The China Challenge

To thrive in China, business schools must weigh the risks, define their strategies, and heed the forces behind China’s cultural and economic evolution.
The China Challenge

China has become one of the most intriguing markets in the world, and one of its most dramatic growth stories is the education sector. This growth is driven by demand—according to “China’s Looming Talent Shortage,” the now-famous 2005 report from McKinsey & Company by Diane Farrell and Andrew Grant, China will need 75,000 internationally capable managers by 2010. The system, however, can currently supply only 10 percent of that demand. This gap attracts attention from business educators both in China and around the world.

By the end of 2007, almost 300 MBA programs were operating in the People’s Republic of China (PRC), all established in 16 years, first by Chinese institutions and, more recently, by joint partnerships between Chinese and non-native schools. But while there has been an explosion in educational initiatives in China, some programs provide better educational value than others.

While the Chinese market presents formidable challenges to business schools, its potential is just as promising. The demand for quality initiatives is on the rise. Many programs with local and international affiliations compete mightily for potential MBA students, but far fewer meet globally recognized standards for excellence. This is true, in part, because achieving success proves difficult for most cross-national initiatives, whether in the education sector or any other. 

Therefore, business schools cannot underestimate what it takes to succeed in China’s dynamic market. Once schools choose strategies that make sense for them, they must commit the time and money to make those strategies work—and weigh carefully the potential for risk and reward.

China is looming ever larger on the global stage, and its citizens are proving that they can accomplish whatever they put their minds to.

Five Levels of Commitment

Schools may choose one or more of five primary strategies for entering China: student recruitment, student exchanges, faculty exchanges, study abroad programs, and joint degree programs. Each strategy requires an increased level of commitment and brings an increased exposure to risk. At the same time, each step up the scale deepens the school’s connection to and presence in China’s educational market.

Strategy No. 1—Recruiting for Domestic Programs. Recruiting Chinese students is the oldest and simplest way for international business schools to enter a new market. Such recruiting improves student diversity and populates the classroom with students who can provide valuable insight on Chinese business and culture. However, of all the strategies available, recruiting alone offers business schools the least exposure to the Chinese market. In addition, schools face growing competition to attract students, now that Chinese students can choose among a growing number of business schools around the world.

Schools that rely on recruitment should aim to maximize its potential. Because China’s urban areas alone represent 5 percent of the world’s population, a school might plausibly aim to enroll approximately 5 percent of its students from China. In addition, schools should create initiatives that ensure that they’ll capture the educational potential of that diversity.

Strategy No. 2—Student Exchanges. Like student recruitment, student exchanges are relatively simple to manage. Moreover, they offer two advantages: They foster long-term collaborations between schools and provide students with international experience. Still, schools face three significant obstacles. First, school schedules can vary widely, making it difficult to synchronize programs. Second, tuition imbalances can be difficult to reconcile, because tuition at Western institutions can be much higher than tuition at Chinese institutions. Finally, visa problems may hinder students’ enrollment, although the shorter the visit, the less likely it is that visa issues will arise.

Strategy No. 3—Faculty Exchanges. Faculty exchanges can encourage profound relationships with PRC institutions and lay the groundwork for case writing, research development, teaching opportunities, and full-fledged joint programs. Even so, faculty exchanges can become political battlegrounds. Some faculty won’t be interested; others may not share the institution’s vision; others may view travel to China as an “add-on” to their already heavy research and teaching loads. Schools also may face an imbalance of experience: Because most Chinese faculty aren’t familiar with Western academic practices, they may not be fully prepared to teach in a Western classroom. 

When negotiating faculty exchanges with Chinese institutions, schools must clearly define the deliverables to be expected of all faculty, including the level of teaching, research, and case study experience required. Agreements also should outline the methods by which faculty will be evaluated.

China is not a “promised land” for all business programs. Only new programs that take a measured approach and offer a demonstrable ROI will succeed.

Strategy No. 4—Study Abroad. Schools that want to offer study abroad opportunities face a choice: either offer short-term programs that are less expensive, easier to run, and less likely to present scheduling conflicts, or offer longer-term programs that provide students with more sustained exposure to Chinese businesses. In addition, some schools design their own study abroad opportunities, while others use outsourced programs that take less time but may conflict with their own offerings. 

In many cases, it may be wise for schools to take an incremental approach. They can start with short-term and/or outsourced options, and gradually lengthen program duration and increase their oversight over time, as they gain experience.

Strategy No. 5—Joint Programs. Approximately 50 non-Chinese institutions already offer MBAs in China, in conjunction with local universities. Schools that would like to introduce new MBA programs to the market face four primary risks. First, Chinese law requires incoming institutions to partner with local universities to launch new MBA programs. The risks of such joint partnerships go beyond the financial and legal—they can possibly affect a school’s reputation and brand.

Second, unless programs have clear value propositions that distinguish them from the crowd, schools could invest massive resources to attract very few students. Third, it is more difficult to maintain a program of high quality, worthy of a school’s brand, from a distance. In all cases, schools should allocate more time, money, and faculty than they think they will need. Finally, it is difficult to set tuition rates that fit the market and support the school’s efforts. Most institutions that launch programs in China don’t aim to make substantial profits, but most must at least cover their costs. Otherwise, they tax their home programs too greatly.

To minimize the risk, schools must create a plan that encourages minimal faculty turnover while increasing enrollments over time. Once a program is established, a school can increase its staying power by establishing follow-up initiatives that include publishing new cases, conducting China-based research, and establishing nondegree programs. 

A Market to Watch

Whether a business school chooses to adopt one or more of the five strategies above or opts to stay out of the fray, there’s no doubt that China is a market to watch closely. It’s a region with incredible ramifications for global business—and for business education.

Perhaps the most important thing for business administrators and faculty to remember: The best way to engage with China’s exciting market is to plan well and build steadily. For most schools, the greatest chance for success comes with incremental development, rather than big-plunge initiatives. Schools that take the time to cement their relationships with institutional and industry partners place themselves in a much stronger position to grow right along with China’s burgeoning economy.

 

Ilan Alon is the Jennifer J. Petters Chair of International Business and executive director of the Rollins-China Center at the Crummer Graduate School of Business at Rollins College in Winter Park, Florida. John D. Van Fleet is a senior advisor at Shanghai Jiao Tong University’s Antai College of Economics and Management in Shanghai, China, and the former director of a joint-venture MBA program in China.

Galen Hull is director of the Office of International Business Programs in the College of Business at Tennessee State University in Nashville.