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Throwing in the Towel

July 7, 2010

When Michigan State University announced plans to expand into Dubai in 2007, President Lou Anna K. Simon described the move as "transformational for a university with an expanding 'world-grant' mission" (get it? -- "world-grant," not "land-grant"). She added that "other U.S. institutions are likely to follow MSU’s path."

Any followers would do well to learn from Michigan State’s combination of ambition, mistakes and misfortune. After just two years of operation, MSU Dubai has moved to immediately discontinue its undergraduate programs due to under-enrollment. That just 85 students are affected is testament to the extent of the institution’s struggle.

"This work that we tried to do, in which essentially students who were studying in Dubai had the same admissions standards, curriculum and course expectations as if they were in East Lansing, proved to be more difficult to pull off than we had imagined," Simon said in an interview Tuesday. "Part of that you can blame on the economic circumstances" -- MSU Dubai opened its doors in fall 2008 as a global recession closed in -- "part of it, you can look at ways in which the experiment began and some of the underlying assumptions."

MSU Dubai was envisioned as being of much larger scope, 100 to 150 students per entering class. As it turned out, as Simon said, the actual enrollment tallies were insufficient to support five different undergraduate programs -- for both financial and academic reasons. On the latter point, Simon said, "You have 10 to 20 students per major; that isn’t a very interesting academic experience." MSU Dubai offered majors in business administration, child and youth development, computer and electrical engineering, construction project management, and media management and research.

"These undergraduate programs, as they were structured, we don’t think are viable academically and financially, and rather than continue to try to make them work, we decided it was better to discontinue them," Simon said.

Michigan State will continue the sole graduate program it offers in Dubai’s International Academic City -- a master’s of human resources and labor relations -- and the university has plans to refocus and expand its presence in Dubai in study abroad, executive education, research, and consulting. "It’s an awkward space but I think we’re in a good space for moving forward," Simon said.

A Rise and Fall

But make no mistake -- in moving forward the university is accepting a loss.

Because the endeavor has not been profitable, Simon said the university is not obligated to pay back the $2.7 million non-recourse loan it received from TECOM, a subsidiary of Dubai Holding, to cover start-up costs. But, on the flip side, Michigan State’s partners in Dubai did not provide an additional $3.4 million in anticipated support for fiscal year 2010, and Michigan State’s foundation had to front the funds instead. The university expects to spend between $1.3 and $1.7 million -- to be funded by unrestricted investment income -- to fulfill contractual and legal obligations to its employees as it scales down the campus. MSU Dubai has 25 employees, 13 faculty and 12 staff, and, according to a university spokesman, no determination has been made yet regarding how many will keep their jobs.

Any way you look at it, the abrupt end to the undergraduate programs is an unfortunate result for an institution that had high aspirations abroad. When Michigan State first came to Dubai’s International Academic City -- a hub for foreign university branches -- it was to be "the headline university that signaled a redirection in Dubai’s free zone higher education strategy towards higher quality," said Spencer Witte, an associate with the Middle East-focused consulting firm Ishtirak.

Foreign universities operating in Dubai’s “free zone” are promised tax-free repatriation of profits and are allowed to operate without a license from the United Arab Emirates' Ministry of Higher Education and Scientific Research (MSU Dubai sought and received ministry approval nonetheless). Still, while Michigan State may have been a marquee institution within the free zone, "these are universities that have largely established their reputations elsewhere," said Witte, who has written extensively about Gulf State branch campuses. "They’re offering programs with a largely vocational emphasis. As long as that’s the case, I think potential students are likely to have a difficult time distinguishing between one institution and another."

"The decision comes down to cost issues and also how high the admissions hurdle is. Neither of these issues really played in favor of MSU Dubai," Witte said.

Tuition for MSU Dubai is lower than out-of-state, undergraduate tuition in Michigan ($7,920 per semester versus $13,916), but is still higher than at many other institutions in the region. And, as President Simon put it, “the admissions standards are no different in East Lansing than in Dubai, which is part of the enrollment problem, I would say parenthetically.”

The enrollment problem at MSU Dubai’s campus has not been a secret. A year ago, the university started the MSU Dubai Academy, a pre-university program designed to increase the pool of qualified applicants and offering coursework in math, English and other areas (attracting students with high enough English language skills has been a particular challenge). MSU Dubai even took the step of offering half-priced tuition to qualified transfer students.

But despite all this, the rhetoric suggested a campus on the rise -- or at least one in it for the long run. In an April newsletter, for example, Brendan Mullan, the then-departing executive director of MSU Dubai, offered the following words by way of farewell: “Over a relatively brief period, TEAM MSU moved MSU Dubai rapidly from concept to reality including designing, constructing and opening a state-of-the-art facility, recruiting a highly qualified and dedicated faculty and staff, and implementing a full complement of administrative policies, procedures and services for MSU Dubai. MSU Dubai opened with its inaugural class of students on August 24, 2008 and the official ribbon-cutting ceremony took place on November 11, 2008. Students and faculty are now approaching the completion of their fourth MSU Dubai semester. MSU Dubai is established, running successfully, and well positioned to expand and strengthen its presence over the long run in Dubai and the wider region.”

A ‘Bursting Bubble’?

Michigan State’s struggles to attain sufficient enrollments lend credence to speculation regarding a saturated, or nearly saturated, market. A fall report by the Observatory on Borderless Higher Education, a think tank based in Britain, documented 162 international branch campuses -- a 43 percent increase over just three years. By far, the U.A.E. was the biggest host, being the home of a quarter of all branches. Some, like NYU Abu Dhabi, have received extraordinarily generous funding from their hosts; many other branches in the U.A.E. have also been subsidized, to varying degrees.

The Observatory report also documented 11 branch campuses that had closed since 2004 – including, in the U.A.E., branches of the University of Southern Queensland (in Dubai) and George Mason University (in Ras Al Khaimah). As the report’s executive summary notes, the branch campus market has grown increasingly competitive “and there have also been several campus closures, reaffirming the need for institutions to undertake careful market research before deciding to create a campus abroad.”

"I am not surprised by MSU's failure in the Gulf -- but am surprised that it was so quick,” Philip Altbach, director of the Center for International Higher Education at Boston College (and blogger for Inside Higher Ed), said in an e-mail. “I think that there will be further shake-outs among branch campuses that may not fulfill their enrollment targets or which may not be fully subsidized by the Gulf countries. There has been a significant overexpansion of foreign institutions. Many apparently did not do their ‘due diligence’ -- no doubt seeing dollar signs due to the subsidies offered to many schools. It is a kind of 'bubble' that is bound to burst."

To be clear, Michigan State’s branch is not shutting down entirely – the graduate program and other research and education initiatives will continue, and without the weight of the unsuccessful undergraduate programs. To put things in the most simple terms, “There’s a sign that says Michigan State University on the building. That sign will remain,” said President Simon (who disagrees with the characterization of MSU Dubai as a branch campus to begin with, noting that it was never separately incorporated).

Still, the continuing presence of Michigan State Dubai, in whatever form, is little consolation for the students whose programs have been cut. Simon said staff will be working with students on an individual basis. They could attend Michigan State in East Lansing, if they’d like, and administrators have been in touch with other American-style universities in the region.

But starting again won’t be easy for every student. The National, an English-language newspaper based in Abu Dhabi, quoted Abdallah Janeer, a construction management student whose family lives in Saudi Arabia. “This course isn’t offered anywhere else in the region so I have to do a new bachelor’s degree,” he told the newspaper. “I don’t want to be so far from my family. It feels like all the work I’ve done is for nothing.”

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