Independent Conceptual Study - Exploring a new Financial and Funding Model for AIT - FINAL REPORT – executive summary Markku Oksanen & Niclas Lindgren 09/06/2010 1
The components of the study Background studies: • Landscape of higher education in Asia • Priority countries and The new regional strategy funding • The surveys model of AIT • Business due diligence of Laureate • Valuation of AIT 09/06/2010 09/06/2010 2
Background studies 3
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
The top 20 (23) countries selected for profiling TOP 20 PRIORITY COUNTRIES (actually 23) MONGOLIA KAZAKHSTAN UZBEKISTAN KOREA KYRGYZSTAN JAPAN PAKISTAN IRAN CHINA AFGHANISTAN NEPAL BHUTAN BANGLADESH TAIWAN MYANMAR VIETNAM INDIA PHILIPPINES CAMBODIA LAO PDR SRI LANKA MALAYSIA INDONESIA CRITERIA • General volume of market • Asia-related market potential • AIT-student flows • Revenue flows and potential • AIT-current volumes and trends • Alumni -base 09/06/2010 09/06/2010 5
The top 10 countries TOP 10 PRIORITY COUNTRIES PAKISTAN CHINA NEPAL BANGLADESH INDIA VIETNAM CAMBODIA LAO PDR SRI LANKA MOTIVATION • Selection made based on INDONESIA 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 09/06/2010 7
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 %) 8
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 9
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 10
Financial projection 2020 MBaht 6000 5000 4000 TOTAL REVENUES 3000 TOTAL EXPENSES NET EXCESS OF REVENUE 2000 1000 Year 0 11
The new funding model of AIT 12
Key principles of 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 Implementable The new The model must be in-line with the vision The model must be model and strategy recently developed implementable from an academic, a financial and a timetable point of view Sustainable The model must be self- sustainable and cannot be based on charity 13
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 14
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 15
Model 7 – summary of funding model characteristics Highlights Lowlights • Will solve the need for initial investment • AIT needs business expertise that it • Clear management structure lacks • AIT needs to negotiate upfront • Model easy to sell and implement investments in order to cover possible • Sustainable revenue stream as core long run processes for start up of funding satellites (and hence academic fee • Big impact with huge student body revenue stream ) • Promotes Thailand as educational hub • Challenging to find the right partner(s) • Strengthens AIT’s character for HQ with high global status • Promotes student and faculty mobility • Might be challenging to negotiate the and diversity AIT-share (%) of each contract • Low risk (e.g. in investments) • Might be challenging to find suitable exit- • Funds in AIT can be focused on own model • Needs multiple partners in order to strategic development, not on developing the network enhance internationality (else: model 4) • Satellite implementation can start on • Is there a need for coordinated decision multiple fronts simultaneously with making – impact on management multiple implementation models model?
Model 7 – the elements and their role in the AIT ecosystem • Runs the Bangkok main campus (Master & Doctorate) • Provides global academic quality assurance, accreditations and degrees • Runs spun-off business units AIT Manages a • Offers selected portfolio of funds, Spun-off services as each with their AIT business Satellite independent own mission Satellite Foundation unit • Scholarships business units • Grants • Investments Spun-off Spun-off Satellite business business unit unit • Offers and markets selected academic programs in selected region(s) 17
Model 7 – the ownership structure AIT Spun-off AIT Owns: 100% business Satellite Satellite Foundation unit Possible ownership BOT-/BTO-scenarios Spun-off Spun-off Satellite business business unit unit Ownership depending on selected model (BTO, BOT…) Global/local business partner(s) 18
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