SEGi - Big firms see a need, fill a need

Saturday June 6, 2009

CONSIDERING that higher education is big business, it is only natural that some of Malaysia’s largest companies have invested in universities and colleges, thus playing a meaningful part in the expansion of private tertiary education over the last 20 years or so.

For many of these players, the ventures into higher learning is not merely about making profits. They recognise that they are being socially responsible by providing Malaysians with easier access to higher education.

Says Sunway Group founder and chairman Tan Sri Jeffrey Cheah: “I think it is a positive development that the corporate sector is involved in education.

Telekom Malaysia’s Multimedia University was the first private university in the country.

“As the country develops, the demand for education has risen significantly over the past two decades. The private sector has come to play a complementary role to public education by addressing increasing demands and offering choices and programmes that are not offered in public universities and colleges.”

The corporate sector’s interest in higher education emerged in the 1990s, with a number of listed companies investing in colleges and schools.

Legislative changes to reform the education sector, the rising costs of overseas education and the Asian financial crisis combined to ratchet up demand for places in universities and colleges in Malaysia. Companies began to spot business opportunities in education.

One example was Kemayan Corp Bhd’s purchase of a 51% stake in Advanced Tutorial Centre (ATC), then a well-known college that offered law and accounting courses, for almost RM10mil in 1995. Kemayan talked about plans to eventually list its education arm on the second board.

Sateras Resources Bhd was another listed company that had nursed lofty ambitions in education. It owned two established institutions of higher learning, the Workers Institute of Technology and Goon Institute, and was looking to buy more colleges.

However, education was clearly not a magic bullet for these two companies. Kemayan was de-listed in May 2006, and the same thing happened to Sateras in October the following year.

A host of other companies have gone into higher education, with varying degrees of success. These include prominent names such as Sunway, Hong Leong, Lion, YTL and Boustead.

Corporate universities

It was also in the 1990s that the links between higher education and large-scale business took on another dimension, with pure education players starting to tap the capital market. In less than three years, three college operators were floated on the second board of the then Kuala Lumpur Stock Exchange.

The first was Systematic Education Group Bhd (now known as SEG International Bhd, or SEGi) in November 1994. Next was Stamford College Bhd in May the following year. And Inti Universal Holdings Bhd went public in June 1996.

»I think it is a positive development that the corporate sector is involved in education« TAN SRI JEFFREY CHEAH

Inti transferred to the main board in October 2000 and SEGi followed suit in August 2004. The former was taken private last November following a general offer. Before that, Laureate Education Inc, touted as “the world’s largest operator of private international universities,’’ had become a substantial investor in Inti.

Stamford has not had it easy as a listed entity. It suffered a run of poor results beginning in 2004, and early last month, it became a PN 17 company because its auditors had expressed a modified opinion for the 2008 accounts, with emphasis on Stamford’s going-concern status and shrinking shareholders’ equity.

Only one other education provider has gone for listing after Inti – HELP International Corp Bhd in May 2007, also on the second board.

Another phenomenon connecting the corporate sector and higher education was the setting up of universities by large Government-linked companies.

This included Petronas (Universiti Teknologi Petronas), Tenaga Nasional Bhd (Universiti Tenaga Nasional) and Telekom Malaysia Bhd (Multimedia University).

Such moves have twin objectives – to serve in-house human resource development needs and to support Government objectives.

In a written response to questions from StarBizWeek, Petronas says that as an expanding business entity operating in an increasingly challenging global environment, it recognises the importance of knowledge and technology to enhance its competitiveness and sustain its growth.

“Petronas views its commitment to education as a corporate priority. Investing in human capital development today will ensure that Petronas and the communities it operates in, have motivated and knowledge-empowered human resources to take on the challenges of tomorrow,” it adds.

It describes Universiti Teknologi Petronas as “perhaps the most ambitious manifestation of Petronas’ commitment to education”.

Says the company: “Its vision is to be a leader in technology education and a centre of creativity and innovation, while its academic programmes were formulated to produce responsible, well-rounded graduates capable of not only taking up employment and adjusting to the challenges in the oil and gas industry, but also to meet the development and leadership needs of the country in the future.”

Bringing value to education

Formed in 1997 at a cost of more than RM800mil, Multimedia University (MMU) was the first private university in Malaysia.

Telekom Malaysia (TM) group chief executive officer Datuk Zamzamzairani Mohd Isa points out that even from its early days, the telco has spearheaded practical training and has increasingly specialised in skills transfer.

“TM’s education initiatives began as an internal work, but are now extended beyond TM itself,” he says, adding that MMU is meant to serve as a catalyst for the development of the country’s high-tech ICT (information and communications technology) industry, parallel to the Silicon Valley-Stanford model in the United States.

»TM’s education initiatives began as an internal work, but are now extended beyond TM itself« DATUK ZAMZAMZAIRANI MOHD ISA

“The main value seen by TM was to help build its own human capital and, at the same time, contribute towards the nation’s capacity building as the country embraced ICT as a key lever for its economy.”

This is a role that lightweight players will struggle to fulfil. In its nascent stage, the private education industry was populated by many small institutions. It was difficult to maintain consistent qualities and standards. The entry of big companies changed the landscape.

“The corporate sector, with vast resources and management experience, is in a much better position to invest, build up and develop the private sector education industry and to achieve the standard and quality required, says Cheah of Sunway Group.

“They are also better equipped to provide the industrial link and experience for both the staff and students of these institutions, helping in the overall development of the student learning experience.”

Nevertheless, regardless of how deep your pockets are, running institutions of higher learning can never be a stroll in the park. Zamzamzairani says there are inherent challenges in the education business in areas such as student size, facilities, recognition, and academic and research capabilities.

“When there is a lack of or an underdevelopment of any of these levers, the university may run into operational problems, more so if it is funded privately,” he adds.

“In addition, in a dichotomous industry in Malaysia, there will be challenges from not only other private operators but the public universities too. All are competing for the same resources within the country.”

Balancing profits and responsibility

When the provision of education is a business enterprise, can we trust that the operator will always put teaching quality and student welfare above profits, more so when the operator has to worry about making returns on its investments?

National Association of Private Educational Institutions president Elajsolan Mohan believes the marketplace will punish the unscrupulous players.

“We can’t blame the private sector if it makes money. We are not philanthropists. At the same time, we can’t short-change students. They are very demanding. If you don’t deliver, they’ll study at your college for the first year, but the next year, they’ll go elsewhere,” he explains.

“If you’re highly profit-motivated, you face this and you stand to lose. The only way to balance these is through optimal use of resources. That’s how you generate profit for reinvestment purposes. And if after that, shareholders get some money, what is wrong with that?

Cheah too is convinced that it is possible for profit-oriented private sector operators to provide quality education. However, it may be tricky to reconcile this with the need to pay dividends instead of funding the further development and improvement of education.

He says: “Profit orientation does help to provide motivation, focus and drive for efficiency and performance, which is good for the general development of education. You may note that the universities under the Sunway Group are also run with profit orientation but we do not go for profit maximisation.

“We do work hard to generate a surplus but these surpluses are re-invested into universities for improving, expanding or facilitating research and infrastructure development. This is done through the Sunway Education Trust Fund which will soon be turned into Tan Sri Jeffrey Cheah Foundation.”

The foundation is a unique concept in Malaysia. It will own the Sunway Group’s two institutions – Sunway University College and Monash University Sunway Campus. These institutions can never be sold and the profits from their operations will always be returned towards the cause of education.

Cheah says decisions pertaining to the appropriation of funds from the trust will always be made for the benefit of the universities, or to further the cause of education. The foundation’s main stakeholders are the community and society itself.

He adds: “Through the foundation, I also hope to achieve what John Harvard has done with the Harvard Foundation. It will be a trustee-governed entity that will attract philanthropy from around the region towards the cause of education.

“This will also certainly lend credibility to Malaysia’s ambition in becoming a true education hub in the region.”

When asked if ownership through foundations is the best way to fund and run private institutions of higher education, Cheah says, “I would say it certainly has its merits. But most importantly, it crystallises my personal vision of leaving behind a vehicle that will serve the cause of bringing good, quality education to our country.”

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