The rise of the multinational university

More than 200 degree-granting international branch campuses of universities are now located in foreign countries. But a new report says some universities are considering transforming the branch campus model into fully fledged multinational universities “by slicing up the global value chain in ways akin to multinational corporations”.

Prepared by Sean Gallagher and Geoffrey Garrett from the United States Studies Centre at the University of Sydney Business School, the draft report says many of these universities are focusing on China because of its scale and rapid development, and on Singapore because of its aggressive government policy and high level of development.

By 2020, the report says, the world’s four largest countries in terms of population – China, India, Indonesia and the US – will account for more than half the global population of university-aged young people.

It says that with foreign students typically having to meet at least three times more of the cost of their tuition than domestic students, “the revenue implications of the export model are profound”.

In Australia, student fees from international students come close to matching the money universities receive from the federal government to teach Australian students – despite the fact that there are four times as many domestic as foreign students enrolled.

The report says the goal of multinational universities in slicing up the value chain around the world through complex systems of supply, production and distribution of higher education and research, may mean using a developing country to do research because it is cheaper to build better infrastructure and hire researchers of similar quality to those at home.

Or it may mean designing degrees in-country that are tailored precisely to what the market demands – in contrast to the largely one-size-fits-all of the branch campus system.

Branch campuses

“China is attractive for several reasons: its world-leading ability to quickly roll out first-class infrastructure; central, provincial and local governments willing to make large financial commitments; Chinese research talent is high quality and relatively cheap; and Chinese demand for quality higher education will continue to mushroom as China transforms its economy form a low quality producer into by far the world’s biggest middle-class consumer.”

Although Australia has led the world in the “pure export model” of international higher education and also in terms of its branch campuses, the report says US universities have set up the greatest number of offshore campuses with 78 now operating, each enrolling an average of 371 students.

Although Australia has only 12 such offshore campuses, it educates more students on them than any other country – almost 28,000 – nearly as many as the UK (about 18,000) and the US (slightly more than 13,000) combined.

But the report notes that in Australia, over the past five years, the growth in international student numbers and in branch campus expansion has slowed and even begun to decline since the global financial collapse.

It says this “stagnation” could be a function of market saturation, with demand in Asia having peaked; or because the Australian export and branch campus model has become outmoded – the latter because of the many new higher quality entrants from elsewhere, including exporters from Europe and North America that are now targeting Asian students with offers with which Australian universities cannot easily compete.

Australia on the decline, US on the up

But three factors have affected Australia uniquely and negatively, the report says: a doubling in the value of the Australian dollar over the past decade; tougher visa and post-study work restrictions; and bad media coverage – particularly in India on Australian treatment of its foreign students.

“At the same time as Australian international higher education has been hit by these shocks, the market for international students has become increasingly competitive because more, and higher quality, universities from around the world have begun aggressively to enter the game – led by some of the biggest and best American public universities.”

The report says the global financial crisis has proved such a radical shock to American public higher education – with dramatic cuts to all state and therefore public university budgets – that US public universities are quickly becoming very “Australian”.

State public universities from New York to Illinois, from Washington to California, are pursuing the Australia-style export model.

“By enrolling international undergraduate students in their thousands, budget holes are being plugged and research programmes cross-subsidised like never before,” the report says.

“In the last few years, the attraction of the United States as a destination for international students has increased markedly among Asian countries [with] the number of international students in American colleges and universities increasing by 5% in total and 6% at the undergraduate level. Most notably there has been a staggering 43% increase in Chinese undergraduates while the total number of international students in the US was 732,277.”

Asian students are attracted by what the major US colleges offer. Despite tough academic entry hurdles, the report says the rewards are high:

“From outstanding education to safe residential communities to first-class facilities to an extraordinary network of influential alumni, and to holding a degree from a university with a global brand, the total package is probably perceived as of higher quality than the value proposition offered by Australian universities.

“And Asian students are influenced in their education choices by the US-dominated world university league tables.”

Problem with the export model

There is a fundamental problem with the “higher education as export” business model, the report argues. If the increase in the supply of higher education continues from US and Asian providers, as well as from online education, the global market price will fall and so will the average quality of students willing to pay for it.

It says the big winners from supply outstripping demand would be the consumers of higher education in developing countries. But this situation would pose a major financial and reputational threat to campus-based universities in developed countries that are shackled with high fixed costs for staff and infrastructure.

Australia’s top universities – and presumably those in other Western countries facing the same threat – should now be planning long-term strategies of “hardwiring” themselves into China and reducing their reliance on the export model, Garrett and Gallagher write. They say there are four reasons to do this:
  • • By 2020, China aims to double the number of foreign students enrolled in its universities to more than 500,000 – in direct competition with Australia, Britain, Canada and the US.
  • • Between 2007 and 2039, McKinsey projects that 30% of the world’s global growth will occur in 242 Chinese cities, compared with only 3% in India’s cities.
  • • China could have a deficit of up to 23 million tertiary educated workers by 2020 because of the slow growth in the supply of secondary students – a result of the nation’s one-child policy.
  • • Within 15 years, China’s population will begin to fall – its labour force has already peaked and, to avoid the ‘middle-income trap’, China will need an ever more highly educated workforce to drive productivity.
The report says Australian universities could pursue proactive multinational university-like initiatives as stepping stones towards their entry into China and at a pace that manages risk levels.

It suggests targeting mid-tier Chinese cities with growth momentum and established universities “to seed education and research initiatives that would benefit China”.