Fading prestige of an Indian MBA

India Dispatch:A proliferation of business schools in India has not only diluted the value of a master's in business but has forced the closure of many institutions.

The Indian School of Business in Hyderabad, India. (A Prabhakar Rao/The India Today Group/Getty Images)

Mumbai Business School was just three years old when the owners were forced to close down the institution that promised youngsters a fast track to corporate careers.

It had business heavyweights behind it - including A Mahendran, the managing director of Godrej Consumer Products, Jagdish Sheth, a marketing guru, and Charles Kellstadt, a professor of marketing at Emory University in Atlanta - but they were unable to escape the cycle of boom and bust that has afflicted business education in India.

More than 130 institutes, or about 4 per cent of all business schools in the country, are expected to close this year. In comparison, last year, 40 schools sought closure, according to the All India Council for Technical Education (AICTE), which oversees business education in India and approves new institutions.

There are thousands of empty seats in business schools across India. Take the states of Maharashtra and Uttar Pradesh, which jointly have about 135,000 vacant places, some 40 per cent more than last year, AICTE says.

The global financial downturn and a lack of employment opportunities are the key causes, according to industry experts.

"The global crisis had everyone questioning the value of MBA education and what it was really teaching," says Chavi Bhargav Sharma, the director of the faculty of management studies at Manav Rachna International University in Faridabad. "There was a question mark on the way businesses are run. But the biggest reason is of course the job markets shrinking and smaller salaries."

The Mumbai research and ratings agency Crisil recently predicted that there would be a shake-out in the higher education space because of dwindling occupancy levels.

"Because many schools currently have low occupancy rates, they are having difficulties in sustaining their businesses, especially amongst the lower-rung colleges," says Ajay Srinivasan, the head of industry research at Crisil. "As a result, we are seeing several colleges having to close down their business or change in ownership over the next few years."

The downturn follows several years of explosive growth in the business school market. The difficult conditions have helped to separate the wheat from the chaff, and academics say many institutions proved unable to meet the real needs of India Inc.

"There was a sharp increase in MBA colleges from 2005 to 2008, driven by a general positivity about industry during that time," says Rajul Garg, a director at Sunstone Business School. "Many are now discovering that MBA schools require a high fixed-cost base. Hence, if they are not able to maintain a certain level of utilisation, they may struggle to service the costs. This means there will be more closure in the long tail of MBA schools."

Other factors have also helped to keep students away from business schools - faculty shortages, substandard curriculums and poor infrastructure - especially in rural areas. Running a business school is costly.

"Opening a traditional MBA school requires real estate, construction and government liaisoning skills for accreditation even before hiring faculty. This had led to a proliferation of schools with dubious quality," says Mr Garg.

Another is increased competition. India has nearly 4,000 business schools with a total capacity of 350,000 seats. Every year, about 60 MBA institutes emerge in the country, diluting the once-prestigious degree and causing the Indian MBA to lose its status, the experts say.

"MBA is an expensive degree, and earlier MBA graduates were paid fat salaries because the degree was considered worth it," Prof Sharma says.

"Today - with the MBA education under the scanner and the recession eating the salaries of MBA graduates, there are fewer takers. It is simple business … the brand MBA no longer is enough to sell."

Many new schools are discovering that this is a tough sector in which to compete. The best schools will always attract more applicants.

"While there are a number of MBA schools now, if you create a quality bar, very few will be above that," says Mr Garg. "Hence, it's a case of higher-quality institutes getting more and more applications and the rest lesser and lesser."

Previously, students would go overseas for further training, but certain Indian schools are struggling to keep up with the rest of the world.

"The global scenario has changed, too," says Prof Sharma. "The needs of businesses and their methods are undergoing transformation; MBA schools need to make a curriculum to meet the global needs. Only then they can expect to have full seats."

The gulf between the top business schools and run-of-the-mill institutions is widening. While India's top business schools are increasingly being recognised internationally, the remaining thousands of management institutes in the country have dismal standards of teaching. A reality check is needed in an industry that has for too long been focused on making a profit.

"The business schools need to analyse the market and then offer something that the other institutes are not offering," says Prof Sharma. "The mantra is innovation, quality and excellence and knowledge that is relevant and skills that make the students employable."

Some schools are taking steps to create innovative and niche programmes for working professionals that are adding value and can attract fresh crops of students.

"The solution lies in a little bit of reinvention and how we perceive MBA schools," says Mr Garg. "High costs can be driven down by offering education for those who work and [by] building curriculums around a practical workplace."

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