Low Enrollment Led Michigan State U. to Cancel Most Programs in Dubai

July 06, 2010

Michigan State University is canceling all undergraduate programs at its branch campus in Dubai, effectively reducing what was meant to be the university's beachhead in the Middle East to a mere office.

Since it opened almost two years ago, the campus has not been able to attract enough students to become either financially or intellectually viable, Lou Anna K. Simon, the university's president, told The Chronicle.

The campus opened with a business plan that projected it would be able attract 100 to 200 students for each graduating class, allowing the campus to generate enough revenue through tuition fees to cover the costs of operation.

But last year, MSU Dubai admitted fewer than 100 students, far below the number it needed both to establish viable academic programs and to cover its costs.

"We were undercapitalized in terms of the number of students needed to meet the financial plan," Ms. Simon said. "And this coming year's class did not appear to be as strong as it needed to be. And we needed to have large numbers because we were offering five undergraduate programs."

The university will continue to run a small graduate program in Dubai, in human resources and labor relations, and keep an office open to facilitate study-abroad and executive-training programs in the emirate, but its undergraduate courses won't continue in the fall.

Michigan State lost more than $4-million on the Dubai venture, Ms. Simon said, the costs of which will be covered by the Michigan State University Foundation, an independent nonprofit organization, and with investment income. State appropriations or tuition at the home campus in East Lansing, Mich., will not be used to cover any of the losses, she said.

What set Michigan State's Dubai campus apart from the branch campuses that many other prominent Western universities have opened in the Persian Gulf region was that the campus was eventually required to break even: Student tuition had to cover its operating costs.

For Western universities that have opened branch campuses in much wealthier locales than Dubai—New York University in Abu Dhabi or Texas A&M University in Qatar, for example—local governments underwrite everything from the cost of campus construction to faculty salaries to research. Student tuition is almost a bonus.

Not so in Dubai, which has minimal oil reserves and a local government that is unable to simply underwrite the costs of first-class higher education.

So Michigan State had entered into a partnership with Dubai Holding, a government-owned company that oversees a collection of foreign branch campuses called Dubai International Academic City. Dubai Holding loaned Michigan State $2.7-million to cover initial operating costs and also gave the university a grant to establish its campus, for which it pays rent to a subsidiary of the company.

Tuition-generated revenue was even more crucial to the success of the Dubai campus because it promised not be a financial drain on the taxpayer-supported home camps in East Lansing.

Ms. Simon says that Michigan State had difficulty attracting enough qualified students to its Dubai campus, which held the same high standards of admission as its Michigan campus.

"If you were thinking about this as a business, you would say that you need more students, so change the standards," she said. "But we felt that we couldn't change the standards and hold true to what we were trying to do in Dubai."

What's more, just months after the campus opened, the international financial crisis hit, with debt-laden Dubai hurt particularly hard. Dubai Holding never built the 300,000-volume library that it promised for Dubai International Academic City, and it struggled to find adequate housing for students.

That, combined with financial pressure on families, made it even more difficult to attract students to a relatively expensive university that existed in a higher-education market that many believe has reached its saturation point.

The few students who had enrolled at MSU Dubai will be able to continue their studies at the home campus in East Lansing. The university also hopes to arrange for students who don't want to move 7,000 miles away to transfer to other universities in the United Arab Emirates.

Ms. Simon said the university would "fulfill its contractual obligations" to faculty members, The university estimates it will have to contribute between $1.3-million and $1.7-million in severance pay.

The university will not have to repay its $2.7-million loan from Dubai Holding. "The conditions of the loan were such that if we got into a position of a certain amount of loss as a result of the business plan that we had agreed to, we did not have to pay back the loan," Ms. Simon said.

Lessons to Be Learned

Alan Ruby, a senior fellow at the Graduate School of Education at the University of Pennsylvania, says there are several lessons other universities interested in establishing branch campuses overseas can take away from the Michigan State experience.

But he cautions that university officials ought not to overgeneralize from what happened to Michigan State. For one, the startling severity of the economic downturn forced a number of expatriate families to leave Dubai who otherwise would have been part of the campus's target audience.

What's more, Michigan State was hamstrung by its financial model, getting little support from the Dubai government while needing, as a state university, to break even. Still, Mr. Ruby points out that even colleges whose branches are heavily subsidized by foreign governments should understand that those "resources are not infinite."

Michigan State, he argues, also was hurt by New York University's new branch campus, in nearby Abu Dhabi. NYU, he says, will boast a broader range of academic offerings, while Michigan State, like traditional branch campuses, had more tailored options. He compares the effect to the introduction of the iPhone into the music market. "There's a new product on the market," he said, "that's offering a different, attractive option."

What universities should learn from Michigan State's foray into the gulf, Mr. Ruby says, is the need to do careful diligence in deciding whether to go the branch-campus route. Institutions may be better served by expanding study-abroad or cultivating more-varied partnerships than opening a full-fledged outpost overseas.

Universities also ought to consider what the curricular needs are locally, whether their institutions are well-positioned to fill those demands, and which other competitors are striving to respond to that market.

"You really have to do your market research," Mr. Ruby said.

Karin Fischer contributed to this article.