E. Han Kim and Min Zhu

1
Universities as Firms the Case of US Overseas
Programs

• E. Han Kim and Min Zhu
• Ross School of Business
• University of Michigan
• NBER Conference on American Universities in a
  Global Market, October 3, 2008

2
Universities as firms

• Why overseas program?
• Not bound by the implicit contracts entered over
  time with domestic stakeholders.
• House hearing (2007) Overseas branchesprice too
  cheaply and start giving away store.
• Research questions
• What types of universities go abroad?
• Where do they go?
• How do they price products?
• Anecdotal evidence two waves of overseas
  programs.
• Regression analyses.
• Universities behave like MNCs when they go
  overseas.

3
Universities are different from firms

• Universities provide public goods
• Knowledge creation (research)
• No immediate payoffs.
• Knowledge dissemination (teaching)
• Immediate payoffs through tuition.
• Revenues
• Tuition, gifts, endowments, supports from local
  and federal governments
• Max Present Value of Revenues Costs

4
Two types of universities

• Universities with high intellectual capital
• Greater dependency on endowments, gifts, and
  public supports
• Revenue depends on reputation
• Encourage costly research to maintain reputation
• Universities with moderate reputation
• Greater dependency on tuition revenue
• Less research activities
• Teaching is the primary revenue generator

5
Which type is the main player in overseas
programs?

• Supply consideration
• Moderate universities more willing suppliers
• Elite universities reluctant to put their
  reputation at stake by
• Diverting faculty resources away from research
• Delegating quality control
• But Demand is greater for elite university
  programs.

6
Anecdotal evidence Two waves

• First wave the late 1980s to mid 1990s
• Total overseas enrollment is 21,090 in 1986,
  peaks in 1995 at 48,043, and decreases to 23,534
  in 1998.
• Supply driven
• Most of the overseas programs are set up by
  lesser known American universities.
• Failure of American programs in Japan
• Started during the Japanese bubble economy in the
  1980s, with more than 30 US university starting
  branch campuses
• Closure of most of the programs due to the slow
  down of the local economy, low enrollment,
  language problems, among others

7
Anecdotal Evidence The second wave

• New surge of media coverage from 2000s
• Most suppliers are high profile U.S. universities
  
• Extensive media coverage on how deals are
  structured, especially in Middle East
• Qatar offered Cornell 750 million for medical
  programs.
• NYU in Dubai, CMU in Qatar, Michigan State in
  UAE.
• Hong Kong, Singapore, and South Korea attempt to
  become regional higher education hubs
• China and India
• Little media report on Africa

8
Empirical Analyses

• Supply side What types of universities venture
  aboard?
• Link the likelihood of having overseas programs
  to university characteristics.
• Demand side Where do U.S. universities go?
• Link the density of overseas programs to host
  country environment.
• Pricing How do U.S. universities price their
  products?
• Link overseas tuition discount to university
  characteristics and host country environment.

9
Sample construction

• Search the Chronicle of Higher Education using
  keywords overseas, offshore and branch
  campus.
• Search websites of overseas programs using
  sponsoring universitys name and location of the
  programs.
• Supplementary resources
• Observatory on Higher Education (OBHE) breaking
  news and special reports headlines,
• American Council on Education (ACE) publications,
  
• Institute of International Education (IIE) Open
  Doors Report 2007.
• Sample size 159 overseas degree programs offered
  by 86 US universities in 46 countries.

10
What type of universities are likely to have
overseas programs?

• Pr (Overseasi) G(Enrollment , Foreign Stu,
  Part-time Stu, Tuition, Endowment/student,
  Reputation, Public vs. Private)
• All variables are at the home campus level
• Reputation indicator variables are based on
  university rankings from 10 sources
• Top, top 31.
• Middle, 32 and 95.
• Moderate, below 95.
• Master, master degree programs, not classified as
  research universities.

11
Probit regression on the likelihood of having
overseas programs
12
Where do they go?

• Densityj a ß1GDP_PPPj ß2Growthj ß3
  Stu_Popj ß4 FDIj ß5 Continentj ej
• Density the number of U.S. overseas programs in
  a country.
• GDP_PPP Purchasing power adjusted GDP per capita
• Growth growth rate of GDP_PPP
• Stu_Pop Tertiary school age population
• FDI US outflow to the country.
• All variables are averaged values from 1999 to
  2003.

13
Negative binomial location regression
14
How do they price products?

• Discountijk a ß1GDP_PPPj ß2Reputationi
  ß3Profk ß4BAk ß5Jointk eijk
• Discount 1 overseas sub-program tuition /
  comparable program tuition at U.S. home campus
• Prof professional disciplines (computer science,
  business, medicine, law, film and theater)
• BA undergraduate programs
• Joint local partner university or local
  financial subsidy.

15
Results tuition discount regression
16
Summary

• The current wave is more demand driven
• With active participation by large, reputable
  research universities that are
• More tuition dependent
• More open to foreign students at home campus
• Targeting markets with
• Large pool of potential clients
• Oil money
• Showing least interest in Africa
• Offering greater tuition discount
• To lower income countries
• In programs facing greater local competition
• Do not pass on to local clients cost savings
  arising from local partnership or from local
  government subsidies

17
Related Issues

• Is the second wave sustainable?
• Or will it follow the same fate as the first
  wave?
• Whats the definition of success?
• Overseas programs
• Universities at large