Slow Learners: Australian Universities and the International Market
by Christopher Pokarier and Simon Riding

The recent economic difficulties confronting countries in the Asian region are a source of alarm for many in the Australian tertiary education sector. Dramatic declines in the numbers of students applying for places in a range of educational institutions have seriously disappointed those within universities who have so quickly come to take for granted the revenues generated by the recent expansion of this important new export sector. This has turned out to be the first major shock for those who have complacently accepted the windfalls that universities have received without critical reflection, and has demonstrated just how important it is that universities come to grips with what participation in a competitive market actually entails.

This is particularly so in relation to the increasingly volatile and highly contested international student market. The new environment coincides with an increasingly disciplined domestic arena where the  allocation of public resources for the provision of education services to domestic students has become far more penurious. One might expect that a decade of regulatory reform in education would have made universities more capable competitors in the international education market. However, critical institutional capabilities are still lacking, institutional developments are unproductive, strategic planning has been ad hoc and opportunist and the government-industry relationship still has a long way to go to ensure that the incentive structures within universities will guarantee their future financial well being. Those who keenly advocate the social, research and public goods role of universities need to ensure that market oriented reforms are expedited to prevent those roles being diminished as universities are unnecessarily impoverished.

Changes in regulatory settings

A series of regulatory changes over the last fifteen years have begun to change the operating environment of universities. The Whitlam government’s abolition of all tuition fees and imposition of a national limit of 10 000 student visas represented the high-water mark of the command economy for universities. To quote Davis (1994: 197):

They …[the universities] … functioned thereafter as a totally-funded government service, with no explicit prices and no detectable links between producers and consumers. Both the level of outputs (enrolment) and investment (enrolment planning and forward planning) were negotiated with the centre and allocated by quota, not by market forces.

Since then the pressures on Australian tertiary institutions have been twofold. First there has been a political imperative to expand access to the system for domestic students. In the post-war period tertiary education in Australia has made the transition from an elite to a mass based model of public education as participation rates have steadily risen. Second, public funding of universities has not risen at the same rate, this being reflected in a decrease in government spending on education as a proportion of GDP in Australia. The need to reconcile the increasing demands for higher education funding with diminishing government willingness to pay, has necessarily led to increased reliance upon private sources of funding. This has forced some productivity gains out of universities as institutions were not able to develop alternative sources of private revenue commensurate to the forced expansion of their student intakes. However, several developments ameliorated the immediate imperative for institutional reform that those changed circumstances implied.

In 1989 the Australian government introduced the Higher Education Contribution Scheme (HECS), putting some of the burden of funding the institutions on those who derived the greatest personal benefits from them. While the HECS did begin to shift some of the costs of tertiary education from the general public (government) to the private consumers (students or their employers), it has been of little significance by way of ‘market’ or competitive effect on individual providers. The HECS does not constitute or signal a price for the services provided. It recoups only a fraction of the full cost and, until recently, did not vary across disciplines. The HECS simply is a broad tax (albeit deferable) upon students, but is by no means a market signal to which universities needed to pay much heed.

The overseas student boom

For many institutions the fee paying overseas student market provided a timely opportunity to alleviate some of the creeping budgetary pressures they were facing. The growth in tertiary education exports during the past decade has been remarkable. In little more than a decade the sector has gone from being prohibited by federal regulation from providing a complete user pays service to fee paying overseas students (FPOS) to one increasingly driven by market imperatives and successfully deriving substantial income from export earnings. The admission of FPOS into Australian higher education has provided a good yardstick for measuring the transformation of that industry because the overseas student market stands out as the one area where Australian universities face the full disciplines of the market.

With regard to international students the Australian development reflects broader trends in the international market for higher education services. The UK, for example, moved to a full-cost fees system for overseas students in 1980, and US universities (many of them private of course) have long been active in international recruitment. In fact, during the 1980s the OECD actively encouraged increased competition between universities to encourage better performance, and called for an increase in private funding to overcome the constraints associated with government funding (Marginson 1993).

From aid to exports

After the Second World War, participation by international students in the Australian higher education system occurred mainly through Australian commitments to the Colombo Plan. As part of its contribution to the plan the government directly sponsored the study of overseas students in Australian universities from the early 1950s. At this time private overseas students were also allowed entry to institutions on the same subsidised fee conditions as local students. In 1979 these private overseas students were charged a ‘visa fee’ which was later simply called the Overseas Student Charge (OSC). The charge rose from approximately 10% of the notional full cost of a university place to 55% of the cost by 1988. The remaining difference between the charge and the cost to private students was seen as another component of Australian aid (Black et al.1996:6). In 1979 the 10 000 limit on overseas students was removed, and as the timing closely coincided with the introduction of full fees for overseas students in the UK in 1980, numbers quickly rose to 16 000 by 1982-3.

Davis argues that numbers were, however, still restricted by a series of unofficial quotas amongst universities and that the ‘…resulting debate within universities took a form recognisable to students of protected markets’ as  it was argued that ‘…there should be no quota or other restriction on postgraduate students (especially those undertaking research higher degrees). In effect the full arsenal of the economic theory of externalities was deployed to ensure the academic community a continued supply of lowly paid laboratory apprentices, who could be drawn from overseas when Australian recruitment was problematical.’ However, ‘…no such argument could be sustained in the case of undergraduate students who were clearly displacing qualified Australian applicants. It quickly became a majority view that quotas were appropriate at undergraduate level.’

In 1984 two government-commissioned reviews returned conflicting advice on the appropriateness of a market-based approach to the education of overseas students in Australia. The Committee of Review of Private Overseas Student Policy (the Goldring Report) expressed serious reservations about a market-based approach. The Committee to Review the Australian Overseas Aid Programme (the Jackson Report), in keeping with its emphasis on pragmatic aid programs, gave strong recognition to arguments for education’s economic potential as an export industry (Black et al.1996: 7). Over time the Jackson Committee view prevailed as although the government did impose quotas institutionally and nationally, it also allowed the admission of new fee paying students outside the quota.

When government subsidies for the OSC students were wound down in 1988, the FPOS numbers continued to grow rapidly. The immediate result was that in Australia the export of tertiary education services became a new growth industry. In the five years to 1994-95 the value of net exports more than doubled, and the proportion of fee paying students rose from 5.9% in 1987 to 89.6% in 1995 (Duhs and Duhs 1997). This is particularly significant because it is at this point that the fee paying overseas student ‘market’ became the only real market sector in education with these funds flowing directly to universities and not into the coffers of government as OSC funds had.

Globally, student participation rates were also growing rapidly. Until the recent financial crises in Asia, such a rapid growth rate provoked understandable optimism. The number of students studying abroad was 1.1 million in 1990, and, until recently, was forecast to grow to 2.8 million by 2010 and to 4.9 million by 2025 (Kelly and Wilkinson 1997). Despite the crisis the export of education services (at all levels of study) still ranks as Australia’s fifth largest source of service export income. These exports generated $2.1 billion in 1994, $2.5 billion in 1995 and $3 billion in 1996. UNESCO has estimated that 1.35 million tertiary students study outside their home countries. In 1994 Australia’s share of this market was about 3 percent.

In a very short space of time Australia has in some ways become a very successful exporter of higher education services. Australia now hosts more overseas students per capita than the USA, the UK or Canada (West 1997:16). In 1996, 53 000 international students were enrolled in Australian higher education courses. This is in contrast to the 1987 figure of 17 000, of whom only 1000 were fee paying. Even the recent West Report was still predicting that there would be continuing growth in demand from the established Asian sources and from newly emerging markets. Strong growth in higher education student numbers was predicted from the ASEAN countries and in North Asia in particular.

Institutional shortcomings and marketing failures

As fee paying overseas students were an entirely new market, it is not surprising that universities should initially have been hampered by limited institutional and human resource capabilities. Within the universities neither the academic nor administrative streams could have been expected to contain the various competencies required to take advantage of the new opportunities presented. The responses of many universities to these limited internal capabilities have been very disappointing. Not knowing where to turn, and constrained by rigid practices in human resource management, they recruited many staff for their international marketing operations from within their existing ranks. In order to appear to be giving suitable priority to the recruitment of international students, universities have often wound up paying specialist wages in this area to decidedly unspecialised existing staff.

One reason universities were able to avoid being hard headed regarding overseas students was that there was a large unmet demand for the product they were selling. This tended to obscure the fact that the requisite core competencies had not been acquired, let alone further developed. Pent-up demand in English-speaking South-East Asia for university study abroad meant that many Australian universities had to do little more than advertise their existence to draw substantial numbers of students. Despite promising growth prospects in a range of other potential markets, the limited skills base, particularly in foreign language and cultural understanding, restricted many universities’ marketing and recruitment activities to those centres where English is most widely spoken. This goes a long way to explaining the extreme dependence of many universities upon markets such as Singapore and Malaysia.

That this was an unnecessarily narrow focus is borne out by the success of many North American institutions which were already successfully marketing to large non-English speaking markets such as Japan, Taiwan and Thailand. Flushed with their initial easy successes, however, Australian universities were not forced to engage in serious critical reflection about the level of their institutional capabilities or the narrowness of their marketing strategies.

Although the need for market diversification has been much acknowledged, consequent ‘strategic plans’ and actual practices have frequently been only tokenistic. This may sometimes have had more to do with the responsible staff enjoying the personal fruits of travel to new target markets than with any serious calculation of how student numbers could really be increased from them. This claim is supported by the apparent failure of the institutions to engage in any serious analysis of both developments in a broader range of markets and of the actual determinants of student choices of destination and institution. The institutions have employed only scant resources in developing an understanding of new target markets. There has been excessive reliance on the limited analysis generated by bodies such as the AIEF (now Australian Education International) and IDP Australia which, being available to all their Australian competitors as well, has provided little basis for institutions to position themselves distinctly in neglected and emerging markets. Consequently, familiarisation visits and institutional links typically have been organised on an ad hoc basis.

Once having attracted overseas students to their institutions most Australian universities have consistently overlooked the rich source of market knowledge that they constitute. Analysis of their own students would have revealed that many of the marketing strategies adopted are inefficient. In a recent study by the authors it was found that some of the most common marketing strategies were in fact the least significant in shaping students’ choice of institution (Ridings and Pokarier 1998a). The expensive practice of dispatching staff to numerous education fairs turns out to be a particularly ineffective means of recruitment in many markets.  On the other hand, the large numbers of overseas students already present in Australia in ELICOS and vocational courses is a much-overlooked source of potential university enrolments. Such ‘rollover’ into university programs accounts for the bulk of Japanese students in a number of Australian institutions but they still represent only a tiny proportion of the large number of Japanese non-degree students in Australia. Tellingly, few universities have even recognised the phenomenon.

The authors’ study also reaffirmed the findings of several others that word-of-mouth is a major determinant of choice of country and institution. This is profoundly significant as it means that the quality of the total educational and personal experience that current international students have will be a major factor in the medium to long term viability of Australian education exports. It is astonishing then that very few institutions have endeavoured to quantify the satisfaction or otherwise with the product they have been providing to students.

In large part this is a function of the strained relationship that exists between academic and administrative staff in many universities. The increasing ‘professionalisation’ of the upper echelons of the latter and a diminishing of collegial decision-making processes are one source of this. A determination by those administrative staff responsible for international marketing to maintain a firm rein on decision-making and its benefits is another. Whatever the reason, universities are seriously hampered by the divide between the academics and the marketing staff. It is inconceivable in any other goods or service market that product development and delivery could be so removed from the marketing operations. The extent to which this is so is reflected in the increasing instances of faculties taking advantage of a decentralisation of financial decision-making to invest considerable resources in international marketing capacity. Their preparedness to expend scarce resources upon the duplication of such services is an indictment of the quality of university level marketing and the general administration of the institutions.

At the same time it must be acknowledged that some academic staff themselves are also a part of the problem. Many refuse to come to grips with the realities of universities’ new operating environment or what it actually entails to be offering courses to fee paying international students. The structures of incentives that tenured staff face are sharply at odds with the institutions’ goals. Tenured staff do not want more students as they bring more work, especially when, as with international students, they entail a range of particular learning needs. As a consequence, internationalisation of the curriculum has lagged way behind demographic changes in the classroom. In many faculties around the country there is as yet no serious discussion of that fact, let alone changes. Some professional areas, such as accounting and law, are particularly poor in this regard.

Two mischievous myths

Before the implications of the above criticisms for both government and university policy settings can be discussed, two enduring myths need to be dispelled. The first relates to the nature of a university. Like most people, in most areas in most need of reform, many university staff loudly proclaim that their industry is a special case. Universities are seen to be providing a public good in the public interest. Education is seen to be a product unlike any other; even to the extent that some claim that there is a sacred bond between society, the academic and the student. In this view economic realities stop at the imposing gates of the campus.

The sense that many academics have of themselves as constituting the nation’s intellectual leadership is a factor in such a mindset. Equally important, however, is the baser desire to defend costly and cosy inefficient practices. The fact that academics’ salaries have declined significantly in relative terms against the professions that they perceive to constitute their peers (and their ex-students) have led many to fight all the more strenuously in the defence of the perks that they do enjoy. The frequent call for a rallying to defence of the ‘traditional concept of the university’ is an understandable cri de coeur from older staff who have experienced declines in status while being pressured to work harder and smarter than they have done in the past. However, such an experience is common in many industries and does not amount to a credible defence of the old ways of doing things.

The second mischievous myth is of more recent origin. Ironically, the recent growth in demand for Australian university places by Asian students has seen the promulgation of a convenient interpretation of the cultural dynamics of this market. The apparent respect for learning and the status of the teacher in many East Asian countries is cited to defend a convenient definition of the educational product. One Australian university in fact went so far as to declare in its strategic marketing plan that  ‘… in the markets in which we seek to compete education is sacrosanct and is not considered the tradeable commodity it has become in Australia, Britain and North America.’ It is profoundly ironic that such a view ignores the nature of marketing education services in many Asian markets. Popular study-abroad magazines that are catalogues of education providers, with details down to the last dollar associated with studying in each of the many institutions and countries listed, give the lie to claims that education is not, and should not be, ‘commodified’.

The belief that somehow attitudes to education in East Asia are fundamentally different from those in Australia is also sharply at odds with the reality that most Asian students enter vocationally oriented courses. However, it does lead some university staff to believe that a culturally-derived respect for the teacher allows them considerable liberty in the preparation of class content for an uncritical bunch of fee paying overseas students. In its worst manifestations, this line of thinking harks back to the old ‘aid’ days when some staff could think that overseas students should feel lucky to be here at all, let alone expect attention to be given to their particular needs. In reality, many international students are going home disappointed – and are no doubt telling people so (Ridings and Pokarier 1998b).

Policy implications

It should not be concluded from the above criticisms of universities that new government intervention would be the sensible solution to the problems highlighted. On the contrary, many problems that have arisen are exacerbated by the fact that institutions have not quite accepted that government is now but one of their clients and that they need to adapt if they are to capitalise on opportunities in a market environment. Initiatives to improve the mobility of students, both domestic and international, and transferability of their university credits should diminish further this remaining lingering influence. Reasonable theoretical and empirical grounds do exist for government to make limited investments in trade and investment promotions, although to date the experience has been disappointing. While the government has recently committed to ongoing support for the Australian International Education Foundation, it is no doubt mindful of the fact that the body could in 1997 secure the subscriptions of no more than one sixth of the total number of universities for whom it was supposed to provide its services.

It should be clear to all concerned that the ability of government to fund the increasingly costly activities of universities will continue to decrease. The real challenge for government in dealing with this sector now is to ensure that regulatory impediments are speedily removed to enable universities to become more financially independent, more internationally competitive, and more robust. To the extent that government does still remain a customer of the universities, or retains some control over how students deploy the funds for education that it might bestow upon them, it must ensure that its activities closely replicate market pressures on universities. Improved performance and more rapid institutional developments stemming from genuine competition in the domestic markets can only be beneficial to universities’ competitiveness in international markets.

Recently State governments have begun to realise the considerable contribution of tertiary education exports. The sector is particularly attractive as it represents as a very high value added export to complement State efforts toward the diversification and internationalisation of their economies. The Queensland, South Australian and West Australian governments in particular have been keen to foster the local development of the tertiary education sector and are increasingly familiar with the issues that the sector faces and the impact of federal regulations upon the universities. However, no amount of public subsidy or official marketing effort will create a sustainable competitive advantage without the removal of the perverse incentive structures which pervade Australian universities.

Perhaps the one area in which government involvement has been a real strength for Australian institutions has been the fact that for many international students the very fact that Australian universities are public universities implies considerable prestige. In countries where public universities have been the preserve of elite scholarship entry, students often have higher regard for public universities. In the Australian case it can be argued that there is still an important role for accreditation of universities for the way it facilitates student choice in what is a once-off high risk purchase (Kelly 1998).  However, any safeguards associated with this practice must not be implied but explicit, with the costs then being fully recovered from the benefiting institutions.

Conclusions

It has been argued that prior to recent regulatory reforms Australian universities had developed the ‘…mindset and behaviour patterns associated with a fully funded, government or public service activity, rather than those characterised by a series of firms in the market place.’ They were ‘cocooned from being an industry by being separated from the market’ (Davis 1994). Recent experience has shown, however, that universities have responded to market opportunities that have arisen, particularly the overseas student market. Unfortunately universities have been quick to capitalise on the returns from easier markets but all too slow in developing the institutional capabilities necessary to ensure a sustainable competitive advantage.

Now that they are confronted by a weak and volatile international market, the costs associated with the underdevelopment of the institutions’ capacities are becoming starkly apparent. Government promotion efforts and the depreciation of the Australian dollar may at best be a short term panacea. Ultimately, however, only the continuing reform of the higher education sector in general will provoke the fundamental changes needed in Australian universities to realise Australia’s full potential as an education services exporter.

References

Baker, M. et al. 1996, Financing and Effects of Internationalisation in Higher Education: An Australian Country Study, AGPS, Canberra.

Black, K., D. Davis and A. Olsen 1996, Internationalisation and Higher Education: Goals and Strategies, Higher Education Division, Department of Employment, Education, Training and Youth Affairs, AGPS, Canberra. 

Davis, J.  1994, ‘Education a Reluctant Industry,’ in Ian Marsh (ed.), Australian Business in the Asia Pacific Region, The Case for Strategic Industry Policy, Longman, Melbourne.

Department of Employment, Education, Training and Youth Affairs 1997, Overseas Student Statistics 1996.

Duhs, E. and D. Duhs 1997, ‘Exports of Tertiary Education Services and the Queensland Economy,’ in Economic Analysis and Policy 27(2).

Kelly, R. 1998, Address to the Queensland University of Technology Senior Management Group, Breakfast series, 15 April.

Kelly, R. and M. Wilkinson 1997, ‘State Government in Partnership with Queensland Education Exporters,’ in Queensland Economic Forecasts and Business Review  6(1).

Marginson, S. 1993, Education and Public Policy in Australia, Cambridge University Press, Melbourne.

Ridings, S. and C. Pokarier 1998a, ‘Dreaming spires or dreary spivs?: Reputation in marketing Australian education abroad,’ proposed paper presentation at the ANZMAC conference, Dunedin, 7-8 December.

Ridings, S. and C. Pokarier 1998b, ‘Through their own eyes: Learning challenges faced by international students,’ paper presented at the 1998 HERDSA Queensland conference, Sunshine Coast, 20-21 June.

West, R. 1997, Higher Education Financing and Policy Review Committee 1997, Review of Higher Education Financing and Policy, a policy discussion paper, Department of Employment, Education, Training and Youth Affairs.

Christopher Pokarier and Simon Ridings are lecturers in international business in the Faculty of Business, Queensland University of Technology. They both have research interests in the liberalisation of the Australian and East Asian economies.

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