Back in March last year, GEMS director Dino Varkey couldn’t help himself. In an interview with Arabian Business, he boasted about how his education provider was planning to become a company even bigger than Facebook.
This is exactly what Varkey told us then: “The ambition that we work towards is five million students by 2024. If we got to the five million number as a conservative [estimate] we would be a $60bn company; we would be employing 450,000 teachers, 55,000 senior leaders - that’s the size of organisation that we are trying to build. ”
Wow. This week, Varkey has been telling a different story. In a letter to parents at his Westminster School in Dubai, he explained why one of the biggest learning centres in the emirate is being shut down.
“In recent times our ability to invest the resources required to produce the improvements needed, both educationally and in infrastructure, have been severely restricted because of the current fee structure… We simply cannot offer a high quality education at this level that we see as our duty to provide. Indeed, salary increases during the same period have been at a level higher than any fee awards.”
So there you have it. If you are one the parents of the 4,800 pupils currently at the school, hard luck mate. Next stop Sharjah, Ras Al Khaimah or wherever else Varkey decides to grant your kid a place.
Just six weeks ago, GEMS, which owns schools in ten countries, said it plans to invest $650m in expanding its operations over the next three to five years, concentrating on emerging markets such as the Middle East, North Africa, and India. Varkey claimed GEMS was aiming to operate in up to 40 countries by 2017. When it comes to expansion plans, Dino Varkey likes to talk big.
Although GEMS doesn’t reveal its profits, I doubt there is a shortage of cash around. As any parent knows, this company charges you $100 purely for the privilege of applying for a place in one of their schools, regardless of whether you get it or not. GEMS has Bill Clinton on the books as the honorary chairman of its Foundation, and according to State Department filings, Clinton is paid for this role. I doubt Bill comes cheap.
Now in fairness to GEMS, I should highlight some of the points they made to me this week: it still operates a large number of low fee paying schools in the UAE (14). The current fees at The Westminster School are very low, and GEMS should be applauded for this. Not everyone in Dubai is rich. Without such schools, many parents would struggle to give their kids a decent education, and again, GEMS deserves great credit for this. Indeed, over the past five years the school that is closing has had an average fee increase of just AED167 or AED13 per month while costs have risen up to 20% year on year.
This makes the business case for running the school hard to answer. And also the $650m being invested in emerging markets is likely to be borrowed from banks, to finance what are deemed more viable businesses.
But against this backdrop, the net result is that thousands of parents are right now unable to comprehend this decision, and more importantly, fearing for the children’s futures. I would say this to GEMS: In any business, there will always be loss making divisions. These are subsidized by more profitable areas of the business, either because they are seen as important to the brand, potentially profitable in the future, or an intrinsic part of the community. Put simply, yeah, you take a hit on one part of your business and make it up elsewhere. Do you think Emirates Airlines makes a profit on every single route it operates? Do you think every one of Rupert Murdoch’s newspapers makes money? Do you think Etisalat makes money on every single offer it launches?
Having gone down the “affordable schools” roads, GEMS was able to justify running its hugely more expensive schools because it showed it catered for both ends of the market – add to that the great work of the Foundation, and you could quickly come to the conclusion that this is a company which wants to make good money, but also cares for the community which gives it that money.
Looking at the many comments on Arabian Business is website this week, this is clearly an emotive issue, one that has stirred the pot. In the cold light of day, I would on balance agree with GEMS that, given its fee structure, the Westminster School is not, as it stands, a viable business.
But I would argue that, considering the incredible financial success the Varkeys have gained from their businesses in the UAE, they should also reconsider their decision. Keep it open, absorb the losses elsewhere, and take one for the team.
It’s not too late.