How Dubai’s business school bubble burst

Boom and bust could herald a depression for the global sector, warn Finnish academics

April 24, 2014

The expansion and then rapid collapse of business schools in Dubai over the period 2002 to 2012 “closely followed the classic progression of bubble formation and bursting” and as a result, the schools “made most of the mistakes” that are listed in academic papers on such phenomena.

This is the central arguments of a paper by Kimmo Alajoutsijärvi, Katariina Juusola and Juha-Antti Lamberg, all based at the University of Jyväskylä in Finland. The paper, “Institutional logic of business bubbles: lessons from the Dubai business school mania”, is published in the Academy of Management Learning and Education journal.

At its peak, write the authors: “Dubai hosted more international branch campuses (IBCs) than any other location in the world. The majority of Dubai’s approximately 50 higher education institutes were IBCs from 11 different countries.

“Furthermore, 10 of the top 100 business schools had branch campuses in Dubai, along with three in Abu Dhabi and seven more in nearby Qatar.”

Yet this proved completely unsustainable, with the crash leading to “an overheated economy [which] left even those schools that had benefited from the boom with half-empty teaching facilities, competing for the enrolment of a far smaller student body than had been predicted.”

Economists have been fascinated by “bubbles” since the days of the Dutch tulip mania in the 1630s. The researchers go on to consider why “the world’s top business schools judged the market so badly at the same time and collectively invested in activities that, in retrospect, were far from economically rational but instead more closely resembled euphoria, mania, and panic”.

Since the Second World War, they acknowledge, “the higher education sector in the Western world in general and that of business schools in particular has seen extensive growth” – with the closure of American branch campuses in Japan being the only major precedent for what has happened in Dubai. Yet these may well be “early warning signs of a more general bubble in higher education”.

Prudent business schools, they conclude, “should prepare for the first real depression in the history of their industry”.

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