A Class Act

Robert Hsu, April 18, 2008

During a recent visit to Beijing, I got to visit the headquarters of New Oriental Education (NYSE: EDU), a private educational service in China. New Oriental is in a low entry barrier and highly competitive industry, so I wanted to assess the company's long-term advantage and whether it can be sustained. I was able to see the business first-hand and sit in on a couple of its classes. And let me just say, I was impressed.

EDU offers classes in a wide variety of areas, but its TOEFL (Test of English as a Foreign Language) classes are still the company's most popular course. I sat in on a class that was focused on preparing for TOEFL. The class had 40 students listening to an English language recording. Students listened to the recording and then answered a written quiz on what they had just heard. This process continued for about 15 minutes, and was comparable to what you'd experience in any English school.

Following my TOEFL class experience, I went to another class with an active teacher giving lectures. This classroom also had about 40 Chinese students in attendance and was taught by an American named Steve who spoke fluent Mandarin. The students enjoyed Steve's class and were very attentive during the session. I was quite impressed by Steve's interactive approach to teaching his students and the overall learning environment created by New Oriental.

Besides the classroom environment, I am also impressed by New Oriental's founder, Michael Yu, and his efforts to promote his company. Yu says that learning English is the ticket to a better life, and he uses his celebrity and fame to brand New Oriental as the premier language teaching institution in China.

Because of these efforts, New Oriental is by far the largest provider of private education in China. Over one million students attended classes at New Oriental in the past 12 months, while its closest competitor had less than one-sixth of the number of students.

New Oriental's interesting curriculum and talent pool of teachers is hard to top. But even beyond that, what makes New Oriental unique is its founder's ability to create a strong brand name for himself and his company. Given that increasingly affluent Chinese families will send their kids to the finest language school available, I think New Oriental is a good long-term bet.

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