FINAL REPORT executive summary Markku Oksanen & Niclas Lindgren - - PowerPoint PPT Presentation

09/06/2010 1

Markku Oksanen & Niclas Lindgren

Independent Conceptual Study

• Exploring a new Financial and Funding Model for AIT -

FINAL REPORT – executive summary

09/06/2010 09/06/2010 2

The components of the study

• Landscape of higher

education in Asia

• Priority countries and

regional strategy

• The surveys
• Business due

diligence of Laureate

• Valuation of AIT

The new funding model of AIT

Background studies:

3

Background studies

Landscape of higher education in Asia

• The market is changing very rapidly as governments in countries realize the

importance of higher education

– Government programs and policies for investment into higher education => the national

higher education sectors will develop

– The need for higher education on all levels is increasing with socio-economic

development (undergraduate, graduate and postgraduate) - enrollments are expected to double in five years in many countries

• Previously closed national higher education markets are opening up

– The market potential is increasing rapidly – The need for private education is increasing

• International competition is increasing

– International and renown universities establish branch campuses at an increasing

speed both in number and size

– Higher education becomes business – global players emerge on the market

• The nature of student mobility is changing

– As national HE systems develop and high-profile universities establish themselves

regionally, the need for the student to travel decreases

– Still: Student mobility is expected to rise from 2,7 million students studying abroad in

2006 to 7,2 million students by 2025

4

TOP 20 PRIORITY COUNTRIES (actually 23)

INDIA IRAN MALAYSIA BANGLADESH NEPAL CHINA KOREA MYANMAR LAO PDR PHILIPPINES PAKISTAN AFGHANISTAN SRI LANKA BHUTAN CAMBODIA VIETNAM INDONESIA JAPAN TAIWAN MONGOLIA KAZAKHSTAN KYRGYZSTAN UZBEKISTAN

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The top 20 (23) countries selected for profiling

CRITERIA

• General volume of market
• Asia-related market potential
• AIT-student flows
• Revenue flows and potential
• AIT-current volumes and trends
• Alumni -base

TOP 10 PRIORITY COUNTRIES

INDIA BANGLADESH NEPAL CHINA LAO PDR PAKISTAN SRI LANKA VIETNAM INDONESIA CAMBODIA

The top 10 countries

MOTIVATION

• Selection made based on

country profiles

• Suggestion for TOP 5:

 Vietnam  Indonesia  India  Nepal  Pakistan

Regional strategy

• AIT should develop a very concrete regional strategy and a strategic

partnership portfolio of 5-7 global partners with clear roles for implementing that strategy, expansion actions and timetables.

• Strategy has to be prepared hand in hand with the piloting of the new funding

model.

• Surveys carried out, supported the selection of priority countries

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8

The surveys

• Currently active students

– AIT was the first choice of the students (50 %) – Academic program was the main reason to come to AIT (18%) among several other

reasons

• Alumni

– AIT should retain its original mission (80%) – AIT should offer both undergraduate and graduate programs (67%) – Undergraduate programs will dilute AIT’s brand (51%) – I am supporting the PPP model (66 %)

• Applicants who did not enroll

– AIT was my first choice (73 %) but I could not come due to lack of financing (76%)

• Faculty and staff

– AIT should retain its original mission (72%) – AIT should offer both BSc and MSc programs (58%) – BSc programs will improve AIT’s brand (47%) and they should be offered both in Thailand

and in the satellites (52 %)

9

Business due diligence of Laureate Universities

• Key findings

–

Laureate is the biggest global university (600.000 students)

–

High-profile investors and associations (e.g. Harvard, Mandela, Clinton..)

–

Laureate can have several roles and the roles are defined case-by-case

–

Laureate strives for control

–

Laureate brings a management model where corporate management and academic leadership are separated from each other

–

Laureate provides generous funds for investment

–

Tuition fees the main source of income – profits are both reinvested and, as indicated by universities, paid as dividends

–

Professional student marketing and enrollment (“sales management”)

–

Laureate focuses primarily on undergraduate education and on applied research

–

Market driven and active development of academic offering

–

High tuition fees, motivated by market driven programs and student centered campuses – high quality education with high employability

–

Provides mobility of faculty and students in the Laureate global network

• Our recommendations

–

Implementing any one of the studied Laureate-models at AIT is not to be recommended

–

Laureate could be one of several partners in our proposed AIT-funding model

10

Valuation of AIT

• AIT’s financial performance has been very modest till 2006 – from 2007 onwards,

the next excess of revenue (surplus) has been reasonable good

• If we continue with the current model, from 2014 onwards cost will surpass

income

• Currently, revenue is sufficient to cover operational costs but it will not be big

enough for new investments and campus upgrading

• Calculations indicate that if AIT assumes a growth strategy with about 18 000

students by 2020 , annual surplus can grow significantly and after some years a part of investments can be funded from the cash flow

• Forecasts are very sensitive on assumptions
• Value of AIT varies between 38 -170 MUSD depending on the growth volume

and tuition revenue

• Immediate need for renovations and facilities is about 40 MUSD and investments

till 2020 about 120 MUSD

1000 2000 3000 4000 5000 6000

TOTAL REVENUES TOTAL EXPENSES NET EXCESS OF REVENUE

11

Financial projection 2020

Year MBaht

12

The new funding model of AIT

13

Key principles of the new model

The new model

New charter

The model must be in-line with the new charter and AIT will remain non-profit

AIT vision and strategy

The model must be in-line with the vision and strategy recently developed

Sustainable

The model must be self- sustainable and cannot be based on charity

Implementable

The model must be implementable from an academic, a financial and a timetable point of view

14

The possible options for the future funding model of AIT

• 1. AIT’s current funding model
• 2. Joint partnerships between AIT and several partners
• 3. Foundation model
• 4. Joint partnership between AIT and one major global private partner

specializing in higher education

• 5. Group-model (option 1)
• 6. Group-model (option 2)
• 7. Satellite–model

15

Model to be proposed to Board for consideration

The two relevant models for AIT are:

• Model 6 – Group-model (option 2)
• Model 7 – the Satellite–model

Reasons for choosing these:

• They preserve and enhance the AIT sprit and characteristics including

internationality and regionality

• They are the most realistic and implementable
• They provide both the initial capital infusion as well as the sustainability
• They are the flexible and scalable
• They provide incentive for private funding to participate

Our recommendation (as a starting point): Model 7

Highlights

• Will solve the need for initial investment
• Clear management structure
• Model easy to sell and implement
• Sustainable revenue stream as core

funding

• Big impact with huge student body
• Promotes Thailand as educational hub
• Strengthens AIT’s character for HQ
• Promotes student and faculty mobility

and diversity

• Low risk (e.g. in investments)
• Funds in AIT can be focused on own

strategic development, not on developing the network

• Satellite implementation can start on

multiple fronts simultaneously with multiple implementation models

Model 7 – summary of funding model characteristics

Lowlights

• AIT needs business expertise that it

lacks

• AIT needs to negotiate upfront

investments in order to cover possible long run processes for start up of satellites (and hence academic fee revenue stream )

• Challenging to find the right partner(s)

with high global status

• Might be challenging to negotiate the

AIT-share (%) of each contract

• Might be challenging to find suitable exit-

model

• Needs multiple partners in order to

enhance internationality (else: model 4)

• Is there a need for coordinated decision

making – impact on management model?

17

Model 7 – the elements and their role in the AIT ecosystem

• Offers and markets selected academic

programs in selected region(s) Manages a portfolio of funds, each with their

• wn mission
• Scholarships
• Grants
• Investments

AIT Foundation Satellite AIT Spun-off business unit Satellite Spun-off business unit Spun-off business unit Satellite

• Offers selected

services as independent business units

• Runs the Bangkok main campus (Master & Doctorate)
• Provides global academic quality assurance,

accreditations and degrees

• Runs spun-off business units

18

Model 7 – the ownership structure

AIT Foundation Satellite AIT Spun-off business unit Satellite Spun-off business unit Spun-off business unit Satellite

Owns: 100%

Global/local business partner(s)

Ownership depending on selected model (BTO, BOT…) Possible ownership BOT-/BTO-scenarios

Model 7 – the financial flows

AIT Foundation Satellite AIT Spun-off business unit Satellite Spun-off business unit Spun-off business unit Satellite

Global/local business partner(s)

THE STUDENT

Bangkok HQ

• Scholarships (Masters, Doctorate)
• Grants
• Funding for investments

Scholarships (Masters, Doctorate) Tuition fees (Masters, Doctorate) Tuition fees (Satellite) University services Service fee for university services Return on investment depending on selected model (BTO, BOT..)

Governments & private donors

(incl. alumni)

Donations

• Initial revenue
• Annual fixed revenue
• Academic fee

Model 7 – the management model

AIT

HQ in Bangkok

AIT

FOUNDATION

COUNCIL

“Board of Trustees”

CHAIRMAN

Foundation board

CHAIRMAN PRESIDENT AIT FUNDS, each with its own mission

ExCom

University management team

Competence area Competence area Competence area Competence area

VP VP VP VP Fund manager For each competence area:

Academic co-ordination and quality assurance process

* Program development * Quality assurance * Resource sharing Academic council

VP << separate academic council for each competence area run by the VP of the CA Competence areas Programs

Satellite(s)

MD MD MD

Spun-off units

21

Key steps for implementing a selected model

• Implementation depends heavily on the model chosen

–

Should be planned in more detail when the model and its main principles are agreed

• Suggestion: the next 10 steps

1.

Review and recommendation on specific Funding Model for Board approval in the Excom meeting

• f 6 May 2010

2.

Preliminary legal evaluation of the selected model(s), possibly fine-tuning the model(s)

3.

AIT Board (06/2010): preliminary decision on model and its general principles

4.

Identification and initial negotiations of potential pilot case(s) and partners

• Where, what, how, when, with whom and the general terms..
• Founding of AIT Foundation and, depending of choice of model, other legal entities
• Full legal evaluation of the selected model

5.

Analyzing the implications of pilot negotiations

• Fine-tuning of model
• Preparation of implementation plan (tasks, responsibilities, finances, timeline…)
• Starting preparations of needed legal documentation

6.

Development of internal organizational structure, management model, processes

7.

AIT Board (11/2010): final decision on model and its general principles

8.

Starting implementation of pilots

9.

Development of more detailed roadmap for regional expansion

• 10. AIT Board (First meeting of 2011): approval of AIT regional expansion plans, after which expansion

starts

2012 -2020

”approval

• f final

model” ”preliminary selection of model”

2011

22

Suggestion for general timeline

Fine tuning of model

2010

Strategy &

• impl. plan

06/2010 11/2010 Gate 1 Gate 2

AIT BOARD AIT

”approval

• f strategy”

xx/2011 Gate 3 Pilot case(s) & negotiations Implementation of pilot(s) Implementation of expansion (according to plan)

”start expansion”

xx/2011 Gate 4

Internal development of AIT (management model, internal organization , ways of working…)

”follow-up”

xx/2011 Gate 5 Prepa- rations

MODEL 7 MODEL 6

SUGGESTED IMPLEMENTATION PHASING OF MODELS