Magazine

China's B-School Boom


Walk into any classroom at one of China's elite business schools and what you're likely to see isn't all that different from what you would find at Harvard, Wharton, or MIT's Sloan School. True, there's a preponderance of Asian faces and the occasional smattering of Mandarin. But the classes, course materials, subject matter, and even the teachers are virtually identical to their U.S. counterparts.

Indeed, in most cases the MBA programs attended by China's top students are very much the product of Western educational institutions, which in recent years have rushed to establish programs on the mainland. The idea: to tap into the enormous demand for talent created by China's white-hot economy.

The colossal effort by the central government of China to educate the nation's next generation of managers is unprecedented, and it has been undertaken at a speed that is nothing short of breathtaking. In just 15 years, Chinese B-schools raced through the evolution it took U.S. B-schools more than half a century to accomplish -- not by reinventing the wheel but by adopting the U.S. model wholesale. "China is borrowing what it can and creating what it needs," says Patrick Moreton, co-director of the executive MBA program offered by Fudan University and Washington University in St. Louis' Olin School of Business.

The need couldn't be more urgent. Twenty-five years into China's transformation into a market economy, the nation faces a critical shortage of well-trained managers. After two decades of explosive economic growth, many Chinese managers run regional or national companies, yet they lack the sophisticated skills they need to compete effectively.

DOUBLE-EDGED SWORD

For U.S. companies, the emergence of China's new managerial class has positive and negative implications. For those seeking to penetrate China's massive market of 1.3 billion people, the graduates of the nation's new MBA programs will supply a steady stream of local talent with in-depth knowledge of China, something their Western managers can't provide. But as Western management ideas take root in the nation's corner offices, multinationals could find themselves confronting a newly powerful adversary: Chinese companies suddenly in possession of the management knowhow needed to go head to head with global giants. Those same ideas -- about efficiency, productivity, profitability, and growth -- hold vast potential to ignite China's already blistering economy, raise living standards, and transform the nation from a low-cost manufacturing center to a make-or-break battleground for the global economy.

At the same time, given the vastness of China's needs, creating the new managerial class is an effort to keep its decades-long economic miracle roaring -- a doubling-down of the bet Deng Xiaoping made in 1978 when he set China on the path toward capitalism. In all, China will require 75,000 top-level executives with global experience by 2010, estimates McKinsey & Co. -- about 70,000 more than it has now. Without them, the future is uncertain. "In the past, most Chinese companies were domestic. Now they have become global competitors," says Zhang Weiying, dean of the Guanghua School of Management at Beijing University. "If they don't have professional management training, they don't survive."

With demand for management talent outstripping supply, elite Chinese universities have rushed to fill the gap. Top schools, such as Tsinghua University in Beijing and Fudan University in Shanghai, have joined forces with Western partners to offer state-approved MBA programs that have grown more than tenfold since 1991, when the government began licensing them.

Many Chinese students, most of whom once sought their MBAs in the West, now stay put. By earning degrees closer to home, they avoid derailing their careers by leaving China -- and all their business contacts -- for two years or more. Lured by the promise of big salary increases and coveted jobs with multinationals, they're applying to B-schools by the tens of thousands. "China is changing so quickly," says Nina Zou, 28, a recent graduate of China Europe International Business School (CEIBS) in Shanghai. "If I left now, I would be behind the curve because of what I had missed."

In a strange reversal, Westerners who wouldn't have considered a Chinese B-school a few years ago are flocking to them to stake a claim in the fastest-growing major economy on earth. In all, more than 18,500 students of all nationalities were admitted to about 90 Chinese MBA programs in 2004, including nearly 12,000 full-time students, a more than sevenfold increase in just seven years. After a recent two-year decline in applications, a favorable demographic shift has B-schools bracing for what could be another sharp rise.

To explore what's behind the blossoming interest in management education, BusinessWeek undertook an exclusive survey of nearly 1,000 MBA students at 13 of China's top programs -- the vanguard of the new China. While they identified strengths and weaknesses in individual programs, the students were generally satisfied with the education they are receiving. Two-thirds say their MBA experience has surpassed their expectations, and most give their programs high marks for teaching, course content, and career services.

STATESIDE SLUMP

Not surprisingly, the survey found that students were overwhelmingly upbeat about China's prospects and their own. More than half expect a sizable pay raise at graduation, about 25% intend to start a business in five years, and the vast majority plan to pursue careers in China. "The Chinese labor market is booming," says Frank R.C. Wu, a recent CEIBS executive MBA (EMBA) graduate, over lunch with classmates. "Every one of us is optimistic."

The intense interest in management education in China comes at a propitious time for U.S. B-schools. Now in the midst of a prolonged slump in applications at home brought on by a strong job market, skyrocketing tuition, and stagnating post-MBA salaries in the States, many are looking to China for growth.

At Massachusetts Institute of Technology's Sloan School of Management, full-time applications in the U.S. have fallen over 30% since 2002, forcing the school to be less selective, accepting 20% of applicants in 2004, up from 13% in 2002. But applications to MIT's MBA program at Tsinghua have surged, tripling since the program's launch in 1997 -- a pattern repeated at most Chinese MBA programs that have Western partners. Scott Koerwer, an associate dean at the University of Maryland's Robert H. Smith School of Business, which started an EMBA program in Beijing in 2002, knows that only too well. "It's not just our future growth arena," Koerwer says. "It's our future."

Still, the B-school boom in China is not without problems. Beyond the top tier, the great majority of the nation's B-schools are of poor quality. Many are taught in Mandarin by poorly trained Chinese faculty. Others are little more than diploma mills. At top campuses, the instructional method of choice is the case study. But a dearth of Chinese cases forces most faculty to use those prepared by Harvard Business School, which students say are of little use to people planning to pursue careers in China. And recruiters for multinationals say many graduates of even the top programs are ill-prepared, contributing to a marked decline in the value of the degree in the eyes of some recruiters. Meanwhile, PhD programs in management -- which supply the faculty for MBA programs -- are few, a sign that China's grand experiment may not yet be self-sustaining.

JOSTLING FOR JOBS

What's more, many students are taking on crippling debt of as much as $25,000 at a time when salary offers to new MBAs are losing froth. And success, however graduates define it, is far from certain, owing less to educational pedigree than to good old-fashioned elbow grease. "Once you get started with your job, it's only the performance that makes a difference," says Ingrid Wong, a 2005 graduate of Tsinghua's MBA program with MIT.

There's certainly no shortage of drive among China's new managerial ranks. At Qian Xiaojun's class in managerial communication at Tsinghua, wet-behind-the-ears MBA students bombard their classmates with questions about the only thing that matters: landing a job. A Tsinghua graduate, now a research analyst at McKinsey in Shanghai, divulges the interview techniques used by the notoriously secretive consulting firm and is inundated with questions. Later, a panel discussion features a Taiwanese student who was rejected by Merrill Lynch & Co. (), a New York University exchange student hired by Goldman, Sachs & Co. (), and a student in a white shirt and power tie who is sick of being in job-hunting limbo. "If you want to change your career, or your life," he tells them, "you have to work very hard."

Still, there's no denying that the best schools, especially those with Western partners, give students a leg up on the competition. At programs such as Beijing International (BiMBA) at Beijing University, a joint venture with Fordham University in New York City, the Western partners contribute faculty, curriculums, and even books that are virtually identical to those on U.S. campuses. Classes are taught in English by borrowed professors. And the degree awarded at the end frequently comes from the U.S. university.

The better programs have also adopted other Western-style practices. To build group cohesion, BiMBA students start their MBA with a class trip -- in 2004, the EMBA group went hiking in the Gobi Desert -- and move through the program together, taking the same classes in sequence. Even the physical surroundings are similar to American campuses. At Beijing and Tsinghua universities, century-old buildings mingle with modern technology amid lush greenery. The sleekly modern campus of CEIBS in Shanghai, completed in 2005, features stark white buildings designed by I.M. Pei, the award-winning architect who, fittingly, is Chinese-born and Western-educated.

Chinese B-schools also walk a fine line between replicating U.S. programs and remaining relevant for a career on the mainland. At the executive MBA program offered by the University of International Business & Economics in Beijing and the University of Maryland's Robert H. Smith School, two Chinese professors are on the faculty, courses on Chinese law and public policy are part of the curriculum, and Chinese case studies are used in class. At Fudan, every class in the executive MBA program offered with Washington University's Olin School is co-taught by professors from Olin and Fudan. At both Fudan and Tsinghua, Chinese faculty spend more than five months at MIT and Harvard developing courses, learning Western teaching methods, and studying case-writing techniques. At the international MBA program at Tsinghua, Chinese business leaders give lectures several times a week.

All the customizing, though, hasn't changed many students' view that their schools fall short of offering a truly Chinese business education. In the BusinessWeek survey, 25% said their schools did a mediocre job of improving their leadership skills. Nearly a third said their schools were merely "good" or "average" at teaching China-specific business -- one of the lowest grades among the half-dozen subject areas rated. "The culture here is different from Western culture. The corporation is run in different ways," says Zhou Shifeng, who graduated this summer from the Tsinghua/MIT program. "We need to know more about how the best Chinese businessmen run companies."

In China's not-too-distant past, it wasn't unheard of for management classes to include the teachings of Mao Zedong, while the teachings of Milton Friedman and Max Weber were nowhere to be found. Today there are few outward signs that the educational purpose of the university has been yoked to any political agenda. Most B-school curricula take up socialist economic theory in one form or another. At Shanghai Jiao Tong University's Antai School of Management, MBA students are required to study Deng Xiaoping's economic and managerial philosophy. But they also get large helpings of efficient-markets theory, along with occasionally heated debates over the harsher aspects of U.S.-style capitalism, such as mass layoffs. Says Michael Furst, a BiMBA associate dean: "This is not a place that advocates central planning. We're talking about capitalism here. It varies by professor, but I've heard some of my colleagues who sound like Gordon Gekko."

For Chinese students, such Western-style programs have enormous appeal. Earning an MBA from a prestigious Western university without interrupting their careers, and the value of that degree in the Chinese job market, are huge pluses for a new generation of managers seeking to escape the tedium of China's failing state-owned enterprises. These students are angling for exciting futures as entrepreneurs or for jobs with multinationals and fast-growing Chinese companies.

Many believe that the Western management techniques and leadership skills they're learning will be squandered at state-owned enterprises, where promotion depends on seniority and top leadership is resistant to change. The bigger challenges and rewards are expected at multinationals. Indeed, many students believe that huge salary increases and multiple job offers await graduates of the Western programs -- something that can't be said for graduates of Chinese B-schools without Western partners.

In BusinessWeek's survey, one out of four students said they expected to at least double their salaries after graduation, with expected increases averaging 78%. Graduates of the Rutgers International EMBA program, for example, can expect an increase of $20,000, while those from Tsinghua's international MBA program typically receive $16,000. Salaries have even been known to hit 1 million yuan, or $125,000, roughly the U.S. equivalent of going to Harvard for two years and emerging as Donald Trump.

Trump never had it this hard, though. In fact, just getting into a leading Chinese B-school can be an ordeal. Due to a quirk in the way applications are handled, students usually apply only to one school at a time, so rejection sets an aspiring manager back a year. And rejections are legendary. At BiMBA, for example, GMAT scores for incoming full-time students averaged 664 in 2005, on par with the University of Chicago and University of Michigan. At Tsinghua, only 16% of applicants were accepted in 2004, making it as selective as University of Pennsylvania's Wharton School.

At the most selective schools, getting in is only half the challenge. At Tsinghua, first-year students often take eight courses a semester -- four to six is standard in the U.S. -- with several requiring a 50-page final paper. Fun, when there's time, is most likely an impromptu soccer match or basketball game -- or another lecture. Says Ruipeng Di, a corporate finance professor in the Tsinghua/MIT IMBA program: "This place is pretty uptight."

As popular as MBA programs are, EMBA programs may be more so. Unlike in the U.S., where EMBA programs draw mostly midlevel up-and-coming managers, EMBA slots in China go to the nation's most senior executives. Over 60% of the 550 students in the CEIBS EMBA program are chief executives, chairmen, or presidents of their companies. Part of the draw is a chance to learn Western techniques they can put to immediate use at their own companies. But students also use EMBA classes to negotiate business deals, hire talent, and even form new companies.

INSIDE INFO

The concentration of big egos is sometimes difficult to manage. At an executive MBA program in food and agribusiness offered by the Chinese Academy of Agricultural Sciences and the University of Iowa's Henry B. Tippie School of Management, school officials say, one student tried to send his secretary to finish out the program after attending just a day of classes. And students sometimes come close to divulging company secrets in class, not realizing their main rival might be sitting a few seats away.

With many Chinese companies facing down global giants for the first time, businesses are sending executives to EMBA programs by the truckload and giving them free rein to put what they learn to use. Even state-owned companies are getting into the act. Four executives from Jilin Grain Group, an import-export company, now attend the University of Iowa program, and one of them used what he learned to overhaul Jilin's employee incentives.

Students say Western management techniques will help Chinese companies compete against better-managed rivals. "Ten years ago the gap between Chinese companies and multinationals was huge," says Alan Wang, a CEIBS EMBA student in Shanghai and an exec at one of China's biggest ice-cream makers. "Now everyone in China is aware of how important an MBA education is, and we're quickly filling that space."

As in the U.S., B-school in China is a ticket to affluence -- but granted only to a select few with large sums of cash for tuition and living expenses. In China, MBA costs can top $25,000, while EMBA programs can exceed $45,000, costs that students themselves increasingly are paying as companies balk at shelling out large sums for workers who may not stick around. Many students say they borrow from family to make ends meet. In the survey, students who borrowed had average debts of about $20,000. One student reported he was on the hook for $55,000.

Despite the talk of million-yuan salaries, the return on that investment is not what it once was. China's booming economy has made taking two years off for an MBA an expensive proposition. Popular executive education programs have given employers a low-cost alternative to hiring MBA graduates. And an abundance of low-quality MBA programs churning out graduates with few discernible job skills has left many employers wary.

Even at top programs there's a palpable sense of disappointment among recruiters, who say many graduates lack adequate English skills, problem-solving abilities, and a willingness to start at the bottom. MBA expectations are being lowered. Linda Shi, human resources director for Cummins China Investment Co., the diesel engine manufacturer, says the two MBAs it recruited this year started in entry-level jobs. "In the past few years, MBAs had high expectations. Now they anticipate they will start at the entry level and that we will pay reasonably," says Shi.

With the percentage of high school students entering college on the upswing, from 11% in 1998 to 19% today, many deans believe China will soon see a surge in enrollments that will transform the MBA from an academic curiosity into a must-have degree. "When more people have a telephone, more people buy a telephone. The value increases," notes Guanghua's Zhang. "If you have no MBA degree, you can't find a job."

If Zhang is right, China could be headed for a virtuous circle. The more the MBA comes to be viewed as the price of admission to the ranks of senior managers, the more MBAs China will produce, and the economic consequences will be profound. Can China create world-class MBA programs to challenge the preeminence of the Kelloggs, Whartons, and Harvards of the world? It has a long way to go, but none of the top-ranked U.S. B-schools should rest easy.

By Louis Lavelle, with Susann Rutledge in New York


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