Argentina's IAE Toughs Out the Turmoil

The B-school aims to survive the country's economic crisis by cutting costs, adding more students, and keeping tuition attractive for foreigners

It's a perfect day in Pilar, a town in the province of Buenos Aires, Argentina, and the atmosphere seems equally sunny on the campus of IAE, a 24-year-old private business and management school at Universidad Austral, a Catholic university. Outwardly at least, IAE, whose $30 million campus is just four years old, appears to be weathering Argentina's economic crisis well.

The B-school's calm exterior belies the turmoil within, however. Students and professors alike are concerned about their country's economy, their personal savings, and the future of the school itself. Since December, IAE has laid off about 20 administrators -- 10% of the staff -- and its nine academic departments have eliminated all of their part-time faculty, about 20 teachers. IAE Dean Fernando Fragueiro says in the next few months he may have to lay off more administrative staff and let salaries fall behind the country's inflation rate. So far this year, prices in Argentina have risen by 47%.

"It's not a healthy way to manage," says Fragueiro. But the peso's dramatic devaluation against the dollar -- thanks in part to the country's heavy foreign-debt load -- means the school has less money to support its activities. And unlike many North American B-schools, IAE has no endowment as a cushion. In a normal year, the school generates 80% of its income from tuition-based services, such as its full-time MBA program and management courses for executives. The rest of its $20 million in annual revenue arrives in the form of donations from corporations and alumni.


  To help stabilize its finances, the school has set tuition for its full-time MBA at $15,000 -- regardless of what happens to the Argentine peso. In dollar terms, that's half what the program cost as recently as November. In the local currency, however, tuition has risen 75%, to 52,500 pesos a year. Even after taking into account IAE's plan to raise tuition to $20,000 for students entering next fall, "on an international level, that is a good price," says Fragueiro.

IAE has also raised fees for its executive MBA (EMBA) program by 5,000 pesos since November, to 35,000 pesos. EMBA enrollments have held up well, though -- a surprise since only about 25% of EMBA students now receive financial support from their employers, vs. 70% last year. The pain isn't over yet, Fragueiro warns. "I'm sure that in three to six months, the price is going to change enormously again," he says.

There's some good news amid the gloom, however. The school is hoping to enroll more full-time MBAs this July. Last year it brought in 31. Already, it has 30% more applicants than a year ago. "They're saying, 'I'm not going to get a useful experience by working, but I can get a quality experience studying,'" says Roberta Larocca, IAE's director of full-time MBA admissions. She hopes to enroll 40 full-time MBAs in 2003 and 50 in 2004.


  The numbers will be modest because even as the school tries to attract more international students, Argentina's crisis has foreigners wondering if the country is safe. "It's difficult to distinguish between the Argentina you see on campus and the one you see on TV," Larocca says. "They're waiting to see what happens here." Currently, 18% of IAE's full-time MBA students are from abroad, and the school is hoping that its discounted MBA (in dollar terms) will attract more international students in 2003.

Slim job pickings for IAE's grads could make that a tough goal to reach, however. This year, for the first time in the school's history, foreigners weren't able to get jobs in Argentina. And as of March, three months after graduation, just 60% of the full-time MBA class had found jobs, vs. 90% in 2001.

Post-MBA salaries have lost their luster, too. With fewer consulting and banking jobs available, the graduates' average starting salary was 45,000 pesos last year, 10,000 less than in 2000 (currently, the Argentine exchange rate is about 3.5 pesos to the dollar).


  It's no surprise, therefore, that Argentines with the wherewithal to do so are getting their MBAs elsewhere. "I can get more from my courses abroad than I can here," explains Nicolás Hrehoraszczuk, 26. Hrehoraszczuk worked as a business consultant in Buenos Aires for five years but has decided to study at the Rotterdam School of Management in the Netherlands because it will offer him a more "international, multicultural experience" than studying in Argentina or even in the U.S., he says.

IAE's dean has a few more cards to play, though. Fragueiro recently got university approval to start a foundation this year in the U.S. Its goal is to raise $5 million annually from corporations, private donors, and alumni to fund new research into both general and health-care management, wealth creation in South America and Argentina, and entrepreneurship.

The school is also sponsoring 10 PhD candidates at B-schools in North America and Europe, with the understanding that they'll teach at IAE once they've completed their studies. Fragueiro can't be sure that the young professors won't be snatched up by higher-paying rivals abroad, but says there's an unwritten agreement that they'll return to Argentina. "Our vision is to be a leader in management education in Latin America," he says. "That's why we're sending people to world-class universities."


  You don't need an MBA to recognize some of the lessons of Argentina's crisis. In the 1990s, Fragueiro says, the belief among some of the country's leaders was "corruption was the price we pay for modernization." That, he adds, "was the wrong thinking." But he's hoping that alumns of IAE, which is affiliated with Opus Dei, a prelature of the Catholic church, will help change that by running ethical businesses.

At a day-long conference for more than 900 alumni on May 16, IAE announced two new programs to help its grads focus on being socially responsible leaders. Leadership for Society, a program that starts in July, and Local Leaders for Regional Development, which begins in September, will coach executives and local leaders on ways to introduce positive changes in their companies and communities. Those who take the courses have the "possibility to become leaders who establish direction for this stage of the crisis," says Fragueiro.

Some alumns are already taking this cue. Tomás Farchi, 26, graduated in December, and is working with two classmates on special projects for Ventura, a home-appliance company in Argentina. "It's fundamental that Argentine companies get through this crisis alive," he says. "We're giving the company our skills [as MBAs] so it can better face the challenge."

Of course, the school can't right the entire Argentine economy by sending motivated grads into a handful of major companies. But as IAE professor Luiz Mesquita said at the May 16 conference, "You can't wait for the government to start initiatives. You have to [start them yourself]." And then, in an economy as distressed as Argentina's, hope for the best.

By Mica Schneider in Buenos Aires

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