Succeeding in China’s crowded business education market

classroomOver the last two decades, competition in China’s business education market has become more intense. According to a survey published by Managers magazine, in 2014 there were as many as 236 full- or part-time MBA programmes and 45 EMBA programmes in the Chinese market. Scattered all over China, almost half of them have built some kind of ‘collaborative relationship’ with overseas institutions. Cui Zhijian, Professor of Operations Management at Instituto de Empresa Business School, looks at the many challenges facing business schools in China’s increasingly crowded marketplace.

In the face of increased competition, many Chinese business schools are struggling to design differentiated curricula, offer better internship or study exchange opportunities, and/or encourage innovation and entrepreneurship. Despite these efforts, more and more MBA applicants are clustered around a few top-tier business schools, such as Tsinghua University School of Economics and Management and Peking University Guanghua School of Management. Other less-renowned schools are experiencing difficulties attracting enough applicants. An additional, unrelated problem is the significant drop of enrolment numbers in EMBA programmes since China’s broad anti-graft campaign began in earnest. As a result, the financial stability of many Chinese business schools is at stake.

The current dilemma faced by many of these schools sheds light on the tension between research and teaching in general, as well as the characteristics of different business models for running a business school in an extremely competitive marketplace.

Among all Chinese business schools there are three basic models. The first is a school of business embedded in a comprehensive public university, a category into which many first-tier business schools fall. As Dr Qian Yingyi, Dean of Tsinghua University School of Economics and Management said in an interview, the main strength of this model is “integration”. Backed by other schools within the same university, business schools using this model are able to offer a variety of curricula to students, from sociology, history and international politics, to fengshui. Business schools with such a model can easily benefit from the reputation of the entire university – the so-called ‘halo effect’. On the other hand, faculties in these schools are often under huge research pressure, and regulations imposed at the university-level can be quite rigid.

The leading players in this category often own the strongest academic reputation and alumni network in the market. They also have a sufficient amount of resources to support academic research, such as providing reduced teaching loads for research-active faculties and regularly inviting ‘star teachers’ from both academia and industry. The benefits compensate the drawbacks, namely, low flexibility in the Chinese public university system. However, less-renowned universities may experience difficulties staying in the market. Compared with the leading players they gain little from the ‘halo effect’, and the rigid system, including student entrance exams, faculty evaluation and promotion, and monetary incentives, could become a big hurdle, limiting their growth in near future.

The second category are public universities specialised only in economics, business and management. Famous schools falling into this category include Shanghai University of Finance and Economics, and Southwestern University of Finance and Economics. These types of schools are not particularly common in the business education markets in the United States (US) and Europe. As with the first category, schools or universities adopting this model operate under rigid government regulations. Their reputations among academia and practitioners, generally speaking, are lower than the leading universities from the first category. For example, not a single school from this category is part of the elite university club dubbed ‘C9’ (China’s nine major universities) or the ‘985 project’ generously funded by the Chinese Government. Without a clear positioning and differentiation strategy, these schools will experience difficulties attracting promising applicants and maintaining their market share.

The third category is independent business schools that are usually self-financed via donations or tuition fees and do not belong to any public university. Schools falling into this category include China Europe International Business School (CEIBS) (affiliated with Shanghai Jiaotong University) and Cheung Kong Graduate School of Business (CKGSB). The number of independent business schools is growing quite fast. However, barring a handful, most lack a strong brand in the Chinese market. In addition, their survival heavily relies on the income from tuition fees, especially fees from executive education.

challengeA few of these independent business schools have started to slowly invest in research. For example, CEIBS has built a collaborative PhD programme with IESE Business School. Cheung Kong Graduate School of Business employed a different approach: it hires a small amount of research-only faculties while maintaining a pool of teaching-only adjunct faculties. However, the approach of having both research-only and teaching-only faculties could prove quite costly and the entire business model may become vulnerable if income from tuition fees drops, particularly after the anti-graft campaign, which has seen many government officials dropping out of executive education programmes. Given the current economic and social conditions in China, it is highly likely that these schools will need to further cut research budgets in the near future.

For foreign business schools attempting to enter the Chinese education market, the main opportunity may well lie in building collaborations with ‘second-tier’ business schools that fall into the first and second categories of business model outlined above. Due to strict government regulations and the resistance of so-called ‘cultural aggression’ in Chinese politics, foreign business schools cannot build a completely independent school in China, meaning a reliable local education partner is compulsory. Nowadays, ‘being international’ is hardly viewed as a differentiator in the Chinese education market. Most leading schools in China have already built an extensive network with major business schools in the US or Europe. In these leading schools, overseas exchange programmes or dual degrees have become pretty much standard. However, ‘second-tier’ Chinese schools are still struggling to offer a programme that is at least comparable with those in leading schools, though in comparison to independent business schools they are funded by government and usually have strong financial stability, an academic reputation and an alumni network in China.

Besides exchange or dual degree programmes for students, a potential new format for collaboration could be the exchange of faculties. Many Chinese schools believe a major strength of US or European schools is their faculties, who can deliver something with a different approach from their existing faculties. In addition, having a foreign partner in the team will help Chinese schools to obtain research funding from different levels of government. For US or European schools, Chinese counterparts may provide curricula that are either quite specific to the Chinese context or related to general emerging markets.

Another form of collaboration that appeals to many Chinese business schools, are collaborative doctorate programmes, for example, a DBA (Doctor of Business Administration). In contrast to those in the US or Europe, Chinese officials often hope to obtain a doctorate to justify their intelligence and the strength of their academic background, and enhance their chances of being promoted. However, since the launch of the anti-graft campaign it is becoming increasingly difficult for them to get doctorates from local Chinese universities, and this could provide new opportunities for foreign schools.

Online education programmes are becoming more popular in the US and Europe. Before receiving popularity in the Chinese market, however, these programmes still need to overcome several hurdles, including government recognition and current negative market perception. Traditionally, online programmes are perceived by many Chinese students and government officials as being of a low quality. A smart strategy would perhaps to be to wait until the market perception changes, and become a ‘second mover’ in this education sector.

Cui Zhijian has been Professor of Operations and Technology Management at IE Business School since 2011, a Visiting Assistant Professor of Operations Management at Hong Kong University of Science and Technology Business School since 2015, and is an adjunct professor at several top-tier Chinese universities. Zhijian was nominated ‘Best Professor of the Year’ by Shanghai International Studies University in 2014.   Zhijian hold Ph.D in Management from INSEAD, an MBA from Pepperdine University and a Bachelor of Engineering from Tsinghua University.