IBISWorld Industry Report 61171 Testing & Educational Support in the US February 2015 David Witter Making the grade: Higher school enrollment will support demand amid cuts to education funding 2 About this Industry 2 Industry Definition 2 Main Activities 2 Similar Industries 3 Additional Resources 4 Industry at a Glance 5 Industry Performance 5 Executive Summary 5 Key External Drivers 7 Current Performance 10 Industry Outlook 12 Industry Life Cycle 14 Products & Markets 14 Supply Chain 14 Products & Services 16 Demand Determinants 17 Major Markets 17 International Trade 19 Business Locations 21 Competitive Landscape 21 Market Share Concentration 21 Key Success Factors 22 Cost Structure Benchmarks 23 Basis of Competition 24 Barriers to Entry 25 Industry Globalization 26 Major Companies 26 Pearson PLC 27 Educational Testing Service 30 Operating Conditions 30 Capital Intensity 31 Technology & Systems 31 Revenue Volatility 32 Regulation & Policy 33 Industry Assistance 34 Key Statistics 34 Industry Data 34 Annual Change 34 Key Ratios 35 Jargon & Glossary www.ibisworld.com | 1-800-330-3772 | info @ ibisworld.com
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WWW.IBISWORLD.COM Testing & Educational Support in the US February 2015 1
IBISWorld Industry Report 61171Testing & Educational Support in the USFebruary 2015 David Witter
Making the grade: Higher school enrollment will support demand amid cuts to education funding
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Operators in this industry provide noninstructional support services for education industries. The major segments of this industry are educational testing services and educational consultants. This
industry does not include computer software designers that develop education support software; those operations are included in the IT Consulting industry (IBISWorld industry report 54151).
61144 Business Certification & IT Schools in the USOperators in this industry offer courses in office procedures and secretarial skills.
61169 Tutoring & Driving Schools in the USOperators in this industry offer exam preparation, tutoring services and other miscellaneous education services.
61171 Testing & Educational Support in the USOperators in this industry provide noninstructional support services for education industries.
62431 Job Training & Career Counseling in the USOperators in this industry offer job training for the unemployed, underemployed, physically disabled and persons who have a job market disadvantage due to lack of education or job skills.
Industry Definition
Main Activities
Similar Industries
About this Industry
The major products and services in this industry are
Educational consulting
Educational testing services
Student exchange programs
Other educational services
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About this Industry
Additional Resources For additional information on this industry
www.iecaonline.com Independent Educational Consultants Association
www.iie.org Institute of International Education
www.nces.ed.gov National Center for Education Statistics
www.chronicle.com The Chronicle of Higher Education
www.ed.gov US Department of Education
IBISWorld writes over 700 US industry reports, which are updated up to four times a year. To see all reports, go to www.ibisworld.com
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Revenue vs. employment growth
Products and services segmentation (2015)
60%Educational testing services
18%Educational consulting
13%Other educational services
9%Student exchange programs
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Key Statistics Snapshot
Industry at a GlanceTesting & Educational Support in 2015
Industry Structure Life Cycle Stage Growth
Revenue Volatility Low
Capital Intensity Low
Industry Assistance Low
Concentration Level Low
Regulation Level Light
Technology Change Medium
Barriers to Entry Medium
Industry Globalization Low
Competition Level Medium
Revenue
$16.2bnProfit
$905.6mWages
$5.5bnBusinesses
7,195
Annual Growth 15-20
3.3%Annual Growth 10-15
1.0%
Key External DriversNumber of college studentsNumber of K-12 studentsPer capita disposable incomeGovernment funding for primary and secondary education
Market SharePearson PLC 10.4%Educational Testing Service 7.8%
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FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 34
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Key External Drivers Number of college studentsThe number of students in college influences demand for some of the services provided by this industry. These services include educational testing, guidance counseling and student exchange programs. A rise in the number of university students will bolster demand for testing services, benefiting the industry. The number of college students is expected to increase in 2015.
Number of K-12 studentsThe number of students at elementary and secondary schools influences most
segments of this industry. An increase in the number of students attending elementary or secondary school increases demand for testing services, school bus attendant services, career guidance counseling and other support services. The number of K-12 students is expected to increase slowly during 2015. However, if it increases too slowly, it could pose a potential threat for the industry.
Per capita disposable incomeAn increase in per capita disposable incomes raises demand for education consultants, as parents can more easily
Executive Summary
In 2015, revenue for the Testing and Educational Support industry is expected to grow 2.7% to $16.2 billion. Over the past decade, the controversial No Child Left Behind (NCLB) Act of 2001 has been an important driver of growth. The primary beneficiary has been the industry’s educational testing segment; under NCLB, schools take assessments to ensure they meet the requirements to receive federal aid. While reform is currently taking place, industry operators are still reaping the benefits of schools’ attempts to maintain
standards. In the five years to 2015, IBISWorld estimates industry revenue will increase an average of 1.0% annually.
Industry operators provide educational testing, educational consulting and student-exchange programs. Testing service providers generate the lion’s share of revenue and help develop, distribute and score accountability and performance tests. They also provide college entrance exams, such as the SAT. With an increasing number of high school graduates taking the
SAT or ACT and international students taking Test of English as a Foreign Language, competition for college placement is high, helping boost revenue generated from standardized tests.
Relatively strong industry growth has enticed new companies into the industry. In the five years to 2015, the number of enterprises is expected to increase at an annualized rate of 1.3% to 7,195. The rising number of operators, coupled with increasing wages, has put downward pressure on industry profit; however, profit declines have been mitigated by the increased use of online testing, which is particularly prone to automation. Websites offering college advice and comparison tools have also emerged to assist budget-conscious consumers.
In the years to come, industry growth will depend on government legislation and funding, and many operators are waiting to see what will emerge after NCLB. However, the increasing number of high school graduates will continue contributing to growth, despite falling unemployment, which is expected to turn potential college students to the job market. In the five years to 2020, IBISWorld projects industry revenue will grow 3.3% annually on average to $19.0 billion.
Industry PerformanceExecutive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage
Rising high school graduate rates will spur demand for placement tests, boosting revenue
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Industry Performance
Key External Driverscontinued
afford to purchase services for their children. This factor is more important in private markets. Per capita disposable income is expected to increase in 2015.
Government funding for primary and secondary educationThe level of federal government funding and the associated academic and
reporting requirements influence demand for the industry’s services. Increased funding allows schools to purchase more educational support materials and seek the services of educational consultants. Government spending for primary and secondary education is expected to increase during 2015, posing a potential opportunity for the industry.
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Industry Performance
Higher college enrollment bolsters demand
Over the five-year period, the number of college students is anticipated to grow at an average annual rate of 0.2% to reach an estimated 21.3 million, despite marginal declines in 2011 and 2012. Colleges
experienced a historically high number of high school graduates seeking enrollment. Consequently, some state universities have imposed enrollment caps, intensifying competition for college placement. College
Current Performance
The Testing and Educational Support industry has expanded over the five years to 2015. During this time, revenue grew an annual average 1.0% to $16.2 billion in 2015. This industry is composed of three main segments: educational testing providers, educational consultants and student-exchange program providers. While overall growth has been strong, these segments have experienced different levels of growth over the past five years, with educational testing services accounting for the greatest share of revenue growth.
The No Child Left Behind (NCLB) Act of 2001 has driven industry demand during much of the past decade. Under NCLB, which was signed into law in January 2002, states had to implement major educational changes to remain eligible for federal funding. These changes included stronger accountability for the results of students. While some states have received NCLB waivers, the program has nevertheless heightened demand for testing and assessment over the past five years, leading to an average 2.7% annual increase in employment to 95,021 workers in 2015.
Unfortunately for industry operators, many states have cut education funding. Schools are operating under tighter fiscal conditions, and more conservative budgets have reduced demand for nonessential support services. According to a 2013 report by the Center on Budget and Policy Priorities, for the 2013 to 2014 school year, 34 states provided less funding per student than they did before 2010, and 15 provided less funding to local school districts than they provided
the year before. Consequently, annual revenue growth has been relatively slow. Nevertheless, IBISWorld estimates that revenue will increase 2.7% in 2015 due to an increasing number of college students.
Despite budget constraints, schools cannot cut back on essential support services, a factor that has mitigated industry declines. Federal stimulus spending early in the period helped support ongoing demand for education support services. Slow but steady growth in the number of elementary and secondary students has also stimulated stable demand for industry services. Total student enrollment drives demand for testing services, school bus attendant services, career guidance counseling and other support services. According to the US Department of Education’s National Center for Education Statistics, the number of K-12 students is expected to increase an estimated average of 0.4% annually in the five years to 2015.
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Industry Performance
Higher college enrollment bolsters demand continued
entrance exams, such as the SAT and ACT, and graduate school entrance exams, such as the GRE and GMAT, are important to the selection process and stimulate demand for testing services.
Recently, critics have accused the SAT of being a false predictor of academic achievement and unfair to students who do not have access to test preparation services (see IBISWorld report 61169, Tutoring and Driving Schools). A number of liberal arts colleges have joined the SAT-optional movement, reducing the weight of the test. This trend of “test-optional” admission policies has lowered demand for tests in some areas; nonetheless, IBISWorld expects the effects to be minimal. In 2008, the College Board announced an option called Score Choice, which allows students to decide which scores are released to colleges. Industry operators benefit from the policy because
it allows students to take the test multiple times, generating higher sales for test providers. Most recently, in March 2014, the College Board announced plans to revise the SAT to better reflect high school curriculum. The new SAT is expected to be introduced in the spring of 2016.
Growing demand has led some universities to outsource a portion of their testing to private providers. While this trend is not new, it has recently spread to new areas. According to the Chronicle of Higher Education, more than 1,000 colleges have used Google Apps Education Edition or Microsoft Live’s educational portal to provide email services because they are often more cost efficient than developing in-house systems. By outsourcing these activities, schools can cut costs and reallocate money to other needs, such as educational support services.
The NCLB effect This industry also benefits from federal funding of elementary and secondary schools. In 2009, the American Recovery and Reinvestment Act gave the education sector a much-needed boost. As part of the package, schools were able to draw on a $54.0 billion stabilization fund to prevent budget cuts. These funds were desperately needed, since many states suffered budget shortfalls and made cuts in every area they could. While school systems will continue to need testing and assessment services to fulfill their obligations under NCLB, other educational support services are expected to decline as schools are forced to prioritize their funding in core areas. As a result, demand for educational testing services has continued to rise, but demand for other services, including educational consulting, has fallen.
Despite NCLB’s positive contribution to the industry, its measurable impact on educational outcomes has been called into question. Its lack of popularity has
prompted many states to seek waivers. As of February 2015, 43 states and the District of Columbia had received some type of NCLB waiver. However, states that are approved for waivers are still required to raise standards and improve accountability. Consequently, testing providers will still be used to ensure that progress is being made.
Meanwhile, profit margins have strengthened slightly over the past five years. Growing demand for industry services and electronic delivery methods have offset rising wage costs. Industry profit is expected to account for 5.6% of revenue, up from 5.3% in 2011.
The No Child Left Behind Act created demand for testing, assessment and data analysis
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Industry Performance
Other services support growth
Counseling services are also in demand. According to the Independent Educational Consultants Association, an average US high school has one counselor for 700 students. This ratio prevents many students from readily receiving career advice. For students who can afford it, independent counseling has been an attractive option, which has boosted demand for smaller industry players. Independent operators, including sole proprietorships and nonemploying associates, often provide counseling services. In the five years to 2015, the number of companies operating in this industry is expected to increase an average 1.3% annually to 7,195; subsequently, employment is anticipated to increase an annualized 2.7%. An increasing number of highly educated employees has caused wages to increase from $4.5 billion in 2010 to $5.5 billion in 2015.
This industry also provides student-exchange programs. International student numbers have trended upward over the past five years thanks to college recruitment efforts and government streamlining of student visa policies. The number of international students in US colleges and universities increased 8.0% from 2012 through 2013 to 886,052, according to the latest available data from the Institute of International Education. Revenue from international students is primarily derived through the Test of English as a Foreign Language, which must be taken by all international students who wish to study at US institutions.
Independent counseling has been an attractive option, boosting demand for small industry players
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Industry Performance
Online growth Economic uncertainty created more budget-conscious consumers, slower to pile on debt without a concrete plan. Demand for counseling services is expected to continue increasing, as high school graduates and college students look to counselors for advice on courses and colleges, as well as growing and stagnant careers, applying for financial aid and weighing the costs of different options.
Due to this trend, a number of websites that offer college advice have emerged over the past five years, including those that provide tools for students to compare colleges and access information about higher education institutions.
Testing services are particularly strong candidates for greater automation and online delivery. Plato Learning has noted that 99.0% of K-12 public schools have
Enrollment remains strong
Over the next five years, enrollment growth in elementary and secondary schools and higher education will remain steady, driving continued demand for educational support services. The number of college students is expected to increase 1.3% per year on average to 22.7 million in the coming five years, bolstering industry revenue.
Universities in the United States are among the best educational institutions
in the world; therefore, demand higher education in the United States will likely remain high. Education is also an expensive aspiration, so it is not quickly abandoned. The recent rise in international student numbers bodes well for future years. This growth will have positive downstream effects on demand for the Test of English as a Foreign Language.
Industry Outlook
The Testing and Educational Support industry has felt the effects of state cuts to education, but the news is not all bad. College enrollment will continue to expand over the five years to 2020, and international student growth will continue, driven by high demand from China and India. While tighter state budgets will limit unnecessary expenditure, underlying demand for support services will remain. Demand for counseling services will be strong in these uncertain times; there is opportunity for expansion in this market considering how underserviced some schools are. Meanwhile, legislative changes at the federal level will strongly influence demand for educational testing and consulting services over the next five years. Revenue is forecast to rise 3.3% annually on average over the period to reach $19.0 billion in 2020, with 2.7% growth expected in 2016.
The industry will continue to make productivity gains, spurred by rising competition and government funding. The increased use of the internet for administering tests and delivering results, in addition to improvements in back-office administration, are expected to reduce costs and improve the profitability of this industry segment. Nevertheless, wages are anticipated to increase marginally as a proportion of revenue, a continuation of the trend that occurred throughout the five years to 2015. This may pressure profitability for operators.
Rising competition will push companies to improve productivity and preserve profit
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Industry Performance
Online growthcontinued
internet access, and are “increasingly turning to web-based methods of instruction as a supplement to their instructor-led programs due to their flexibility, cost-efficiency and effectiveness.” Demand for these sites will likely spur more entrants into the industry. In the five years to 2020, IBISWorld projects that the number of companies operating in this industry will increase at an average rate of 4.1% annually to 8,815 as employment
increases an annualized 4.1% to 116,378 workers. The increased competition caused by enterprise growth will put pressure on profitability for face-to-face providers, but will likely be offset by the expansion of internet-based services. Wage costs are anticipated to increase as a proportion of revenue over the next five years, albeit at a slower rate, because many support services cannot be automated and require face-to-face interaction.
Government legislation and support
Legislation to overhaul college loans will affect the industry in the next five years. Under recent legislation aimed to keep college costs down and increase transparency, colleges and universities must report more information regarding their costs to the Department of Education. Regulations deal with textbooks, tuition and fees, alumni activities, fire safety, graduation rates and various other areas. While this may create business for educational consultants, the legislation also contains measures to simplify federal financial aid forms, including the Free Application for Federal Student Aid. This may reduce demand for educational counselors who help students navigate these complicated forms.
This industry depends heavily on government funding for education. Consequently, future education policies and budgets will influence demand for
the industry. Educational reform has been highlighted as a key priority of the Obama administration, which benefits many educational institutions. The unpopularity of the No Child Left Behind (NCLB) Act has caused many states to file for waivers. While 43 states had been approved for some type of NCLB flexibility as of February 2015, President Obama has indicated that he will pursue accountability in schools as part of the education policy. This strategy will undoubtedly result in continued demand for testing and assessment services, benefiting the testing services segment.
Continued emphasis on school accountability will support stable demand for services
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Industry PerformanceThe industry is experiencing revenue and value added growth
Increased use of technology has improved and expanded the industry’s services
Demand for industry services is rising due to legislative changes
Product development has been continuous in some segments of the industry, assisting expansion
Life Cycle Stage
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DeclineShrinking economicimportance
Quality GrowthHigh growth in economic importance; weaker companies close down; developed technology and markets
MaturityCompany consolidation;level of economic importance stable
Quantity GrowthMany new companies; minor growth in economic importance; substantial technology change
Key Features of a Growth Industry
Revenue grows faster than the economyMany new companies enter the marketRapid technology & process changeGrowing customer acceptance of productRapid introduction of products & brands
Business Certifi cation & IT Schools
Public SchoolsBook Publishing Tutoring & Driving Schools
Private Schools
Testing & Educational Support
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Industry Performance
Industry Life Cycle During the five years to 2015, the Testing and Educational Support industry has experienced growth in revenue and industry value added (IVA). Some segments of this industry have been growing faster than others, and this is expected to continue through 2020. IVA, which measures an industry’s contribution to the economy, is forecast to grow 4.9% annually on average over the 10 years to 2020, compared with forecast annualized GDP growth of 2.5% over the same period.
Industry operators are increasingly using technology in their services. For example, computerized grading is now used in several standardized tests. This reduces the cost and the time required, leading to an increase in overall efficiency. Establishments offer online practice tests, test registration and related information, as well as supplementary education materials and
services for teachers and other education professionals. These developments have helped to sustain continued industry expansion and industry revenue growth.
Legislation relating to education has also influenced growth in this industry. Under the federal No Child Left Behind Act of 2001, federal government funding for schools has been tied to the testing and demonstrated achievement of students. This has increased demand for educational testing services, and education consultants. However, the legislation is starting to be waived for some states. The long-term outcome of this will influence future demand for academic testing and assessment services over the near term. However, IBISWorld expects that the focus on accountability will remain in educational policy, which will keep the Testing and Educational Support industry in a growth stage over the next few years.
This industry is Growing
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Products & Services The industry can be split into four main types of services: educational testing, educational consultants, student exchange programs and other educational services.
Testing servicesEducational testing services form the largest segment of this industry, accounting for an estimated 60% of industry revenue. Testing services may include test development, candidate registration, test delivery, provision of data and analysis of results. Tests are provided in hardcopy or via computer. They can be conducted over the internet, at special testing centers, or at the site of the school or business using the service. Some of the better-known education tests include the SAT, the ACT, the National
Assessment of Educational Progress (NAEP) and the Test of English as a Foreign Language (TOEFL) tests.
Industry operators develop a variety of tests. The SAT and ACT are college entrance exams taken by high school students. Industry operators provide, process and score the tests. The NAEP provides a tool for schools, students and the government to compare their schools’ grades with those of others. NAEP tests, provided by the National Center for Education Statistics, are standardized and given across the country to give a clear picture of academic progress. Finally, the TOEFL is required by all international students wanting to study at US institutions.
Over the past decade, the education testing segment has experienced strong
Products & MarketsSupply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations
KEY BUYING INDUSTRIES
61111a Public Schools in the US Public elementary and secondary schools utilize educational guidance counseling services, testing services, school bus services and student exchange programs.
61111b Private Schools in the US Private schools utilize educational guidance counseling services, testing services and student exchange programs.
61121 Community Colleges in the US Junior colleges require consulting services, guidance counseling services and testing services.
61131a Colleges & Universities in the US Colleges, universities and professional schools require college selection services, educational consulting, guidance counseling and testing services.
61131b For-Profit Universities in the US For-profit colleges, universities and professional schools require college selection services, educational consulting, guidance counseling and testing services.
KEY SELLING INDUSTRIES
51113 Book Publishing in the US Testing and educational support companies purchase educational texts and books from book publishers, which are used as part of service delivery.
51121 Software Publishing in the US Testing and educational support companies purchase software to be used for computer-based test development and service delivery.
53112 Commercial Leasing in the US Testing and educational support companies lease office space from the commercial leasing industry.
Supply Chain
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Products & Markets
Products & Servicescontinued
growth. The No Child Left Behind Act of 2001 aided revenue growth with its increased requirements for educational institutions to be accountable for student results. However, enrollment trends have also pushed up demand for education testing. The SAT and ACT tests are commonly used for college entry, and historically high numbers of high school graduates are lifting demand for these tests. Future policies by the colleges could change this, as hundreds of colleges no longer require the SAT test as a prerequisite for admission.
Growing graduate school attendance contributed to increased demand for exams such as the GMAT and GRE. According to major player Educational Testing Service, the number of people taking the GRE increased 9.0% in 2009 to 670,000 test takers. By 2011, the number of people taking the test had increased to 800,000. In 2013, 731,000 GRE tests were taken worldwide.
Educational consultantsEducational consultants account for an estimated 18.0% of industry revenue. These businesses are more likely to be sole proprietors than other industry
operators. Educational consultants generally provide their expertise in a specific element of education, such as identifying the IT needs of educational institutions, advising on curriculum content and providing support services for students.
Students who are considering career options and college application strategies use independent counseling, which are often provided by sole proprietors who work on a personalized basis. Counselors work with individuals to find a school that fits with their achievement, budget and career goals. Although costly, the rising competition for positions at colleges has spurred demand for these counseling services.
Exchange programsStudent exchange programs increased in popularity throughout the 2000s. There are many different student exchange programs run by for-profit and nonprofit companies, both at the secondary and university education levels. In the 2011 to 2012 school year, about 283,332 US students studied abroad, according to latest data from the Institute of International Education. That figure was
Products and services segmentation (2015)
Total $16.2bn
60%Educational testing services18%
Educational consulting
13%Other educational services
9%Student exchange programs
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Products & Markets
DemandDeterminants
Demand for the services provided by this industry is influenced by a number of different factors. Enrollment trends are a primary determinant of demand for the industry. The number of enrollments at all levels of education in the US affects demand for educational testing and educational counseling. Similarly, the number of high-school graduates affects demand for college entry exams such as the SAT and the ACT. Tests are used for graduate or professional school entry in fields such as medicine and law. International student enrollments affect demand for tests such as TOEFL. Rising numbers of high school graduates have also increased demand for educational guidance counseling services and college selection services.
Legislative changes can create demand for educational support services. The introduction of the No Child Left Behind Act (NCLB) of 2001 required schools to meet test based accountability requirements. Federal government emphasis on standardized testing, measurement of student performance and school accountability has driven demand for educational testing services. This was responsible for considerable industry growth between 2001 and 2004. Future legislative changes by the Obama administration will affect demand for educational support services, including plans to update the Elementary and Secondary Education Act (ESEA).
The level of government funding at the federal, state and local level for schools and universities influences demand for the services of this industry. Although federal government funding for school programs increased significantly in 2002 and 2003 as part of NCLB requirements, this has since trended downwards. However, a growing budget deficit and the poor economic climate suggest that a significant funding increase is unlikely in the short term. This applies to state funding as well, which has been affected by lower tax revenue and tighter budgets. Furthermore, there is a long term trend of declining state support for education institutions. According to the Center on Budget and Policy Priorities, 30 states have reduced spending on primary and secondary education while 41 states have cut assistance to public colleges.
A growing tendency to outsource education services has increased demand for this industry. Both industry operators and educational institutions have increased their use of educational consultants in the past five years. As school districts have gained greater autonomy over spending decisions, consultants specializing in IT and other education support services have benefitted from increased business. Industry accreditation and licensing agencies are also outsourcing development and administration of trade certification examinations to educational testing services.
Products & Servicescontinued
up from about 200,000 in 2006. This can largely be attributed to the trend toward globalization, which has increased students’ desire to travel.
Spending a year or a semester studying abroad has become increasingly popular, and though not cheap, costs compare with that of a year’s study in the United States. The availability of various scholarships
also encourages students to participate in exchange programs and gap years.
Other educational servicesOther educational services account for an estimated 13.0% of industry revenue. These businesses provide a broad range of education related services such as school bus attendant services.
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Products & Markets
International Trade Although the majority of industry establishments provide services to domestic educational organizations and students, some services are targeted to
foreign students. For example, Educational Testing Service (ETS) develops and administers the TOEFL test. International students take this test
Major Markets
Elementary and secondary schoolsThe markets for this industry can be segmented by academic level or professional level. IBISWorld estimates that the elementary and secondary school market accounts for about 50.0% of industry revenue. This market includes students, schools, school districts and state education departments. The main services for this market are educational testing, guidance counseling and school bus attendant services. Educational testing services include high school graduation tests, college entrance tests and tests of student achievement and progress as required by NCLB legislation.
Post-secondary institutionsPostsecondary institutions account for 30.0% of the market. The major services provided to postsecondary institutions are graduate school admission tests and study abroad programs. Industry operators also
provide college selection and consulting services to colleges and universities.
Regulatory and trade associationsSimilarly, regulatory and trade associations account for a smaller 15.0% of the market. Industry operators supply testing services for legislative and regulatory requirements in a range of trades and occupations including real estate and insurance to this market. These services are usually delivered on behalf of the relevant industry or trade association.
OtherThe remaining segment of the market represents 5.0% of revenue, and includes educational services provided to companies and individuals outside the education sector. For example, corporations may seek specialist consultants or test preparation services for internal staff development programs. The market also incorporates pre-K educational support services.
Major market segmentation (2015)
Total $16.2bn
50%Elementary and secondary schools
30%Post-secondary institutions
15%Regulatory and trade associations
5%Other
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Products & Markets
International Tradecontinued
to be eligible for enrollment in US educational institutions, particularly colleges and universities. The test is the most widely accepted English Language Test available, and is accepted by over 8,500 institutions in 130 countries. ETS claims that nearly 800,000 students register for the TOEFL each year. The TOEFL is taken by students at testing centers across the world, where the test can be taken in paper or online form.
IBISWorld estimates that services provided to foreign students represent about $100 million. According to the Institute of International Education, international student enrollment declined in 2004 to 2006, but growth has since rebounded. In the 2012-13 school year (latest figures available), the number of international students in US colleges and
universities increased 7.0% from 2011-12 to 819,644. This represents a record number of international students studying in the United States, largely due to the rising interest of students from China. Student numbers have also rebounded thanks to government streamlining of student visa policies, college recruitment efforts and a depreciated US dollar.
The foreign student market has some room to expand in the coming five years, as businesses are increasingly offering their services via the internet. This provides opportunities for educational testing companies and for businesses in teaching support and educational IT consulting. However, many of the services of this industry are geared towards the domestic market, which will limit export expansion.
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Products & Markets
Business Locations 2015
MO1.3
West
West
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Rocky Mountains Plains
Southwest
Southeast
New England
VT0.6
MA3.1
RI0.4
NJ3.0
DE0.4
NH0.6
CT1.1
MD2.4
DC1.9
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8 9
Additional States (as marked on map)
AZ2.1
CA14.2
NV0.7
OR1.7
WA2.4
MT0.6
NE0.4
MN2.2
IA0.7
OH2.8 VA
3.0
FL6.4
KS0.6
CO2.6
UT0.9
ID0.5
TX5.7
OK0.7
NC3.2
AK0.3
WY0.2
TN0.8
KY1.1
GA2.9
IL4.8
ME0.6
ND0.1
WI0.9 MI
2.6 PA4.1
WV0.3
SD0.2
NM0.9
AR0.8
MS0.7
AL0.7
SC0.9
LA0.7
HI0.4
IN1.6
NY8.4 5
67
8
321
4
9
SOURCE: WWW.IBISWORLD.COM
Mid- Atlantic
Establishments (%)
Less than 3% 3% to less than 10% 10% to less than 20% 20% or more
Great Lakes
WWW.IBISWORLD.COM Testing & Educational Support in the US February 2015 20
Products & Markets
Business Locations Establishments in this industry tend to be located close to other educational institutions, such as elementary and secondary schools or universities and colleges. Consequently, the geographic spread is generally consistent with the population of each region. However, increasing use of internet-based educational services has reduced the need for establishments to be located close to educational institutions. This factor, which is particularly relevant for testing services, is expected to continue over the next five years.
Although the Southeast accounts for the largest portion of industry establishments, at 21.4%, New York and California support the highest proportion of educational support services, being education hubs. The Southeast has a high proportion of small establishments; the Mid-Atlantic is a profitable region for the industry, with establishments that are larger than the national average. In spite of accounting for only 15.5% of the population, the Mid-Atlantic region holds some 20.3% of industry establishments. The large
operations of players in this region also make it a center of employment. Despite a concentration of universities in New England, this region has just 6.3% of industry establishments, although in comparison with its 4.7% of population, the concentration is high.
%
30
0
10
20
Sout
hwes
t
Wes
t
Gre
at L
akes
Mid
-Atla
ntic
New
Eng
land
Plai
ns
Rock
y M
ount
ains
Sout
heas
t
EstablishmentsPopulation
Distribution of establishments vs. population
SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM Testing & Educational Support in the US February 2015 21
Key Success Factors Understanding government policies and their implicationsSuccessful establishments need to understand the implications of government education policies to best target their services.
Fast adjustments made to changing regulationsBusinesses must be able to adjust their services as education regulations change.
Access to highly skilled workforceEducational consultants require employees who are specialized in their field and highly skilled.
Ability to quickly adopt new technologyEstablishments that can adopt new technologies to increase the quality of
their services and reduce labor costs will be at an advantage.
Provision of a related range of goods/services (“one stop shop”)Establishments that can offer a range of services will be at an advantage. For example, testing service providers could offer test development, test maintenance, student registration, test-taking supervision, paper grading and results analysis.
Having a good reputationReputation is a key to success in virtually every education industry. A good reputation for quality service will help an establishment win business contracts, particularly from large organizations such as school districts and colleges.
Market Share Concentration
Concentration in this industry is low, with the two largest operators accounting for 22.2% of revenue market share. The industry’s large companies operate in a number of locations, particularly those providing educational testing services to schools, universities and industry associations. However, the industry players are small, regional operators that often provide educational consulting services. Although nine out of ten companies operating in this industry are non-employers, these providers generate less than 10.0% of total revenue.
Even when non-employers are not taken into consideration, the industry contains a large number of small players. About 68.8% of industry operators have fewer than five employees, while 80.9% have less than 10. However, some segments of this industry are more highly concentrated
than others. The major players in this industry provide educational testing services for schools, businesses or both. These firms generate over a quarter of the segment revenue. On the other hand, there are no major players in the educational consulting segment, which is largely composed of non-employers and very small operators.
Competitive LandscapeMarket Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization
Enterprises by employment size (2012)*No. of employees Share (%)
*Includes only fi rms with at least one employeeSOURCE: US CENSUS BUREAU AND IBISWORLD
Level Concentration in this industry is Low
IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:
WWW.IBISWORLD.COM Testing & Educational Support in the US February 2015 22
Competitive Landscape
Cost Structure Benchmarks
This industry provides a variety of services; consequently, this cost structure represents an industry average. Operators within this industry have differing cost structures depending upon their size and the services they provide. For example, many of the nonemploying businesses in counseling and consulting work will not have large capital or research costs.
ProfitIn 2015, IBISWorld estimates that industry operating profit (earnings before interest and taxes) represents 5.6% of revenue. Profit has trended upward over the past decade as a result of increased demand for educational support services, particularly testing services. Still, this growth has slowed during the five years to 2015 as federal funding for NCLB compliance has declined. Additionally, falling state
budgets and a rising number of operators have caused competition to rise, placing downward pressure on profit. However, online-based services, which enjoy reduced wage costs, have helped to offset some of these pressures. During the five years to 2020, this factor, coupled with rising student enrollment, are expected to boost industry profitability.
WagesWages and salaries account for a large proportion of industry revenue. Like other education industries, educational support services are generally labor intensive. In 2015, IBISWorld estimates that wages account for 33.9% of industry revenue. The wage figure also includes an allowance for the wages of self-employed owners of nonemploying establishments, which make up the majority of establishments in the industry. Within
Sector vs. Industry Costs
■ Profi t■ Wages■ Purchases■ Depreciation■ Marketing■ Rent & Utilities■ Other
Average Costs of all Industries in sector (2015)
Industry Costs (2015)
0
20
40
60
Perc
enta
ge o
f rev
enue
80
100 1.8
15.4
5.51.58.0
8.0
59.8
5.6
33.3
6.32.63.0
15.3
33.9
SOURCE: WWW.IBISWORLD.COM
WWW.IBISWORLD.COM Testing & Educational Support in the US February 2015 23
Competitive Landscape
Basis of Competition The Testing and Educational Support industry supplies a range of services, which keeps competition levels down. Many companies specialize in providing a particular service such as educational testing, consulting or student counseling. However, the industry has grown during the past five years, causing competition among industry players to increase.
In the educational testing market, competition is relatively low; however, businesses compete for contracts with colleges and larger players are consistently awarded government
contracts to conduct student testing. For example, major player Educational Testing Services (ETS) has been awarded the contract for delivering the National Assessment of Educational Progress (NAEP) for about 20 years. It also exclusively conducts certain tests of academic performance, including the SAT tests. Competition among smaller operators generally occurs at a state or local level and has increased during the past five years because many states have been forced to reduce their education budgets.
Cost Structure Benchmarkscontinued
different segments of the industry, average wage costs vary depending on the size of the business, the specialty provided and the expertise of the employee. For example, educational consultants may be able to earn much higher salaries than an employee of a large testing company.
The proportion of industry revenue devoted to wages has increased over the past five years, despite the rising use of technology to provide services to clients. Industry players have continued to provide more services via the internet. This enables them to reach a larger number of customers at a lower average cost by reducing wage expenditures. Operators have also increased their use of automated functions, including computerized test grading, which have reduced the industry’s labor requirements.
MarketingMarketing costs are a significant proportion of the cost structure, accounting for about 2.6% of industry revenue. A company’s reputation is important to attract clients, so operators engage in a high level of marketing activity to promote their businesses, particularly to large educational bodies.
In a winner-takes-all market, marketing is crucial to acquiring large contracts at the district, state and national levels. Establishments offering student exchange programs also have considerable marketing costs. Recruitment is vital to their ongoing business, and many providers use agents based overseas to ensure a steady stream of students.
OtherOperators providing educational testing services have made greater use of computer-based testing over the five years to 2015. Despite providing lower marginal costs, this factor has increased capital expenditure and research and development costs. Research costs, which account for a significant share of revenue, are most applicable for the educational testing companies. Organizations such as the Educational Testing Service invest considerable capital into research and development for new tests.
Industry operators also incur a variety of other costs, including legal costs and administrative fees. Furthermore, educational support providers have miscellaneous expenses related to running an office on a daily basis, including rent and utilities.
Level & Trend Competition in this industry is Medium and the trend is Increasing
WWW.IBISWORLD.COM Testing & Educational Support in the US February 2015 24
Competitive Landscape
Barriers to Entry Barriers to entry into the industry vary depending on the segment. There are higher barriers to entry for educational testing than for other educational support services. For services such as guidance counseling, educational support services and educational consulting, new entrants generally have low initial capital costs. There are no major regulatory requirements for establishments in this industry and so entry is not inhibited by industry-specific regulation. Furthermore these operations can be run by a single person, and conducted at clients’ facilities, lowering expenses even more.
By contrast, in the educational testing services segment, new participants face IT equipment expenses and database and software development costs. Complementary services such as managing test content, registering candidates, delivering tests and providing analysis of results data require varying levels of technology. Some of the bigger testing companies hold large contracts with government organizations and dominate the market. This may
affect a new company’s ability to compete successfully in this segment of the industry.
Reputation is important for establishments in this industry, particularly those in testing services. Organizations seeking the services of testing companies are seeking a high-quality, robust testing procedure that will provide a reliable indicator of the test candidates’ abilities. It is easier for established players in this industry with a good reputation to expand their operations than it is for new players to enter the market.
Basis of Competitioncontinued
Industry operators compete based on the price at which they are able to provide their services. Educational institutions generally have limited budgets and competing priorities, and seek to keep costs as low as possible. Furthermore, some of the services provided by this industry are strategic in nature and are arguably not a necessity. Price competition is affected by the efficient nature of large players in the educational testing segment, and the presence of large not-for-profit operators.
The quality of service provided is an important competitive factor for educational support service providers. Clients often seek specialist advice and support, particularly in education consulting. The quality of services can also be assessed on timeliness, accuracy and reliability. Establishments that offer a range of services, such as test development, test maintenance, student registration, test-taking supervision, paper grading and results analysis, will be at an advantage.
Level & Trend Barriers to Entry in this industry are Medium and Steady
WWW.IBISWORLD.COM Testing & Educational Support in the US February 2015 25
Competitive Landscape
Industry Globalization
This industry has a low level of globalization. The industry consists predominately of many small US-owned establishments meeting local or regional demand levels. However, several of the larger enterprises in this industry have operations outside the United States. For example, Educational Testing Service has a for-profit subsidiary known as ETS Global BV. This subsidiary is based in the
Netherlands and sells the company’s products and services in Europe, South America, Canada, China, Korea, India, the Middle East and Africa. The American Institute for Foreign Study also operates wholly-owned overseas subsidiaries and offices in the UK, France, Germany, Poland, Australia and South Africa. ACT has an international division to offer products and services overseas.
Level & Trend Globalization in this industry is Low and the trend is Increasing
WWW.IBISWORLD.COM Testing & Educational Support in the US February 2015 26
Player Performance Pearson is one the world’s largest publishers of education textbooks and books. It also publishes the Financial Times and owns 50.0% of The Economist. Although Pearson is based in London, about 55.0% of its sales are in the US market. The company’s operations are divided into five segments: North American education, international education, professional, FT Group and Penguin. In addition to publishing textbooks, the company’s education segments provide educational assessment and testing. In 2013, total company revenue reached about $8.0 billion.
The North American education segment provides testing services to students at all education levels. The percentage of total revenue the segment contributes fluctuates regularly due to changes in currency exchange rates. In spite of such fluctuations, the North American education segment has generally increased as a percentage of
total revenue due to investments the company has made in the market. In 2011, the company acquired Schoolnet, an education technology company that individualizes instruction by combining assessment and curriculum. In 2008, Pearson acquired Harcourt Assessment and Harcourt Education International for $950.0 million and eCollege for $491.0 million. Such acquisitions have also boosted revenue over the past five years.
In addition to acquisitions, Pearson has grown as a result of large contracts won in recent years. In 2008, it won a five-year contract to deliver and score the National Assessment of Educational Progress. It also won a contract to develop, administer and score the National Board Certification program for accomplished teachers from the National Board for Professional Teaching Standards. In 2009, the company renewed a $210.0 million contract with the College Board to process and score
Major CompaniesPearson PLC | Educational Testing Service | Other Companies
81.8%Other
Pearson PLC 10.4%
Educational Testing Service 7.8%
SOURCE: WWW.IBISWORLD.COM
Major players(Market share)
Pearson PLC (US industry-specifi c operations) – fi nancial performance*
YearRevenue
($ million) (% change)Operating Income
($ million) (% change)
2010 1,626.2 N/C 262.7 N/C
2011 1,653.8 1.7 281.9 7.3
2012 1,690.5 2.2 280.0 -0.7
2013 1,745.2 3.2 234.8 -16.1
2014 1,812.8 3.9 133.9 -43.0
2015 1,678.3 -7.4 237.0 77.0
*EstimatesSOURCE: ANNUAL REPORT AND IBISWORLD
Pearson PLC Market share: 10.4%
WWW.IBISWORLD.COM Testing & Educational Support in the US February 2015 27
Major Companies
Player Performance Educational Testing Service (ETS) is a nonprofit organization formed in 1947 from the testing divisions of the American Council on Education, the Carnegie Foundation for the Advancement of Teaching and the College Entrance Examination Board. ETS products and services can be divided into five categories: research, assessment development, test administration, test scoring and instructional products. The organization, which has about 9,000 locations worldwide, claims to be the
world’s largest private educational testing and measurement organization.
Based in Princeton, NJ, ETS provides testing services in 180 countries and scores over 50.0 million tests per year. The company also operates two for-profit subsidiaries: ETS Pulliam, which sells assessment software products and services, and ETS Global BV, which is based in the Netherlands and sells ETS products and services internationally.
ETS develops some of the most common academic tests in the United States, including the Scholastic Aptitude
Player Performancecontinued
the SAT over a 10-year period. In 2010, the company renewed its contracts with the College Board and the state of Texas, boosting education revenue about 11.3% that year. In 2011, Pearson signed contracts for statewide assessments in New York, Kentucky and Arizona, helping boost revenue 1.6%.
Financial performancePearson has posted growth in most segments throughout the past five years; however, this is not always reflected in the figures, which have been converted from pounds to US dollars. Due to the company’s large proportion of US sales,
fluctuating exchange rates have a significant impact on its reported results. In 2011, for example, North American sales declined by 2.0% at reported exchange rates despite rising in dollar terms. Pearson was also hurt in 2011 by a 9.0% decline in the textbook publishing market. Deferred revenue due to implementation of Common Core State Standards and declining college enrollment are expected to lower revenue 7.4% over 2015. In the five years to 2015, IBISWorld estimates that Pearson’s industry-specific revenue increased 0.6% annually on average to $1.7 billion.
Educational Testing Service Market share: 7.8%
Educational Testing Service (US segment) – fi nancial performance
YearRevenue
($ million) (% change)Operating Income
($ million) (% change)
2010 959.9 N/C 26.7 N/C
2011 1,037.6 8.1 26.6 -0.4
2012 1,073.7 3.5 16.1 -39.5
2013 1,138.1 6.0 27.7 72.0
2014* 1,198.9 5.3 27.8 0.4
2015* 1,269.1 5.9 29.4 5.8
*EstimatesSOURCE: INTERNAL REVENUE SERVICE
WWW.IBISWORLD.COM Testing & Educational Support in the US February 2015 28
Major Companies
Other Companies This industry is largely dominated by small, nonemploying businesses. However, some companies operate on a national basis and hold a significant market share within their segment of this industry.
ACT Estimated market share: 3.7%Headquartered in Iowa, ACT was founded in 1959 and was originally known as the American College Testing Program. In 1996, the independent, nonprofit company changed its name to ACT. ACT designs educational and workforce assessment programs. The organization offers more than a hundred assessment, research, information and program management services. It has also worked with Pearson VUE to develop and administer the Graduate Management Admission Test (GMAT).
The company works extensively with most state governments to deliver ACT testing to high school students. About 1.8 million high school graduates took the exam in 2013, up from 1.5 million in 2009 (latest information available). This rise in the number of students taking ACT’s tests has helped push the company’s revenue up. Growth has also occurred as a result of an increasing
number of international testing volumes for the ACT.
American Institute for Foreign Study Inc. Estimated market share: 1.2%The American Institute for Foreign Study (AIFS) is a group of related companies that organizes cultural exchange programs. Founded in 1964, more than 50,000 students from more than 500 educational institutions participate in the organization’s programs each year.
The organization is a privately owned corporation and claims annual earnings in excess of $180.0 million. Programs include college study abroad, au pair placement, camp counselors and staff, high school study and travel, gifted education and insurance services. They are delivered through wholly owned overseas subsidiaries and offices in the United Kingdom, France, Germany, Poland, Australia and South Africa.
AIFS also operates the American Institute for Foreign Study Foundation, a nonprofit organization founded in 1967. The AIFS Foundation provides grants and scholarships to US students for overseas study. The foundation also runs two programs: American Youth Abroad and Academic Year in America. The
Player Performancecontinued
Test (SAT), Graduate Management Admission Test (GMAT), Test of English as a Foreign Language (TOEFL), College Level Examination Program (CLEP) and the Graduate Record Examination (GRE). Paper-based tests are generally administered at schools or colleges, while computer-based tests are administered at ETS-authorized test centers. Tests are returned to ETS for scoring and analysis. The TOEFL is now the most widely recognized English-language test in the world, administered via the internet in more than 165 different countries.
Financial PerformanceIn 2007, ETS acquired Prometric for $435.0 million. In this transaction, ETS regained its former subsidiary Capstar, which it had sold to Prometric in 2005. The acquisition allowed ETS to expand into corporate and professional testing services and to boost its revenue about 7.8% to $879.7 million in 2007. Because ETS is a nonprofit organization, detailed financial statements are limited. However, IBISWorld estimates that ETS’s revenue grew at an annualized rate of 5.7% to $1.3 billion in the five years to 2015.
WWW.IBISWORLD.COM Testing & Educational Support in the US February 2015 29
Major Companies
Other Companiescontinued
American Youth Abroad program sends US high school students to study abroad while staying with a host family in Argentina, Brazil, Ecuador, France, Germany, the Netherlands, South Africa, Spain or Thailand. It also offers summer
programs in a range of other countries. Academic Year in America does the reverse by bringing foreign high school students to study in the United States for a semester or a year, again staying with a host family.
WWW.IBISWORLD.COM Testing & Educational Support in the US February 2015 30
Capital Intensity Like the rest of the education sector, the Testing and Educational Support industry is labor intensive. The industry provides a range of educational services that usually involve face-to-face contact with clients. This includes specialist services to cater to the individual needs of the client, the development of which is labor intensive.
In spite of this, the use of technology is increasing the industry’s capital intensity. Educational support service providers are offering more services via the internet, increasing capital costs while labor costs increase as well. Computer software allows for the automation of test delivery and grading services, yet labor requirements persist as companies search for qualified engineers and computer
programmers. As a result, wages have increased as a proportion of industry revenue in the five years to 2015, a trend
Operating ConditionsCapital Intensity | Technology & Systems | Revenue VolatilityRegulation & Policy | Industry Assistance
Tools of the Trade: Growth Strategies for Success
SOURCE: WWW.IBISWORLD.COM
Labo
r Int
ensi
veCapital Intensive
Change in Share of the Economy
New Age Economy
Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.
Traditional Service Economy
Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.
Old Economy
Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.
Investment Economy
Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.
Business Certifi cation & IT Schools
Public Schools
Book PublishingTutoring & Driving Schools
Private SchoolsTesting & Educational Support
Capital intensity
0.5
0.0
0.1
0.2
0.3
0.4
SOURCE: WWW.IBISWORLD.COMDotted line shows a high level of capital intensity
Capital units per labor unit
Testing & Educational
Support
Educational Services
Economy
Level The level of capital intensity is Low
WWW.IBISWORLD.COM Testing & Educational Support in the US February 2015 31
Operating Conditions
Technology& Systems
Technological changes are primarily affecting the education testing segment of this industry. The widespread use of internet-based testing is improving the administration of tests and the services available to customers. Most establishments offering educational testing provide at least some of their services via the internet. For example, Educational Testing Service (ETS) launched the internet-based TOEFL in 2005. Similarly, many operators offer practice tests online. Providing tests online requires computer software to manage test content, register testing candidates, deliver tests, score results and return testing data.
Technology has also changed the way that educational tests are graded. For example, a computer program called e-rater has been used to score the GMAT since 1999, and is currently being considered for other major tests. The Criterion Online Essay Evaluation Service, developed by ETS, provides automated essay evaluation through e-rater. Essays are rated by the technology based on structure,
organization and content. Critique provides real-time feedback on grammar, usage, style and organization. E-rater offers automated analysis of conceptual information in short-answer, free responses. Essays are generally assessed by both the computer program and a person. If their grading differs, the essay is assessed by a second person. The use of computers in grading tests allows the process to be completed faster and at a lower cost. Software is also being used to detect plagiarism by students, which is an increasing problem with the ability of students to buy ready-made essays available online.
ETS has launched a service that allows institutions to make customized searches of a database that contains Graduate Record Examination scores, as well as other student demographic information. The rising use of such technology has created a growing role for educational consultants that specialize in e-learning. Their services are sought to provide advice on new learning technologies to schools, universities and other educational establishments.
Capital Intensitycontinued
that is expected to continue over the next five years. In 2015, IBISWorld estimates that wages and depreciation represent 33.9% and 3.0% of industry revenue,
respectively. This means that for every dollar spent on wages, another $0.09 is spent on the use and replacement of buildings and equipment.
Level The level of Technology Change is Medium
Revenue Volatility Demand for educational support services from the corporate sector can vary with the level of economic activity. The number of student enrollments at elementary, secondary and higher education institutions is relatively stable, as it is underpinned by demographic trends. This means that there is low revenue volatility in this industry. In the five years to 2015, industry revenue increased as
high as 3.2% in 2014 and decreased as much as 1.8% in 2012.
Changes in government policy and funding introduce a moderate level of variability and, therefore, risk for industry operators. Changes in the level of government funding of education can affect the provision of non-instructional services. In years of budget shortfall, schools and other educational organizations will have fewer resources to pay for educational
Level The level of Volatility is Low
WWW.IBISWORLD.COM Testing & Educational Support in the US February 2015 32
Operating Conditions
Revenue Volatilitycontinued
support services. Legislative changes have also impacted demand for academic testing services, as demonstrated by the NCLB
legislation. Changes to this legislation and other legislation concerning education industries will raise revenue volatility.
Regulation & Policy Establishments in this industry are subject to little regulatory control. There is no centralized government authority and states assume varying degrees of responsibility for regulation. However, educational support service providers are often required to adhere to the various state and federal education laws and regulations due to the industry’s direct links with educational institutions. Furthermore, professionals such as guidance counselors and education consultants are required to provide advice to clients. This means that they must understand and be responsive to legislation changes. For example, the introduction of the No Child Left Behind (NCLB) Act of 2001 has had a significant impact on this industry, despite the fact that there were no industry operators directly governed by the legislation.
Under NCLB, signed into law in January 2002, schools are required to implement major changes in order for states to remain eligible for federal
government funding. Among these changes were stronger accountability requirements for the results of students. This created demand for testing, assessment and data analysis from schools and school districts. The Testing and Educational Support industry has therefore benefited considerably from the legislation. An anticipated rewrite of the legislation will determine future demand for testing and assessment services currently required by schools and school districts. The unpopularity of the NCLB legislation means that it will be changed, but President Barack Obama has indicated that he will pursue school accountability as part of his education policy, a statement that bodes well for industry operators. In February 2012, President Obama started to grant waivers for NCLB. By July 2012, some 26 states had received waivers, which require states to raise standards and improve accountability. As of February 2015, 43 states and the District of Columbia had been approved for NCLB flexibility.
SOURCE: WWW.IBISWORLD.COM
Volatility vs Growth
Reve
nue
vola
tility
* (%
)
1000
100
10
1
0.1
Five year annualized revenue growth (%)–30 –10 10 30 50 70
Hazardous
Stagnant
Rollercoaster
Blue Chip
* Axis is in logarithmic scale
Testing & Educational Support
A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.
When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.
Level & Trend The level of Regulation is Light and the trend is Steady
WWW.IBISWORLD.COM Testing & Educational Support in the US February 2015 33
Operating Conditions
Industry Assistance There is no specific assistance for establishments in this industry. However, due to their close links to education institutions and particularly publicly funded institutions, industry operators do benefit from various federal government education policies and funding.
Under the No Child Left Behind Act of 2001, the federal government provides funding grants to all state education agencies to establish educational standards and testing procedures. These standards are used to measure student achievement and progress in reading and math; it also allows the government to recognize schools with outstanding performance while holding schools that perform poorly accountable for change. While the industry does not receive funding directly from the government, it nonetheless benefits from such measures.
Various industry associations exist to provide members with a range of services and support. For example, the
Independent Educational Consultants Association provides members with a range of training, information and support services. The non-profit association also provides its members with ethical guidelines to ensure responsible behavior.
About 28.3% of employing establishments in this industry are exempt from federal taxation. These establishments operate on a not-for-profit basis and are recognized as exempt from federal income tax under section 501(c)(3) of the Internal Revenue Code. This is a high proportion of exempt establishments when compared with the education sector average of 23.5% (excluding elementary and secondary schools, and colleges and universities). These establishments are also authorized to receive tax-deductible charitable contributions. Two of the largest players in this industry, Educational Testing Services and ACT, are non-profit organizations.
Level & Trend The level of Industry Assistance is Low and the trend is Steady
WWW.IBISWORLD.COM Testing & Educational Support in the US February 2015 34
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Jargon & Glossary
BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.
CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor.
CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.
DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.
EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry.
ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.
ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.
EXPORTS Total value of industry goods and services sold by US companies to customers abroad.
IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States.
INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.
INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.
INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation.
INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.
LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.
NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.
Industry Jargon
IBISWorld Glossary
AMERICAN COLLEGE TESTING (ACT) A commonly used college admissions examination.
GRADUATE RECORD EXAMINATION (GRE) A commercially run standardized test that is an admission requirement for many graduate schools in the United States and other English-speaking countries.
NATIONAL ASSESSMENT OF EDUCATIONAL PROGRESS (NAEP) A periodic assessment of student progress conducted in the United States by the National Center for Education Statistics, a division of the US Department of Education.
NO CHILD LEFT BEHIND (NCLB) Legislation signed into law by President Bush in 2002 that sets performance guidelines for all schools’ students and stipulates what must be included in accountability reports to parents.
TEST OF ENGLISH AS A FOREIGN LANGUAGE (TOEFL) A test required by many institutions for international students who are applying to study in the United States.
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Jargon & Glossary
PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.
VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.
WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.
IBISWorld Glossary continued
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