The recent decade has seen higher-education institutions from various nations establish branch campuses and franchises in other countries. But college leaders should think twice before they plunge into the branch-campus arena.
American institutions operate in more than 40 countries that vary in size from Bermuda to China and in political system from parliamentary democracy (Australia) to state Communism (Vietnam). Institutions in many other nations, like Britain, are also setting up branch campuses. Some of the branches and programs aim to increase the revenue and reputation of the home college, while others seek to maximize the institution’s international character. Still others are driven by institutional altruism and a desire to help less-fortunate communities.
The for-profit sector has also been active abroad. The Apollo Group has been buying degree-awarding entities in Britain and Chile, Laureate Education is expanding in Central and Latin America, and DeVry operates programs in the Caribbean and Brazil. They are but three of more than 70 well-capitalized investors looking at the global market.
Regardless of provenance or profit motive, prospective branch campuses need rigorous evaluation and review. In addition, colleges should consider the lessons of the 1980s and 90s, when 26 out of 30 American branches in Japan failed. Institutions should:
Perform due diligence. Higher education as a sector can learn a lot from business about assessing the truth and accuracy of information about an investment opportunity. Due diligence is a systematic process of inquiry and discovery that evaluates everything from general environmental factors to the details of a competitor’s price points. At any time in that process, it may become apparent that a project’s risks are too large or too complex to be ameliorated or managed.
The first step that colleges must take in performing effective due diligence on potential branch operations is to identify the political and cultural barriers to entry. Where countries strictly and centrally regulate colleges or academic credentials, or both, it is relatively easy to determine the criteria for market entry. But even in such nations, corruption and malfeasance can occur. And with or without corruption, approvals can be interminably slow or simply unobtainable. Criteria can change: When Temple University was setting up in Japan, it found that the regulator’s interests would change from year to year. One year the lack of a 10-year plan would be an impediment; the next year, it would be the absence of a Japanese citizen in the role of branch chief executive.
Some of the common barriers to providing education services across national boundaries include visa quotas or processing delays for faculty members, capital requirements or revenue taxes that apply only to wholly foreign entities, and limits on telecommunications use. Those barriers are often cited in studies about constraints on trade in services, but institutions also face other roadblocks, including enrollment caps and requirements to own land and physical facilities in the country. Again, Temple struggled with the requirements that its Tokyo branch own some of its buildings in one of the most expensive real-estate markets in the region.
In other cases, the complexities of governmental regulations can make it hard to check on the standing of a potential partner or discern just what needs to be done to set up a program or an institution. The involvement of multiple agencies (India has five or more entities) or multiple levels of government (China has national, provincial, and municipal authorities) can complicate matters—as can systems where professions, trades, and general education are controlled by separate ministries or arms of government.
Establishing who or what you are dealing with is only the beginning. Colleges must then work out the basics of developing a branch campus abroad, including finances, liabilities, leadership and depth of expertise, academic standing, and selectivity of admissions, among other matters.
Learn from past failures. What can we glean from the failures of branch campuses in Japan? The basic lesson is that location, demand, and brand determine enrollment and revenue. Some universities set up branches in small towns in Japan, yet the population base of those towns—less than 10,000 people—was insufficient to provide a consistent local demand. Nor could the bucolic charm of rice paddies or guava compete with the draw of urban life and lure students from cities or other parts of the country. Demand was also low nationally. Finally, the institutions had little brand recognition—Minnesota State University was not a household name in Akita.
Combined, those three factors resulted in the branches not meeting enrollment targets. That dampened revenue and delayed returns to local investors. Unhappiness ensued, the investors withdrew, and home institutions underwrote losses. Most branches closed.
Carnegie Mellon University, now entering Japan, has learned the lessons of the past. Setting modest goals, it is offering programs for niche markets in which demand is strong and there is no competition, like the master’s program in entertainment technology that it began in Osaka in 2008.
Another case in point: In 2007, Australia’s University of New South Wales had to abandon its Singapore outpost during the first semester of operation. The enrollments just weren’t there, with less than half the projected 300 students attending. The local market was saturated, and one-third of Singapore’s college students were already attending institutions abroad. The fiscal incentive—a wage premium, or a better salary for a Western degree—was eroding, as the supply of graduates increased and growth in the economy slowed. The social incentive of a “Western lifestyle” that had attracted 400 or more students from Singapore to the home campus in Sydney was not transferable to the planned Changi campus.
There were also plenty of competitors—high-quality local institutions, American and British providers with better name recognition, and institutions in Malaysia and Hong Kong—competing for regional students and vying with Singapore to be the “education hub” for Southeast Asia.
Those were all knowable and discoverable facts—ones that the University of Warwick, in England, had already turned up when it declined an invitation to open in Singapore in 2005. It had done due diligence.
The failures of branch campuses have not been confined to Asia. The University of La Verne’s campus in Greece, for example, closed in September 2004 because its debt could have dragged down the home campus in California. Enrollments were already low, as the Greek government would not, and still does not, recognize foreign private providers. But the numbers fell even more and sharply—by 40 percent—largely because of the increased capacity at the free public universities.
There are other examples in other settings where branch campuses have fallen short of expectations. The one consistent observation is that many of the problems encountered were foreseeable. Thus, while the latest branch campuses may have their own distinct features, the lessons of the past are still worth studying.
