Word-of-mouth wins, again

There’s plenty to criticize in the university sector in China, and I’ve done so a few times recently, lobbing shells at local administration teams and others at foreign-affiliated MBA programs that don’t apply the practices and lessons of a good MBA curriculum to their own development.

But there’s also plenty to admire. At the macro level, faculty were being thrown off buildings just 40 years ago for the sin of being intellectuals, and MBAs have only been available in China since 1991. A look at China’s academic landscape in 2010 should fill any observer with profound respect for how far it has come.

At the micro level, we can see lots of green shoots. Two in Shanghai: the BI-Fudan MBA, a joint venture between the BI Norwegian School of Management and the School of Management, Fudan University; and the "AEMBA," a joint-venture MBA program between the Euromed Marseille Ecole de Management and the Antai College of Economics and Management, Shanghai Jiao Tong University. Neither of these programs has a top-ranked foreign partner, yet both have shown steady development in China – the BI-Fudan collaboration goes back 14 years, and its MBA program was launched in 2003, the same year the AEMBA program began. Both programs have grown in student numbers and reputation: BI-Fudan now runs two cohorts per year, each with about 60 students, while the AEMBA has developed a two-track model (finance and global management) with a total of about 60 students, plus an EMBA program with 30 students in its 2009 cohort.

What might explain the steadily increasing student populations of these programs? Cost-performance is surely one factor: Tuition for these programs, at about US$26,000, is at the lower end of the range for foreign-affiliated MBA and EMBA programs in China, and about a third of tuition at the top-priced mainland EMBA programs. But cost-performance drives decisions only when the performance side of the formula is intact. In addition to offering the foreign degree common to almost all the foreign-affiliated MBA and EMBA programs here, the BI-Fudan and AEMBA programs offer other attractions:

– Each features some internationalization of the cohort – 15% or so of each class from outside the mainland, more than 80% of the class working for MNCs.

– The teaching faculty are primarily from the foreign partner – two-thirds in the BI-Fudan program, 80% or more in the AEMBA program. Students join foreign-affiliated MBA programs in large part to gain exposure to foreign faculty, and they pay for the privilege: These two programs are 30% more expensive than the top domestic MBA programs.

– In both cases, the brand of the local partner is appealing, particularly to a largely mainland-born cohort – Fudan and Jiao Tong are among China’s top five universities.

But there’s another feature of these programs that is both cause and proof of success: their referral rates, or the percentage of new students in the programs introduced by current students, alumni, faculty or other friends of the programs. Both programs have referral rates above 50%. More than one-third of the BI-Fudan program’s entire cohort is referred by its current and former students alone. The leaders at both programs recognize the value of networks, and both offer substantial support for alumni activities.

A few years back, the Wall Street Journal ran an editorial entitled "China’s Good Enough Market." It described GE Healthcare’s development of magnetic resonance imaging (MRI) systems that offered suitable cost-performance for the Chinese market, and the consequent increase of the company’s China market share to more than 50%. For an MBA program, referral rates may be the single most important indicator of cost-performance – whether it’s good enough to justify the tuition. If a program has a consistently high referral rate, there must be a solid reason. If a program has a low referral rate, that says a lot as well.

Research by McKinsey in late 2008 indicated yet again what marketers here have long known: Word-of-mouth is the primary influencer of consumers’ purchase decisions in China. In service sector businesses worldwide, word-of-mouth is an essential component of stability and growth. The BI-Fudan and AEMBA programs prove the value of the virtuous cycle – developing a good referral rate, and maintaining it.

John D. Van Fleet works in the university sector in China. He lives in Shanghai.