Feature Article

Global
Strategies

As Western business schools consider exporting their programs to emerging nations, the University of Maryland's Smith School shares lessons it learned about opening a campus in China.
By G. "Anand" Anandalingam

In 2003, the University of Maryland's Robert H. Smith School of Business went to China to offer executive MBA programs to managers in Beijing and Shanghai. At the time, not many Western business schools had entered the emerging market, and we had high hopes for the impact we could have in an economy that was growing and changing so rapidly. But after five years, we had failed.

Perhaps we were a bit naïve. After forging a partnership with a prominent university in Beijing, we entered the market without setting clear expectations on both sides. On our end of the partnership, we entrusted our critical startup in the Middle Kingdom to an inexperienced team hired in China that wasn't quite sure how to attract the right students and ensure their attendance at every class. We underestimated the difficulties that come with working in an emerging market: language barriers, cultural differences, misaligned expectations, and complicated banking arrangements (which often involved all-cash transactions). We also underestimated the complexity of the logistics required to operate a program from the other side of the world.

Fortunately, failure can breed success. Our namesake, real estate developer and philanthropist Robert H. Smith, said it best in his commencement speech here in 2008: "Failure gives you the opportunity to make a leap of learning. When you have come to a place where you have exhausted every other option, that is when you say, 'There must be a better way to do this.' "

Those early mistakes taught us important lessons about how to be successful in China. So in spring 2012 we are relaunching our EMBA program with the University of International Business & Economics (UIBE) in Beijing. But this time, we have a better understanding of China's corporate culture, which is helping us set clear expectations for the participants in our executive education programs. We'll also take a different approach in several areas:

• We'll work with an experienced firm that has a successful track record in China's higher education market. It will assist with our marketing and recruitment on the ground.

• We'll maintain stronger ties with our EMBA program in College Park, Maryland. This will include hosting our Chinese cohort in the U.S. during a portion of the program.

• We'll share equal risk—and equal reward—with our local partner.

This time around, things are different.

Emerging with Opportunity

This time around, China is different, too.

The country has become a dominant global force—as have many other developing markets. According to the U.S. Department of Commerce, emerging economies contributed 30 percent of the world's GDP last year, and they are all experiencing rapid growth. It is clear that business schools need to be in these countries as much as corporations do, because there is a huge market for world-class higher education.

That market is also expanding beyond Asia. The "Arab Spring" and the change of governments in the Middle East and North Africa are setting the stage for new emerging economies. Transitioning countries not only need political leaders, they also need business leaders. They need modern managers who can lead through uncertainty and take advantage of a rapidly changing global landscape.

In order to compete and succeed, leaders need to know how to run operations, use marketing tools, navigate global finance, raise capital for projects, and cultivate investments in countries and companies. They need strong management education from first-rate business schools.

But business schools also need the chance to explore emerging markets. Most business schools emphasize the principles of social value creation and social entrepreneurship—harnessing the power of business to make money and create transformative social change. If we enter emerging markets, we can practice what we preach about doing well by doing good.

We do good by helping to further education in these markets and creating a solid future for global business. We do well because we reap financial rewards and enjoy the benefits of rich student and faculty exchanges. We also learn how to do the most good with the fewest resources—a critical lesson in these economic times, especially for state-funded public research universities like ours.

Business schools that want to get involved in emerging nations can choose among three primary strategies. What works for one school might not work for another, so administrators must weigh the pros and cons of each approach before committing to one.

Strategy 1: The Partnership Model

An individual business school can forge a partnership with a school in an emerging market to offer programs jointly. In some countries, the governments require that the foreign university only operate in partnership with a domestic university, and in such cases, this is obviously the only strategy that can be used.

Though our first stint with the partnership model in China didn't work out the way we had hoped, it wasn't the model or our partner that was the problem. There are many examples of this model working well. Olin Business School at Washington University in St. Louis forged a successful partnership with Fudan University in Shanghai, and they have been offering an executive MBA program together since 2002. USC Marshall School of Business in Los Angeles and Shanghai Jiao Tong University offer an EMBA degree. When we restart our program in 2012, we will again employ the partnership model.

PROS: There are many potential advantages to this model at both the pedagogical and financial level. No matter how well you think you know a market—and how much global knowledge your institution possesses—your chances of running a successful program in another country will be markedly improved if you join forces with a local university entrenched in business education.

Furthermore, your students will gain greater knowledge about the region and the country if you employ some faculty from the partner institution to teach in your program. During Smith's first EMBA program in China, one of the criticisms we heard was that very little of our content and case analysis focused on China and Asia. Our faculty could not deliver this, and we should have gotten the professors from our partners more involved.

There are other benefits to incorporating faculty from the partner school. Those professors will be more accessible to local students than teachers who reside in another country and only visit the school periodically. In fact, local faculty make a global program more cost effective precisely because your school will not need to pay for their travel and accommodations.

CONS: True partnerships are always challenging because every decision has to be made jointly and everything needs to go through shared governance. Decision making is slow in most educational institutions, even in the United States, and if you factor in the pace of decision making in most emerging-market universities today, things can move at a snail's pace.

It also can be difficult to ensure that the quality of the program is always up to your standards when a partner institution is involved with admissions and instruction. It's your brand at stake, and students will expect the level of teaching you promise.

It is always challenging to have a dialogue with a partner on "quality" without getting into conflict or appearing to be condescending. One way to avoid conflict at the outset is to jointly benchmark programs at top-tier universities. The benchmarking, which should consider key course content as well as the structure of the overall curriculum, ensures that both partners are equally committed to quality from the get-go.

Even if partner schools agree on quality, they might have different approaches to finances and financial decision making. Most Western universities have to pay their faculty a premium to encourage them to teach in global locations, especially emerging markets. This could cause a lot of heartburn for the partner institution, where the pay often is comparatively low. The partner school might object to the salaries you pay your professors, or might insist on raising the pay for its own instructors just to be equitable, and this can increase the cost of the entire program.

Strategy 2: The Colony Model

A university also can choose to operate its own program and facilities in a new market, a model that requires significant investment on the part of the school. France's INSEAD has used this strategy to create a thriving operation in Singapore. Duke University's Fuqua School of Business, based in Durham, North Carolina, has expanded to outposts in China and Russia; it also has aggressive plans to replicate these programs in places like India, Latin America, and sub-Saharan Africa.

PROS: The biggest advantage of this model is full control over all dimensions of the program: admissions, quality of instruction, metrics for student performance, governance, and finances. When you have full control, you can more easily decide whether to enter or leave a market, and your decisions won't be affected by the political and institutional realities of another party. In addition, you will be better able to safeguard your school's brand by ensuring quality programming.

In this model, you can certainly take advantage of local resources and engage regional experts to improve your understanding of the market. You also can hire faculty from domestic universities to teach some of your classes and impart their local and regional knowledge.

You could reap significant cost savings from having a percentage of classes taught by local faculty, and you could ensure quality of instruction because they would be paid directly by your university and be accountable to it.

CONS: The main drawback of this model is the significant upfront investment. You have to take on real financial risk, because there's no guarantee that you'll attract enough students to ensure that your revenues balance your costs.

Something else to consider is that the government leaders in emerging nations sometimes change their minds about allowing educational institutions to operate in their countries without a partner or with the goal of making a profit. For example, India recently passed a law allowing foreign direct investment in the educational sector, but banned universities from repatriating their profits. It probably won't be long before Indian government officials start auditing these institutions. In other countries, local governments might insist that a foreign university take on a partner long after the university has already invested all the initial startup money. Something else to consider is that the government leaders in emerging nations sometimes change their minds about allowing educational institutions to operate in their countries without a partner or with the goal of making a profit. For example, India recently passed a law allowing foreign direct investment in the educational sector, but banned universities from repatriating their profits. It probably won't be long before Indian government officials start auditing these institutions. In other countries, local governments might insist that a foreign university take on a partner long after the university has already invested all the initial startup money.

One way to get around the need for significant investment capital is to utilize the third strategy for globalizing business education, which is to work directly with the local government.

Strategy 3: The Investment Model

In this model, the government of a specific region or country invests in a school's startup operations because it wants to promote better educational offerings in that area. For instance, the European Union partnered with the Chinese Ministry of Foreign Trade and Economic Cooperation in 1994 to create the China Europe International Business School (CEIBS), now based in Shanghai. In May 2009, CEIBS started an MBA program in Ghana.

There are many other examples. Georgetown University of Washington, D.C., collaborated with the government of Qatar, which essentially built the entire infrastructure for the university's School of Foreign Service. Similarly, Duke University is relying on the government of Kunshan to absorb a significant portion of the investment cost of building the classes for Fuqua's programs in China.

PROS: The biggest advantage of the investment model is that the university planning a program in the host country does not incur a significant upfront cost or major financial risk. The entity that makes the initial investment— whether that's a government or another institution—provides financial and personnel resources to ensure the continuity and success of the program. The trick is to make sure that the investing institution has the proper financial incentives to make a long-term commitment to the success of the project, which will reflect on the reputation of your business school.

CONS: The main potential negative is that investors may be more interested in the short-term ROI than the quality of the educational program or the brand equity of your business school. Your faculty probably will not be willing to compromise on admissions standards, quality of instruction, or level of student performance, but your partner may be interested in large enrollments and full classes, which will help it pay off its investment more quickly.

Business school administrators could be stuck in the middle of an intense argument. Each side might be able to back up its position by pointing to contractual obligations, such as those required by tenure. Your obligation to investors would make it difficult to walk away from the venture, while a lack of support from faculty might make it difficult to actually implement the academic programs. This can be a very tough spot indeed.

Where Do You Start?

Once you've decided to expand into an emerging market, you must figure out how to get started—and how you can manage such a venture even if you're on a shoestring budget. There are several approaches that can be successful:

Seek advice. Talk with other business school leaders about what worked and what didn't.

Do your research. The Smith School encountered problems when we first entered China because we didn't do enough research to fully understand the new market. It's important to grasp in advance what language barriers might exist, what blended learning options will work in this market, and what the appropriate price points might be.

Get involved with mission focused organizations. One such organization is the Global Business School Network (GBSN), whose mission is to strengthen global business education. (See "Developing the World," on page 30.) The Smith School joined GBSN in the fall of 2009, and we co-hosted the group's annual conference in Washington, D.C., in 2010. At the time, many GBSN participants were discussing new ways to collaborate. As a result, we have begun working on faculty and student exchanges to new areas, including Nigeria, Kenya, and South Africa.

Travel to emerging markets. Through GBSN, I was introduced to Ishrat Husain, dean of the Institute of Business Administration (IBA) in Pakistan, and I visited his institution in August 2010. It was an eye-opening trip to a country where terrorism, violence, and poverty are everyday concerns and have real impacts on business. But I experienced IBA's commitment to quality education and saw evidence of the leadership's global networks that will ensure academic and financial success.

Collaborate in other markets for specific projects. The Smith School's Dingman Center for Entrepreneurship has been partnering with Peking University's Guanghua School of Management in Beijing to offer our China Business Plan Competition, an entrepreneurship contest that marked its seventh year in January 2012. A couple of years ago, our students teamed up with Guanghua's students to create businesses together and learn about entrepreneurship for a semester. Chinese students traveled to College Park in August of 2010, and our students traveled to Beijing for the final competition the following January. We continue this rich relationship, which has become a standout experience for our students and the students in China.

Start small, then grow. Entering a new market doesn't have to mean offering a full degree program at first. There are many other ways to forge partnerships that could lead to deeper relationships later.

For instance, we focused on short-term executive programs when we launched our partnerships with Indian business schools, specifically the Management Development Institute in Gurgaon, near New Delhi, and the Indian Institute of Management in Bangalore. Starting small allowed us to learn not only the dynamics of Indian schools, but also the realities of the market for business education in India. Our expectation is that we eventually will create several joint degree programs in India: specialized master's programs in finance and supply chain management, as well as an MBA program that uses state-of-the-art distance learning technologies.

Play host to delegations from other institutions. You never know what opportunities can arise when your institution is open to visitors from foreign universities and business schools.

New Developments

Today, Brazil, Russia, India, and China are the emerging economies that get most of the attention, but new markets are opening up in South America and the Middle East. As business school leaders, we must continue to engage with the BRIC nations as they become more dominant, but we also need to consider how to get involved in other countries as they develop.

At the Smith School, we're focused on getting our China strategy right, but we're also committed to exploring many other markets globally. We believe that, as we refine our approach and expand our reach, we'll not only reap benefits for our school, but also provide tangible benefits to emerging markets. We'll look for that "better way" Bob Smith spoke of in his 2008 commencement speech—hoping, as he suggested, that it will lead us to great success.

###

G. "Anand" Anandalingam is dean of the University of Maryland's Robert H. Smith School of Business in College Park.