The Odds Favor Business Schools in China and India
Economic power is shifting rapidly from the West to the East—especially to China and India. China appears destined to become the world's largest economy by 2025. India, trailing China by about 12 years, will rank among the world's top three or four by then. By 2025, China and India will also likely account for well over 100 of the world's 500 largest companies, up from 36 today. Where will the corporate leaders of these new economies come from? Are the leading business schools in China and India up to the task, or will the grooming of tomorrow's global leaders be done primarily at institutions such as Harvard, Stanford, and INSEAD?
Global MBA rankings would suggest that the die is already cast. According to the Financial Times' 2009 rankings, China and India account for only one school each among the top 100 MBA programs in the world, as contrasted with 56 from the U.S. Even these two (the China Europe International Business School and the Indian School of Business) are the products of Western alliances. None of the top two purely Indian MBA programs (IIM Ahmedabad and IIM Bangalore) or the top two purely Chinese MBA programs (Tsinghua University's School of Economics & Management and Beijing University's Guanghua School of Management) make it into the FT Global 100 list. And Indian B-schools are reporting disappointing job-placement numbers for their graduates as the global recession dampens demand from would-be employers.
Notwithstanding the apparent dominance of Western—especially American—business schools, we argue that the odds favor the top business schools from within China and India. Here's why.
• First, student quality at the top Indian and Chinese business schools is superb and getting better. Sheer population numbers give these schools an advantage in the intellectual caliber of incoming students. Numbers dictate that it is harder to get into a top business school in India or China than into a similarly ranked school in the U.S. or Europe. Current Chinese MBA students, virtually all born after 1978, grew up in the reform era, have been learning English for years, and have been heavily exposed to the market economy. They are also much more willing to challenge the status quo, a requisite for becoming innovative.
Increasingly, Chinese students can also draw inspiration from domestic business heroes such as Jack Ma, founder of Alibaba Group. Faculty at U.S. business schools routinely acknowledge—but are hesitant to say so publicly—that the likelihood of MBA students transforming into stellar corporate leaders depends far more on their personal characteristics than on the caliber of the faculty, either as research scholars or in terms of pedagogical skills in the classroom.
• Second, domestic salaries received by graduates of the top MBA programs in both China and India are rising and becoming competitive with their counterparts in the West. At the top three MBA programs in both India and China, average starting salaries for domestic jobs range from $30,000 to $50,000. Adjusted for purchasing power parity, these salaries are on par with or higher than those earned by the graduates of the top Western MBA programs. As income levels in China and India continue to rise faster than in the West, it is likely that the salaries earned by the graduates of the top MBA programs will also move up at a faster pace. Attractive salaries and abundant job prospects would suggest that the indigenous MBA programs will become even more attractive to the top domestic applicants in the coming years.
• Third, it is now virtually impossible for any school to maintain a competitive advantage based on the curriculum. Given the Internet, every school has real-time access to the curriculum being followed and course materials being used by every other school. Most of the top business schools in the world (including those in China and India) routinely monitor curricular innovations at other schools and revise their own curriculums every three to five years. Another factor driving toward parity in curriculum innovation is the growing number of Chinese and Indian PhD graduates who are returning to their homelands to take up faculty positions. Nearly half of the faculty at Tsinghua University's School of Economics & Management earned their PhDs from Western business schools.
• Fourth, context matters. Unlike in the U.S., state- and family-owned enterprises constitute the large majority of corporations in both China and India. In both economies, market realities too are radically different from those in the U.S. Average per capita income in China is about one-fifteenth and in India about one-fortieth of that in the U.S. Given vast rural populations, the market for almost every product or service in China and India is also far more diverse than that in the U.S.
Leading indigenous MBA programs are able to provide much greater exposure to these contextual realities than Harvard or Stanford ever could. One U.S.-trained partner at the Mumbai offices of one of the world's leading strategy consulting firms told us: "We have direct experience with MBAs from the top Indian schools as well as returnees with degrees from the top Western schools. American MBAs are better packaged. However, the Indian MBAs are much stronger analytically and have more in-depth understanding of the Indian business environment. On average, the latter tend to be more successful for us. The importance of context also shows up in that our Europe-educated MBAs tend to perform better in India than those from the U.S."
A Paucity of Diversity
Notwithstanding these advantages, even the top MBA programs in China and India suffer from two major weaknesses. One, their student body is much less diverse than at top MBA programs in the West. Harvard's annual intake of 900 students comes from over 70 countries. Stanford draws its annual pool of about 370 students from over 50 countries. Greater diversity fosters richer class discussions and a more global network of contacts. This is one area where the leading Western business schools will continue to sustain an enduring advantage.
Two, in terms of faculty research, even the best Chinese and Indian business schools pale in comparison with any of the top 25 Western business schools. Building the necessary research culture and assembling a critical mass of top scholars requires resources and even then can take years. Here too, top Western business schools are likely to sustain an enduring advantage. In terms of a business school's ability to train corporate leaders, however, the quality of faculty research may not be as critical as it may appear. Graduates of the Indian Institutes of Technology have been spectacularly successful at climbing the top rungs of Corporate America despite the fact that, until recently, the IITs have been primarily teaching rather than research institutions.
Looking ahead, it is clear that history is on the side of the top business schools from India and China. Their biggest challenge will be to turn superb teaching institutions into research powerhouses as well.
The rise of China and India also offers an opportunity to the leading Western business schools. They must commit to becoming insiders within China and India. Context matters, and the best way to develop a deeper understanding of China and India and to broaden the alumni network within these economies is to partner as well as compete with the dragons and tigers on their home turf. The fastest and most effective way to do so without running into capacity problems will be via nondegree executive education programs.