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Business schools face a crisis of confidence

As they struggle to attract students, many are approaching real estate firms to sell their property or to work out an alternative land use strategy

Kalpana Pathak  |  Mumbai 

The IIM-Kozhikode campus in Kerala
The IIM-Kozhikode campus in Kerala

Last week, a institution from the National Capital Region approached a renowned in Delhi to gauge its interest in a possible takeover. It wasn't the first time that the school had been approached with such a proposal. The dean of the said he wasn't interested, and suggested that the institution convert itself into a regular school.

The proposal highlighted the plight of the country's B-schools. "There are fewer takers for MBA programmes, especially in Tier III and Tier IV B-schools owing to a variety of reasons: increased awareness among students about the quality of education being provided, lack of infrastructure and faculty, and the decreasing return on investment (fees)," points out Ajay Srinivasan, director, Crisil Research.

With the average occupancy rate remaining far from comfortable at 68-70 per cent in 2013-14, Srinivasan expects "to witness more pain, that is more B-schools closing down". However, it is likely, he says, there will be a slight improvement in the average occupancy rates over the next two years.

Rapid growth had helped double the number of B-schools to 4,500 between 1995 and 2005 as an off-shoot of the economy growing at an average of 7 per cent and bringing with it huge job opportunities. The demand for skilled managers led to the growth of B-schools. Then came the slowdown in 2008. Jobs began drying up and admissions started tapering off, except in the elite schools. Harivansh Chaturvedi, director, Birla Institute of and Technology, Noida, says that the shakeout in education was inconceivable before 2008.

Today, India has 3,217 B-schools, down from 3,541 in 2012. Barring the top 75 colleges, the rest are struggling to survive. Nearly 600 have closed over the past seven years. In fact, industry players fear that with B-schools trying to do away with the requirement of reporting closures to the All India Council for Technical Education (AICTE), the figures for management schools closing down could be higher than reported. "Informing when shutting down an institute is a long-drawn process, so many skip it," says Chaturvedi.

The number of AICTE-approved seats in B-schools has increased fourfold from 94,704 in 2006-07 to 3,85,008 in 2012-13. The Indian Institute of Managements too have expanded, the 13 IIMs having added 3,335 seats in the last 15 years, in the process wooing away students from other B-schools.

Crisil says the market grew at a frenetic pace in the past three years, with revenues rising at a cumulative growth rate of 21 per cent to Rs 16,000 crore in 2013-14 from about Rs 9,100 crore in 2010-11. However, most of the new schools came up in Tier III and Tier IV cities, which, according to research estimates, account for about 85 per cent of intake capacity in India.

B-schools for profit
The director of a that shut shop in Mumbai two years ago says many schools were set up by edupreneurs as commercial ventures. "But little did the players realise that one needs to generate operational cash flow and have an average capacity utilisation," he says.

Many institutions have either approached real estate firms to sell their property or to work out an alternative land use strategy. The director of a real estate services firm involved in such an exercise says that many B-schools now feel that they are not utilising their land at the scale that they should. They feel it would be wiser to sell the land and building or both and put them to better use. However, according to the law, change of trust is not allowed though a change of name is permitted.

According to the Association to Advance Collegiate Schools of Business, India tops the chart in terms of number of B-schools, followed by the United States and the Philippines, which, respectively, have 1,624 and 1,259 management colleges. But no Indian B-school figures in the global top 10 across various rankings. The China Europe International Business School, a 20-year-old in China, beat the 52-year-old Indian Institute of Management Ahmedabad to the 11th place in the FT Global MBA Ranking 2015, while IIM-A figures on the 26th spot in the FT Ranking.

says it would be a good idea for the lesser known B-schools to collaborate with more renowned institutions within India or globally to improve their quality. Experts have also been arguing that B-schools should collaborate with industries to survive, not only to gain industry participation for guest and special lectures, but also for internship and placement.

However, with many B-schools located in industry-deficient areas, the placement process usually isn't successful. Good management schools also provide students the opportunity to interact with people in industry. Because these are not possible in B-schools in such areas, they find few takers for management seats. "Ultimately, it is the value proposition. B-schools will have to look at the content they are providing," says Shankar S Mantha, ex-chairman, Mantha demitted office this January.

Another sore point with aspirants is the cost of management education. Students don't mind paying more to earn a degree from a well-established B-school. But they are wary of paying the high fees charged by new colleges without the guarantee of placement. Fees at B-schools have risen by up to 20 per cent this year. The Indian Institute of Management Bangalore increased the fee for its flagship Post Graduate Programme from Rs 17 lakh to Rs 18.7 lakh, making it the costliest among premier institutions. Ahmedabad raised its charges from Rs 16.6 lakh to Rs 18.5 lakh. New institutions charge upwards of Rs 5 lakh.

Placement is a bigger factor than academic achievement when an aspirant rates a B-school. With the economy on a slow path for nearly five years now, B-schools have found it difficult to achieve 100 per cent placement. Even the IIMs have struggled in this respect. The not-quite-impressive intake has also impacted the Common Admission Test. For 2014, only 1.89 lakh candidates registered for the test against the 1.95 lakh who registered in 2013. The number of MBA aspirants has grown sluggishly in the past 2-3 years at a CAGR of 2 per cent. But with B-schools reporting good placement figures this year, one could see an uptick in the CAT registrations.

The silver lining, however, is that with more B-schools shutting down, utilisation rates for the Tier IV schools is expected to rise. Overall, Crisil expects the occupancy rate to improve to 70-72 per cent in 2015-16 from 68-70 per cent in 2013-14.

First Published: Thu, February 19 2015. 22:30 IST