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Mon 17 Dec 2012 05:00 PM

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Why GEMS should keep Westminster School open

Anil Bhoyrul argues that GEMS should rethink its controversial decision

Why GEMS should keep Westminster School open
Why GEMS should keep Westminster School open

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.

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ADJ 6 years ago

This is a stark reminder of the ground realities of how business houses operate in Dubai. 100% spot-profit-oriented. Every unit which is deemed non-productive in the pure financial sense is treated like the lame horse that must be shot dead instead of keeping it alive and treating it back to health. For good or for bad, it has become part of the inherent business culture in the country which is UAE. The important point is that it is these sorts of evolution of business cultures that will, over time, decide the fate of brand management and survival mechanics in the long term. Also, a probable warning sign on the excruciatingly inexplicable dynamics of Dubai's real estate industry.

Asif 6 years ago

I have been a part of this school for ever, it has developed a strong bond over the years, now many of us are sending our children to the same school.
Here according to the fees, facilities are nice, and education is excellent, TWS has a very good set of teachers, and this has been their strength over the years.
I hope with a reasonable increase in fees, the school can be continued, because we do not want very high fi facilites, what we basically need is good education / values, in our budget, and I donot think there is any other school who can give us this complete package at this fees.
Please KHDA help the parents

shabbir 6 years ago

This is surprising to all the parents the news about closure of the westminister school-ghusais,as per their owners comments that they make loss on this particular school.How can u just take a decission to just close without concerning to the parents,as we can discuss on the actual problem mutually and come to a conclusion,which can benefit both the parties.
We still insist that the management/mr.varkey should review his decision for the benefit of the community.

RaOne 6 years ago

Please...why do you expect someone to finance other peoples' children?

The upbringing and caretaking of children is solely the responsibility of parents, and not some other guy even if he is super rich.

What next? You will ask Paris Gallery to run affordable shops along with their luxury businesses?

And all the businesses in Dubai are run through debt from Banks and these entities needs to pay same interest like others. There is no government subsidy.

Your proposition that let GEMS run this school from the expense of other big-fees schools is not right for those parents


kingkaiser 6 years ago

RaOne, I'm very much a capitalist myself. However, certain businesses, like it or not, affect the social fabric. These tend to be necessities, rather than luxuries. Such businesses include healthcare and education. If companies in these fields are successful, they have a bit of a social responsibility to give back to the residents.

You can't force them to do good, but frankly, if greed comes above social benefit at all times, then its not surprising if certain prominent businessmen become reviled. A school running *at cost* wouldn't destroy the GEMS empire, but would add a lot to the family's reputation and benefits the greater brand. Else, I think there are some who will see this enterprise as one that cares only about the bottom line, not of the growth and future of their students.

Peter Hudson 6 years ago

You are missing the point RaOne.
Westminster is not the cheapest school in Dubai. There are others which are cheaper and arguably still do a better job than Westminster. They are not closing down.

As the largest 'for profit' private school education provider it is certainly not the legal responsibility of GEMS to continue to run this school. But it certainly is a moral one and arguably one of Corporate Social responsibility!! Even luxury goods manufacturers offer a range across the price spectrum.

GEMS is an expert at running schools efficiently. There is no reason why it cannot fine tune the expenses to run this school efficiently and without a loss.

The issue is they don't want to, as it it's a large volume, low margin product. What they really want to do is to close this low profit school and use the same premises to open a high profit one.
And childrens schooling and luxury goods are hardly a comparable product!!

Peter 6 years ago

I liked this balanced and well written article, Anil. You've fairly looked at both sides of the equation and made a reasonable appeal to the GEMS management to continue, in spite of adverse financials. I hope they're listening. If they do reverse course on this one, it would be a PR coup for them, while also sending the message to KHDA (and parents) to permit fair fee increases within reasonable limits.

Munira joher 6 years ago

They should talk to the parents , involve them, and ofcourse we also understand the situation from their point of view, but this is a school for God's sake. I am sure most parents would agree for a moderate fee hike , as we also need quality education for our kids at a reasonable price.

kiliman 6 years ago

Raone ! I notice that you are ranting in all blogs (associated with the recent news) that Gems group is fair in raising the fees. You compare education to perfume shops and it is obvious that you have nothing to contribute to Anil's fantastic article.

You haven't answered any of the valid points raised by Anil or by the other readers. You just say that it is a capitalist society and they have a right. It is clear whom you represent.
Thanks

Thamir Ghaslan 6 years ago

I'd rather have multiple smaller institutions that compete with each other and raise the educational bar instead of one employing half a million teachers!