"The shift to over-enrol has started in a serious way... We will have to respond to what other universities do."Pro Vice-Chancellor
As higher education in Australia moves to a demand-driven funding model, and other potential reforms (e.g., price deregulation) are introduced, the business models of established universities will be challenged.
This competition will be fuelled by battles for market share between established players, entry of new players into the market and the growth of the ‘second estate’ in international markets, that is, OECD-standard education in emerging markets at mid-tier price levels.
Battles for market share between established players
As part of the study, we interviewed 20 executives across seven universities, asking a range of qualitative questions including "How do you see the implementation of the demand-driven model in 2012 affecting your institution?"
Responses centred around three strategic views, based on the institution’s market position and brand strength:
- ‘Tier 1’ institutions are comfortable with their market share and position and are relatively unconcerned with the introduction or the demand-driven model
- ‘Tier 2’ institutions with strong brands have begun (and will continue) to use their market and brand position to drive substantial increases in enrolments
- Tier 2 institutions with modest or weak brands are already seeing declines in enrolments. These institutions are vulnerable and worried about this continuing trend
Higher education institutions should now consider what would happen to their institutions if they lost sustained and substantial share, particularly from high-margin programs such as business and management, and plan their business models accordingly.
New entrants in the market will target high value/niche segments
Other sectors that have deregulated over the last 10-15 years, for example telecommunications and utilities, have seen rapid entry of multiple new players, many targeting niche positions in the market. The impact on incumbents in these sectors had been substantial — declining margins, rapid increases in customer ’churn’ and the need for providers to redefine their market position.
Whereas in the past, policy settings have limited the growth of new entrants, especially from outside of the training sector, further measures to remove supply quotas and enable increased student choice could open up the higher education sector and expose established players to ambitious and well-resourced multi-nationals, private providers and new entrants.
Growth of the ‘second estate’ in international markets will divert volumes from the already vulnerable international student market
Traditionally there has been a large gap in education standards, and price-levels, between OECD education institutions and domestic institutions in emerging markets. A number of actors are seeking to fill, or exploit, this gap, creating a ’second estate’ of near-OECD standard education in emerging markets at a fraction of the price.
The real growth in the second estate however, will come from the establishment of new domestic institutions, created in the image of OECD standard institutions by increasingly ambitious and well-resourced governments in countries such as Saudi Arabia, China, India and the like.
As a result, Australian institutions will need a sharper value proposition for students and their parents in international markets. Regardless of how affectively they do this, Australian institutions may need to resolve themselves to lower levels of growth from international education, and align their finances and business models accordingly.
Emergence of the second estate
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