual report, it has a total revenue of $796.8 million, and a market share of 6.8% making it the second largest player in the industry, behind Goodstart Early Learning, 7.9%. G8 Education differentiates themselves by recognising demands of the community, and investing in educational resources including proficient educators and carers.

Pestel

Political

In 2016-2017, government expenditure on early childhood education has more than doubled compared to ten years back. In July 2018, a new subsidy, targeting lower to middle income families, varying by income level, hours worked and type of childcare, used was introduced. This subsidy, budgeted at $23.2 billion by the government, will be paid directly to child care operators. Moreover, a $1.2 billion Child Care Safety Net was introduced to aid families most in need. Child care operators with children with additional needs are assisted with additional funding under the Inclusion Support Programme. This initiative is an opportunity for industry players to tap on.

Economic

Recently, the labour force participation rate has increased strongly and the unemployment rate is predicted to drop to 5.25% as GDP increases. Since 2016, the participation rate grew by 1.1% to 65.5% and is driven by higher participation of females (RBA,2018). Moreover, from 2016 to 2017, Full-Time Adult Average Weekly Ordinary Time Earnings grew by 2.3% to $1,567.90 and the Full-Time Adult Average Weekly Total Earnings increased by 2.2%b to $1,628.10 (ABS,2018).

Social

Birth rate increased by 1.41% from 304,100 in 2016 to 308,500 in 2017. Introduction of the baby bonus and government subsidies has helped to increase birth rates, which presents the markets with opportunities.

There was an increase of 4.2% of marriages in 2016 (118,401) compared to 2015 (113,595). Despite that, there is a worrying trend of increasing median age at first marriage for both genders. Compared to 2015, in 2016, the median age increased by 0.2years, to 30.3 years for males, and 28.7 years for females. This is a threat as it would be harder for a woman to conceive at a later age as her fertility starts decreasing at age 32. Also, more common for women over 35, are pregnancy complications and miscarriages. These factors may deter mothers from conceiving which would negatively impact the birth rate. With less birth, it implies that there would be a smaller pool of buyers to tap on.

Female labour force and maternal workforce participation rates have risen over the past decade, and is expected to rise further(RBA,2018). As number of mothers rises, this trend is an opportunity for the child care industry.

Legal

In 2011, under the Paid Parental Leave Act, all workers who are primary caregivers earning $150,000 or less annually are entitled to eighteen weeks of paid leave at the federal minimum wage. Unpaid leave to tend to children’s health, and full-pay leave for spending time with their children and supporting their educational, social, and emotional development are also given. Paid maternity leaves not only improves women’s health, but also guarantee that women are not left out from having jobs or earning income while having children. With these incentives , more people would be willing to have more children, making this is an opportunity for the early childcare industry.

In 2013, reforms to improve quality involving stronger standards, new rating systems, the Early Years Learning Framework, and strategies to develop the early childhood workforce was implemented. As the regulations and requirements gets more stringent, this may pose a threat to the industry.

Key Drivers

As illustrated, the key drivers of change for the child care industry are the social, political and legal factors. The increasing birth rate, government subsidies, and Paid Parental Leave Act are opportunities that market players can exploit. The factor dampening the growth of the industry are the more stringent regulations governing the industry and the increasing age at marriage. Factors like technology and environmental do not greatly affect the industry.

Conclusion

In all, the industry is growing and the opportunities to tap on outweighs the threats. That being said, G8 Education should capitalise on the opportunities, but the threats should not be overlooked and be monitored.

Industry Environment Analysis

The purpose of this analysis is to forecast the attractiveness and profitability of Australian child care industry as a whole.

3.1 Threats of New Entrants (Low)

Despite the industry not being saturated, there are several obstacles for new entrants. According to Australian’s Childrens Education and Care Quality Authority, there are numerous increasingly stringent guidelines a care provider has to follow. The market penetration cost are also relatively high as center-accomodation cost, teachers wages, facilities and equipment may deter new entrants. Also, bigger players are more able to attract qualified staff and have better staff mix like specialist staff which would be a differentiating factor of the operator. These would pose a deterrent for new entrants into the market. Thus, the barriers of entry to the industry is high, and threat of new entrants are low.

Bargaining Power of Suppliers (Low)

To support the operations of the child care provider, supply chain management is essential, thus, powerful suppliers may negatively impact the profitability. According to Job Outlook (2017), a government initiative, the number of child carers in Australia has increased greatly and is expected to continue growing. There are 142,200 carers in the industry in 2017. With the supply of carers in abundance, the bargaining power of suppliers are reduced as there would be a large pool of carers to tap on.

Bargaining Power of Buyers (Low)

With increasing birth rate, which translates to the increased need for childcare services, there would be more buyers. When there are a lot of buyers, they do not hold bargaining leverage over the childcare providers (Porter 1979). However, there are many players in the market, and the cost of switching is low. Despite that, time and effort to look for another provider may dissuade them. As such, the threat of buyer’s bargaining power is low.

Threat of Competitors (High)

The industry is fragmented with plentiful small-scale players. Some larger players such as G8 Education and Affinity Education pursue strong acquisition paths, buying out smaller industry players, seeking market share and economies of scale. Most childcare facilities cater to those living in the nearby neighbourhood, and numerous smaller players operate only one facility; this helps to lower competition. However, according to ABC News(2018), there are several operators within one kilometer radius of each other, hence driving up competition. Operators compete on various factors to differentiate themselves, some include, facilities, extra services like counselling and healthcare. an increasing trend is to provide preschool education services. With numerous competitors, each trying to differentiate themselves, the market competition is high.

Threat of Substitution (Moderate)

As the employment rate in Australian rise, more parents would be unable to look after their children, this would increase the demand for childcare services. However, instead of sending their children to childcare facilities, parents may choose to send them to informal caregivers such as relatives, friends or grandparents. Other alternatives includes hiring babysitters, home educator or nannies (Baxter,2015). Such arrangements offer more flexibility and may cost less. Despite that, informal care do to reap the same social and educational benefits as formal care. As such, the threat of substitution is moderate.

Figure XXX compares the five competitive forces that influence the child care industry in Australia. The threat of new entrants is low, where new competitors may easily enter the market. The suppliers do not have high bargaining power due to the large pool of child carers to tap on. Due to the increasing need of formal child care and birth rates, the bargaining power of buyers is reduced. All of which presents opportunities for the market players to exploit. On the other hand, the competition within the industry is high, with many market players, aiming to differentiate themselves, posing a threat to other operators. Informal care, an alternative to child care facilities, also poses a threat to the industry.

With most of the five forces favourable to the early child care industry, the industry has attractive growth prospects with its key drivers being low threats of new entrant, buyers and suppliers. However, companies would face strong competition within the market which should be monitored. G8 Education, being a big market player is not as threatened by competition due to its large number of strong brands under its umbrella and is well positioned to take advantage of the opportunities.

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In summary, the child care industry has an attractive and profitable outlook, with the opportunities outweighing the threats. Some key drivers in the industry are the social, political and legal factors, while the ecological and technological factors do not strongly impact the industry. Its low threat of entrants, buyer and supplier bargaining power further enhances the industries appeal. Nonetheless, G8 Education, despite many competition within the marke, is able to survive in the industry.

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This essay was reviewed by
Dr. Charlotte Jacobson

Cite this Essay

Education External Environment Analysis. (2019, May 14). GradesFixer. Retrieved March 29, 2024, from https://gradesfixer.com/free-essay-examples/education-external-environment-analysis/
“Education External Environment Analysis.” GradesFixer, 14 May 2019, gradesfixer.com/free-essay-examples/education-external-environment-analysis/
Education External Environment Analysis. [online]. Available at: <https://gradesfixer.com/free-essay-examples/education-external-environment-analysis/> [Accessed 29 Mar. 2024].
Education External Environment Analysis [Internet]. GradesFixer. 2019 May 14 [cited 2024 Mar 29]. Available from: https://gradesfixer.com/free-essay-examples/education-external-environment-analysis/
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