Schools posed a big question over demand

If there is one hot topic among business school staff these days it is that applications to their full-time MBA programmes over the past two years have been down, and down again. Even at top schools the figures are disquieting.

As Rose Martinelli, director of admissions at the Wharton school of the University of Pennsylvania jokes: “We had an aggressive outreach programme, we doubled our effort and I’m proud to say applications are . . . flat!”

She is one of the lucky ones. Across the US, Europe and even China applications are down by approaching 20 per cent. The applications trend survey conducted by GMAC (Graduate Management Admissions Council) at the end of last year makes depressing reading.

In that survey only 25 per cent of business schools responded that applications were flat or had risen at all. And 41 per cent said applications were down significantly.

The big question for business schools is whether the downturn is cyclical – in line with economic trends or other indicators – or whether there are structural changes to the market.

The answer is a combination of the two, says Dezso Horvath, dean of the Schulich school at York University in Toronto. He believes the MBA degree will continue to grow, but that the growth will be outside the US – India and China in particular. “The MBA will continue to grow on a global basis partly because of growth in new geographical areas, partly because of growth in new sectors.”

MBAs, once the entry qualification for the top corporations, is now being sought by managers in small and medium sized companies, and in sectors such as healthcare.

There is also a fundamental shift in the preferred format of the MBA, he says, with applicants looking to part-time, accelerated, executive and distance learning programmes rather than the full-time MBA, the traditional gold standard.

Because many of these programmes do not require participants to take the GMAT test, they can be falling through the statistical net. At the last count just 23 per cent of people studying for an MBA in the US do so on full-time courses.

Moreover, programmes in countries such as India and China also tend to by-pass the GMAT system in recruiting students.

However, it is in the US that there are the biggest concerns. Bob Conroy, associate dean for MBA education at the Darden school, believes demographic trends are partly to blame for the downturn. In the 1980s and 1990s there were 24m Americans in the 25 to 29 age group – the prime target for business schools. These days there are only 18m. However, the numbers will go back up to 24m by 2020, he argues.

Ms Martinelli, who is also acting as a consultant at the University of Chicago and will be moving there in the next few months, is not wholly convinced. She believes the demographic factor should be beginning to “loosen up a bit. If we don’t see a rise next year, we have a bigger issue.”

Both Prof Conroy and Ms Martinelli believe the business schools have to do a better job at persuading managers that the MBA is the route for them. Prof Conroy says that job prospects for MBAs over the past two to three years have been “dismal,” and this has spread by word of mouth to would-be applicants, deterring them from applying.

Ms Martinelli believes that, in an overcrowded market, schools are failing to sell their programmes adequately. “What we all need to do better is explain what programmes do for you.”

There are ongoing concerns in US schools that perceptions of delays in issuing visas to non-US students is deterring overseas applications – however real those delays actually are. But Angel Cabrera, the Spaniard recently appointed to head Thunderbird, believes the US faces bigger problems in recruiting overseas. “There is a perception of America abroad which is hard to quantify.”

This year has seen the continued slide of the dollar against the euro and other currencies but few US schools believe this has given them an advantage in recruiting overseas students. One of the few schools that believe it may have helped is Thunderbird where 44 per cent of students are from outside the US.

Nor has the dollar slide deterred US students, and those from countries where the currency is pegged to the dollar, from travelling to countries such as the UK, says Julia Tyler, MBA director at London Business School. “Students understand this is an expensive investment. London may be expensive, but London is an extraordinary city.”

Although 86 per cent of this year’s entering class at LBS are not British, most of them will expect to work in London on graduation, thus earning the salaries to justify the investment. In the last graduating class at LBS, 58 per cent of MBAs stayed in the UK for their first job, earning an average salary of $110,000 and an average sign-on bonus of $27,000.

Moreover, Ms Tyler argues that while many would-be MBAs in the past have paid lip service to the idea of a global business education, few have put their money where their mouth is. This has now changed. “The applicants have bought the whole global, international bit seriously.”

Whatever the state of the market, this dip is nothing compared with the downturn in 1997-1998 that saw the emergence of the technology bubble and the epidemic of Asian flu. However it is clear that natural disasters such as Sars and terrorist attacks like those of September 2001, have an impact on business schools. It is hard to imagine the Asian tsunami will not take its toll, bringing further uncertainty into the market.