Emerging Opportunities

AACSB CEO John Fernandes examines how business schools can work together to fill the need for business education in emerging markets.
Emerging Opportunities

The rate of growth in emerging economies is picking up speed. The Economist notes that the percentage of global corporations based in developing nations more than doubled between 2005 and 2010, from 8.2 percent to 17.4 percent. And according to the International Monetary Fund, 2013 was the first year in which emerging markets accounted for more than half of the world’s gross domestic product (GDP), on the basis of sheer purchasing power.

Not surprisingly, the nations with greatest potential for growth are the world’s largest emerging economies, including the BRIC nations of Brazil, Russia, India, and China. Just consider this data point: In 2012, the U.S. and Europe represented 19 percent and 20 percent of global GDP, respectively; China accounted for 12 percent; India, for 6 percent. The Conference Board Global Economic Outlook 2014 projects that by 2025, the U.S. and Europe’s share of global GDP will fall to 18 percent each, while China’s and India’s will increase to 23 percent and 8 percent, respectively.

This economic shift toward developing nations has huge implications for our industry because it correlates to an increasing demand for business education in these regions. Research from UNESCO Institute for Statistics indicates that enrollments at higher education institutions in emerging economies grew by 109 percent between 2001 and 2010—compared to just 28 percent at institutions in developed countries. So far, however, the number and quality of programs in these regions have not kept pace. There is still far more demand in emerging markets than supply can accommodate.

How will business schools in different parts of the world provide the programs needed to educate future leaders? AACSB is keenly interested in the answer to that question.

Technology has an important role to play in helping schools expand the reach of their programs. For instance, introductory courses, which aren’t as dependent upon student-to-student or student-to-faculty interaction, could increasingly be taught to large cohorts through technology-enabled platforms. Schools could also use fewer faculty, or use their current faculty more judiciously, if they partner with institutions that have strong online delivery programs.

But first and foremost, business schools in developed and emerging economies must collaborate more frequently to achieve goals crucial to our industry. Only by working together can they take advantage of each other’s unique characteristics and meet the challenges they face.

EXPANDING REACH, REACHING OUT

For more than 100 years, business schools have acted much like castles with moats: Each year, they’ve lowered their drawbridges to allow new students to come rushing in. Today, as competition for the best students intensifies, that rush has become less automatic for all but the most prestigious private schools or the most subsidized state institutions. Emerging markets can present an opportunity for institutions in developed economies looking to satisfy capacity.

Instead of, say, a regional school in Alabama looking to Tennessee to address a dearth in students, that school could look toward an emerging market, whose students would breathe additional cultural diversity and a global perspective into the school’s student body and community. To attract such students, schools in developed economies increasingly must enhance their student recruitment plans, target their strategies more effectively, strengthen their marketing and branding mechanisms, and expand their reach farther than ever.

In the next few years, technology will be essential to help schools overcome time zone differences, manage large globally distributed student cohorts, and accommodate local cultural differences in their online programs. Business schools that use new technologies effectively not only will raise their global profiles and reach new markets, but also will help students in emerging markets access quality management education.

Schools in developed markets may need to focus their efforts in one or two regions that have an abundance of quality students but lack the resources necessary to satisfy the demand. That’s the approach that Tulane University’s A.B. Freeman School of Business in New Orleans, Louisiana, has taken. For many years, the Freeman School has targeted Latin America for master’s and doctoral students, a strategy that has helped it become the largest producer of PhDs in Latin America. It has directed its culture, its faculty expertise, and its research orientation beyond its domestic roots to a target market with a high demand for its programs.

For schools in emerging markets, however, the opposite is true. They have too many students and not enough faculty. Schools are operating at or above capacity, faculty have high teaching loads, and many students are denied access to the best schools.

Many developing nations are working to transition the basis of their economies from primarily the extraction of natural resources to the delivery of technologically supported services. In Latin America, for instance, a number of countries are rich in natural resources, but still struggle to advance their higher education infrastructure. Peru, for example, has made strides in providing quality business education to the region, but the country still needs more capacity. Its population needs more opportunities to develop the skill sets necessary to shift its market and those of surrounding countries to an economy fit for the future.

To help their regions prosper, business schools in emerging economies must help raise the education level of their populations by addressing their resource constraints, insufficient infrastructure, and outdated technology. Most often, the quickest route to addressing such challenges is through partnerships with schools in developed nations.

ENGAGING IN COLLABORATION

One example of such a successful collaboration is the Sasin Graduate Institute of Business Administration at Chulalongkorn University in Bangkok, Thailand, a joint effort of Chulalongkorn, the Kellogg School of Management at Northwestern University in Evanston, Illinois, and the Wharton School of the University of Pennsylvania in Philadelphia. The partnership involved academic and faculty exchanges between the institutions, leading to the development of Sasin’s own full-time faculty with PhDs and a robust curriculum.

Collaborations between institutions in developed and developing countries can support not only faculty development, but also curriculum design, student and faculty exchanges, and cross-continental student teamwork via technological platforms. Through close-knit collaborations, schools in developing economies can expose their students and faculty to different educational practices, while schools in developed nations can expand their academic development to regions of the world that are currently attracting excitement and generating innovation. Eventually, when both schools reach a level of parity, they even can explore the option of sharing a curriculum.

MOVING AN INDUSTRY FORWARD

Since John Fernandes took the helm of AACSB International as its president and CEO in 2000, the organization has had tremendous global growth. Its membership grew 65 percent to include 1,343 schools, and the number of nations represented in its membership grew 75 percent to 84 countries. Today the majority of AACSB members are from countries other than the U.S. In 2000, only 19 schools outside the U.S. held AACSB accreditation. Today, 185 schools in 44 countries other than the U.S. are accredited.

Fernandes will retire in May 2015. As the industry looks ahead to the next 15 years, BizEd asked Fernandes what he sees as the most significant challenges— and potential solutions that lie ahead for business education.

What do you think will be the biggest global challenge business schools will face?

In the 1950s in the U.S., most burgers were made-to-order at popular diners and restaurants. Then, McDonald’s began to offer cheaper, more convenient options. Consumers were willing to accept a less expensive, mass-produced alternative in lieu of a customized hamburger of higher quality. Higher education could go that same route, in which people will value convenience and affordability over quality.

How do you foresee business schools adapting to rising costs and decreased funding?

Schools in North America derive nearly 85 percent of their revenues from tuition; schools in Asia and Europe derive more than 70 percent. But we’re hitting a tuition ceiling, reinforced by students’ reluctance to take on too much debt and lenders’ reluctance to grant large loans.

The inability to raise tuition will cause a shift. Some, such as Google Fellow and Udacity founder Sebastian Thrun, predict that in 50 years, there will be only a handful of universities. I do not think that will happen, but rising tuition costs will force a change in the market. We will always have those “life-fulfilling” business school brands whose programs can guarantee their graduates successful careers. There are only about 30 of these schools in world, and I think that number will stay fairly stable. It is astounding to me that it can cost more than US$100,000 to complete an MBA at these major schools. In 25 years, that cost might rise as high as $300,000. If these brand-name schools continue to raise their tuitions, the other 99 percent of schools will be forced to lower their costs and adopt other models.

What kinds of models?

A valuable tool that I think could benefit schools financially, once they’re ready, is faculty leveraging. With faculty leveraging, schools invest in a strong academic who understands the research on a given topic and the pedagogical strategies and classroom environment to teach it well. These doctorally qualified faculty will conduct research and have light teaching loads. Under AACSB’s 2013 standards, such faculty would be considered Scholarly Academics (SA).

Each SA could work with four or five other faculty classified as Instructional Practitioners (IP) under AACSB’s 2013 standards. Practically speaking, one SA in accounting who makes $175,000 a year could work with five IPs who each make $70,000 a year, which could bring a school’s costs down significantly.

What could spark widespread adoption of faculty leveraging?

One trend that could push schools toward this model is the increasing emphasis on assessment of learning outcomes. Society and governments no longer accept the idea that students learn just because a great faculty member is in front of them. Rather, they want to measure those results. By adopting faculty leveraging, schools will be better able to assure positive outcomes over many more students at reduced cost.

What kind of leadership do you think business schools will need?

I think that business schools increasingly will have to be run like businesses, choosing people with business skills as their leaders. They will need leaders with the skills to inspire and motivate faculties to want to change. Absent that approach, important work will not get done because of a lack of motivation. As a result, business schools will fail to react to external factors until the situation is dire. We will need inspirational leaders with business acumen to move the industry forward.

At AACSB, however, we haven’t done nearly enough to encourage greater collaboration between schools in emerging and developed markets. In May, we appointed Richard Sorensen, who recently retired as dean of the Pamplin College of Business at Virginia Tech in Blacksburg, as a special advisor for emerging markets. We deliver sessions on collaborations and other relevant topics at conferences around the world, as well as at events in emerging markets. But as an association and as an industry, we have yet to promote collaborations among a broader base of schools.

Much like sports teams improve their performance through training, schools advance their programs by pursuing accreditation. Although AACSB has accredited the best schools in emerging markets, many schools in the developing world do not have the infrastructure to begin the accreditation process. Accredited schools can raise the level of education in emerging nations by creating development and volunteer initiatives for other schools in their regions.

ESTABLISHING A GLOBAL PERSPECTIVE

When I have presented the idea of greater international collaboration and exchanges to some business school leaders, they often have expressed concern that doing so will result in too many international students in their programs. I believe this mindset is short-sighted. A business school’s goal should be to attract the best minds to its program and local economy.

A school and its surrounding community can realize some of the benefits of international student recruitment when international students stay after graduation to contribute to the local economy, foster a more global mindset, and facilitate innovation. Just consider Aalto Business School in Helsinki, Finland. Roughly 70 percent of Aalto’s international graduates live in Finland one year after graduation.

Historically, attracting students from abroad has been a strength of the United States, although it has become less so in recent years as students face more obstacles in securing visas for study and employment. Yet, even with fewer students staying in the U.S. after graduation, U.S. schools still reap benefits from international recruitment, including a rich global network of alumni. Therefore, schools should do all they can to maintain these connections, which provide strong, reciprocal benefits for both participating countries.

Going forward, as schools in both emerging and developing markets strive for success, they will need to view each other as potential solutions to the challenges they face. Both types of schools bring different strengths to the table, and both can support more international curricula and cultures. It’s time for partnerships between schools on both sides of the economic line to become the rule, not the exception.