The Future Education Industry in Toronto - Example

SUBJECT NAME: SUBJECT NO: LECTURER: TUTORIAL: TUTOR: STUDENT NAME: STUDENT ID: Overall Word Count: 3,090 words Special Consideration: None Introduction and Executive Summary This report focuses on the education industry in Toronto which is in Canada’s province of Ontario. The report issues an industry analysis based on Porters Five Forces in order to uncover the current and thus determine the future of education paying much attention to the higher learning institutions. The analysis on the Five Forces analyze the threat of entry, power of buyers, power of suppliers, threat of substitutes and the rivalry existing among the present competitors. The economic, political, ethical, ecological and environment issues are also keenly analyzed in the context of Toronto. The objective of the report targets at prospecting the future of education industry in Toronto. Industry Analysis In Canada the education ranks top as the most likely route to lead to a decent living and for enhancement of personal happiness and growth. Therefore, education industry in Canada including in major cities like Toronto is highly vibrant and competitive. The educated population not only gain higher levels of income but also makes a large contribution to productivity, business innovation and the national economic performance (Fischer &Jones, 2009). According to studies done by the European commission, an increment in the educational attainment by one year increases the aggregate productivity of a country by approximately 6.2 percent in the short-run and by 3.1 percent in the long-run. The study also suggests that education industry enables populations make economically rational decisions that lead to healthier, longer and successful outcomes for an economy (Fischer &Jones, 2009). Toronto emerges as the leading educational, innovation and research center in the State of Ontario and also in the whole of Canada. The depth and breadth of the world-renowned higher learning institutions serve to attract the best businesses and minds from across the world (Fischer &Jones, 2009). Toronto has four colleges publicly owned, four universities publicly owned, a total of 128 specialized research centers and a number of apprenticeship and trade institutions. Over 177,000 students were enrolled in a wide array of programmes in the four universities. Over the period 2000-2009, the average rate of annual enrollment in universities increased by 5.85%. In 2011-2012, 33, 878 degrees were awarded in the four Toronto’s Universities (Fischer &Jones, 2009). The four public colleges offer degree and diploma programmes in technical and practical programmes in cooperation with the industry to facilitate maximum employment. In 2012 alone, there were 83,000 students enrolled in various fields up from only 18000 in the period 2007-2008. There are also a total of 128 research centers of various fields in Toronto and 140 private career colleges offering diploma and certificate programs in various disciplines (Fischer &Jones, 2009). Major economic trends both globally and regionally have impacted the education industry in Canada and will continue to have major effects in the future. The balance of trade has shifted globally to Asian countries such as China and thereby destabilizing the exchange rates. The effect is that inflation rates and interest rates soar bringing an increase in prices. If the trend continues, this effect will impact the cost of education negatively in Canada and especially Toronto by making it expensive. The latter will lead to a decrease in demand side and an increase of supply side effects in the education system (Fischer &Jones, 2009). The Competitive Environment in Toronto’s Education Industry Education is considered as the most important investment in the Canadian system as people envision a life of prosperity through higher educational attainment. As such, there is a high competitive environment among the players of the industry (Porter, 2010). Toronto ranks as having among the world’s best ranking universities and colleges and thus bringing the competitive environment from a local/ regional level to a global level. The competitors are mostly the four publicly funded universities and the four publicly owned colleges. They include the Ryerson University, OCAD University, University of Toronto, York University, Centennial College, George Brown College, Humber College and Seneca College respectively. These universities have affiliated 128 research centers for various disciplines across Toronto (Porter, 2010). The competitive environment will be analyzed through the Porter’s five forces of analysis. The Threat of Entry The threat of entry of Toronto’s education system refers to the entry of new entrants which has the impact of driving the competition higher and thus decreasing the industry’s profitability. The supply-side economics of scale suggest that supply is critical to the prosperity of any industry. In the case of Toronto’s education system, this implies offering more college and university placements that are available for the students (Porter, 2010). The economics of scale imply that education institutions in Toronto increase supply for the same degree programmes while keeping the tuition costs constant. The universities and colleges in Toronto operate on supply-side economics of scale. Thus new entrants would require accepting cost disadvantage or reduced profits until they reach substantial enrollments as their competitors. This discourages entry by new firms and thus reducing the threat of entry (Porter, 2010). The demand-side benefits attached to the four prestigious universities and colleges provide an existential economics of scale allowing them to compete much better as compared to newer institutions. The high university and academic institutions rankings of the dominant universities and colleges lead to an ever increasing demand for available programmes in the various fields of discipline. The latter is associated with the reputation and the higher probability of gaining employment as compared to ones enrolled in new institutions. The latter weakens the threat of entry (Porter, 2010). The existing universities also experience the advantage of capital funding by the government coupled with the incumbency advantage. In the period 2010-2011, there was over 2.7 billion dollars in funding of public institutions of higher learning in Toronto alone. The latter is notwithstanding the fact that government budgets continue to shrink (Porter, 2010). Thus, new entrants looking for entry are unlikely to receive funding from the government. These already existing institutions have the incumbency advantage in that they enjoy established students (buyers) and established reputation. These universities and colleges also enjoy a wider access to distribution channels in terms of access and other infrastructural facilities. All these add to weaken the threat of new entry in the Toronto education industry (Porter, 2010). Power of the Suppliers The suppliers in the context of Toronto’s education industry (Universities and Colleges) involve the individuals and organizations providing support services such as health clinics, bookstores, food services and the highly skilled labor force (researchers, administrators and instructors). However, much of the supplier power is held by the instructors, researchers and the administrators. In Ontario and Toronto, the faculty does have much power due to the existence of powerful associations and unions. The faculty who come from the most prestigious universities have especially more supplier power than their peers since their services make the institutions prestigious and are difficult to replace (Porter, 2010). In Toronto, like the rest of Ontario province, the higher education governance is dictated traditionally by a structured bicameral structure. In the bicameral structure, the academic senate controls academic matters while the governing board controls the administrative functions of the universities and colleges. Ultimately, the faculty’s bargaining power still remains high since there are no realistic close substitutes due to the nature of the highly-skilled labor force of the faculty which remains in short supply in the market (Porter, 2010). Power of the Buyers Buyers in the case of the education system refer to the students including their parents in some cases. In Canada, greater than 35 percent of adults aged 25-64 enroll in degree programmes during the period 2009-2012. The bargaining power of the buyers in the city of Toronto, state of Ontario and Canada in general is dependent on the perceptions formed through information available on the published league tables and rankings (Porter, 2010). Such information is present in the NSSE (National Survey of Student Engagement) report, The Financial Times and the Maclean’s among other sources. The perceptions are also dependent on the accreditation of institutions offering various disciplines as graduates from such schools are more marketable than their peers from unaccredited institutions (Porter, 2010). In the Toronto city, the buyer power is limited due to the limitation by the government on who operates higher learning institutions. Their powers are also reduced since they do not purchase in volumes as a single vendor does since individuals purchase according to their own taste and preference. Thus students exercise the bulk of their powers as individuals. The transfer of credit restrictions present in the higher education system in Toronto also reduces the powers of the students. Measured in comparison with the supplier power, the buyer power is only moderate (Porter, 2010). The Threat of Substitutes Recent studies indicate that students and professionals in the workforce would prefer to spend less time in the acquisition of a bachelor, master’s and doctoral degrees. Convenience is also a crucial factor for the adult learners while considering effective modes of learning (Porter, 2010). The organizations that may bridge this gap in terms of time and convenience may soon become the standard for the industry in Toronto and the rest of Canada. It is arguable that the public colleges and universities in Toronto have not yet recognized any potential threat. However, with the advent in technology that has allowed higher learning institutions to work globally across national and international boundaries, the potential threat may be imminent (Porter, 2010). The veteran online providers such as the Phoenix University who are deeply entrenched in the trade offer higher threats to the universities and colleges in Toronto since most learners may be convinced to enroll their online programmes. If one is considering on the digital shift as a driver and a growing force threatening to change higher learning, then Toronto Universities and colleges experience an extremely high threat of substitutes (Porter, 2010). Rivalry among the Existing Competitors The higher education industry in Toronto is highly competitive since the institutions offer largely similar programs and thus lacking differentiation to act as niche competitors. The higher education institutions in Toronto are located in the major transit lines enabling them to serve a geographical area of 5-6 million residents. Each of these institutions receive relatively high rate of application and thus have to compete aggressively for the best faculty, students and a higher government funding. Despite for large applications that are based on location, there exists strong rivalry based on competition for more funding from the government, the best students and the best faculty (Porter, 2010). Economic and Political Environment Canada’s Ontario higher education industry, of which Toronto is part of, may be tantamount to experience several economic challenges significant in nature. Until recently, the higher education system received a lot of government funding that is relatively more as compared to the growth in enrollment levels in various programmes. The funding has also been relatively much higher as compared to the funding in health care and the general government expenditures (Usher & Dunn, 2012). The recent economic downturn of the year 2007 through to 2012 made the government to reduce a substantial amount of funding and thereby creating significant losses in their endowments. These endowments constitute a significant portion of discretionary income that goes to funding activities such as bursaries and scholarships (Usher & Dunn, 2012). The University of Toronto in itself controlled over 2.5 billion dollars in managed assets while the rest of the publicly owned institutions controlled over 7 billion dollars between the periods 2007 to 2012. Recent economic reports from the World Bank indicate that while the global markets fell by approximately 30% it is reasonable that the endowments also fell by 15-30% (Usher & Dunn, 2012). The latter represents over 2 billion dollars in lost endowments for publicly owned higher education institutions in Toronto. The effect is that the institutions have had to cut into their own meager budgets to create funds for a few bursaries and scholarships as part of marketing and competitive advantage schemes. The latter reduced their competitiveness in comparison to other major top ranking institutions globally (Usher & Dunn, 2012). As the government seeks to achieve a balance of finances, it is likely that Toronto’s Colleges and Universities should expect, prepare and anticipate reduced base funding transfers. While the current transfers are intact, the budget cycles past 2014 are likely to remain restrictive prompting for even more government funding cuts for the higher learning institutions (Usher & Dunn, 2012). The government also continues to withdraw funding for certain research initiatives as private funding also seems to have suffered the effects of the last economic and financial downturn (Usher & Dunn, 2012). The demographics challenges will also likely affect the future of education industry in Toronto. Beyond the year 2014, it is expected that main cohorts of the ‘baby boomers’ reach retirement and thus increasing costs related to elderly care. The number of workforce will fall causing more stress on the government budgets that exceed the previous economic climate and thus reducing the per-student funding (Usher & Dunn, 2012). Thus, tuition will remain the only source of university funding and if they fail to increase the tuition costs, the only remaining option will be to cut on services and programs in the future. Technology and Innovation Recent report by the Department of Education (US) revealed that students taking their classes online through the internet perform relatively better, on the average, than their counterparts taking same programmes in face-to-face traditional instruction classes (Van Vught, 2013). The report indicates that the perception of online studies is maturing and achieving higher growth rates and thus emerging as a strong competitor to traditional methods of learning. The latter forms the support that disruptive technologies receive little appeal initially but continuously appeal to the majority customer’s overtime such that they sacrifice other things they value (Van Vught, 2013). An advance in technology has resulted in significant advances in the provision of higher education on an online platform. The universities and colleges in Toronto have supplemented the traditional learning modules with the online learning in order to tap into the benefits of technology in education and avoid loss of market share (Van Vught, 2013). Cumulatively, these institutions of higher learning in Toronto offer more than 150 courses online and thus catering for the adult and professional learners to whom time and convenience matters the most (Van Vught, 2013). The costs of online education are decreasing and the achievement of economies of scale is realizable quickly. Thus, in the future, online universities may spring up with the exception of offering research. The result may lead to higher levels of flexibility and thus present strong competition to the existing traditional institutions in Toronto. In this light, the institutions will likely be forced to search for innovative and new ways to fund resources for the provision of competitive value in Toronto’s education industry for higher learning (Van Vught, 2013). Ecological and Environmental Issues The education industry in Toronto faces certain ecological and environmental challenges. Toronto being an economic hub due to the globalization and internalization of international businesses experiences high levels of air pollution. Local air quality studies suggest that the air quality risk index is very high prompting for alerted concern (Zeng & Chen, 2012). The major source emanates from the large number of locomotive including trucks and personal vehicles for commuters travelling in and out of the city. The poor air quality presents increased levels of heart and lung disease and also increases the likelihood of cancer development in the respiratory system due to toxic gases. The increased emissions from industries, factories and increased number of vehicles also lead to the consistent occurrence of smog (Zeng & Chen, 2012). The implications for the education industry are obvious in the current state and also in the future. First, many people are increasingly becoming aware and sensitive concerning their health. As such, more people will be more concerned about the air quality surrounding educational institutions and the potential health risks associated (Zeng & Chen, 2012). Thus, if the deteriorating air quality will continue to be the case, more and more people will opt to seek education outside of Toronto in order to avoid the health risks. Thus, for the higher education institutions to remain competitive regionally and globally, they should develop measures and activities aimed at promoting eco-friendlier activities. Such would include establishing further research on sustainable sources of energy to substitute use of fossil fuels (Zeng & Chen, 2012). Ethical Issues There are various ethical issues facing the higher education industry in Toronto. The first involves issues concerning the funding of research activities by the government (Martinez & Wolverton, 2009). The government is supposed to give unconditional research funding to the research centers affiliated to universities. However, there is a lot of intervention in which and what research activities to be funded based on the government’s definition of their relevance (Martinez & Wolverton, 2009). This is evidenced by the withdrawal of financial support to certain research initiatives during the economic recession. The universities are seeking to fund their own research activities through developing initiatives to generate more revenue. Such includes the use of disruptive technologies such as online learning to tap into regional and international markets and thus increasing the capital base (Martinez & Wolverton, 2009). Conclusion The Porter’s analysis of Toronto’s higher education industry brings out how economic value generated by the industry is divided, retained or constrained by new entrants in the industry. The five forces framework the effects of the supplier power including rivalry as strong forces in the higher education industry in Toronto that effectively translate to profit margins that are tighter. In a sharp contrast, higher entry barriers reduce threat of entry, lowering competition and increasing the profitability of the learning institutions. The report presents a situation that the power of the buyers and threat of substitutes could potentially shift in the future. Technology factors present disruptive forces that could shift the demand for higher education in the future. With the increasing health effects associated with the damaged ecological and environmental conditions, learners may opt to enroll in other institutions outside Toronto and thus reducing their competitiveness and profitability. The deteriorating economic conditions posed by the globalization prospects more cuts in government funding for educational institutions in Toronto. Ethical issues will continue to manifest in areas related to research and innovation due to the issues of bias in funding and patenting issues. Thus, the future of education industry in Toronto rests on the ability of the existing institutions to be innovative and change according to existing market trends and conditions. References Fischer, D., &Jones, G. (2009). The Political Economy of Higher Institutions of Learning. A comparison of Quebec and Ontario. Higher Education, 57(5), 549-566. Martinez, M., & Wolverton, M., (2009). Analyzing Higher Education Industry in Canada. An Ethical Perspective. Charlotte, NC: Information Age. Porter, M. E. (2010). The Five Forces of Competition that Shape Strategy in Education Industry: Case Analysis of Ontario, Toronto Education Industry. Harvard Business Review, 86(1), 79-93. Usher, A., & Dunn, R. (2012). Forecasts of Economic and Political Impacts of Recession on the Post-Secondary Education in Ontario, Toronto: Educational Policy Institute. Van Vught, F. A. (2013). Government Strategies and Technological Innovation in Higher Education: Toronto: Jessica Kingsley. Zeng, Y., & Chen, K. (2012). The Environmental and Ecological Perspective and Challenges: Ontario and Quebec. Montreal. The Canada Millennium Scholarship Foundation. Read More