Financially strapped

An Economic Powerhouse, Germany Struggles to Offer Top Business Education

Jacobs University Graduation Source DPA
High hopes for an international career. Jacobs University graduates at their commencement in 2007.
  • Why it matters

    Why it matters

    As an economic powerhouse Germany boasts an export surplus but no business schools with an international reputation. Financing is the problem.

  • Facts

    Facts

    • Private schools in Germany have a bad reputation.
    • Less than 10 percent of private school students in Germany can afford full tuition.
    • To survive private business schools need to rely on a mix of financial sources.
  • Audio

    Audio

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Germany is Europe’s reliable economic powerhouse. But in one category —  private business colleges and universities — the continent’s largest economy is a laggard.

Most of Germany’s top talent attend the nation’s system of free universities, leaving the privately financed start-ups scrambling for donors.

“In relation to its global economic impact, Germany has few (private) business schools, also compared to other European countries such as France and the United Kingdom,” said Rolf Wolff, the president and chief executive of European Business School in Wiesbaden, Germany’s oldest business school founded in 1971. “You can count the number of German schools with an international reputation on the fingers of one hand,” he said in an interview with Handelsblatt Global Edition.

Of the few private schools that exist in Germany almost all are struggling with debts or even bankruptcy – including EBS, which has been facing financial problems since 2010 and was enmeshed in political controversies in connection with state subsidies it received in 2009 for its law school. Its business school will generate a plus of €1.8 million ($2.4 million) this year, according to Mr. Wolff, who did not want to disclose more details on the financial situation of his school.

Germany’s private business schools and schools of economics draw financing from a mix of sources, including research funding, foundations, and their own fundraising, sponsors and tuition. But these schools lack a strong alumni network and generous financiers to support the schools financially – as is the case in the United States.

“Donations from former students and friends are central to our business model,” Harvard Business School wrote in its annual report. The school generates one fourth of its budget from investment income and annual donations – both of which the German private education system still lacks. In fact this week the university announced that it had received a $350 million gift, the largest in its history, from the Morningside Foundation to support its School of Public Health.

“In the United States, MBA programs are usually not profitable at all, it is the alumni networks that provide the necessary funding to run competitive MBA programs,” said Mr. Wolff.

Compared to other European countries and the United States, private universities in Germany have a bad reputation.

In Germany, students traditionally attend public universities, where they only pay an administrative fee of around €400 ($535) per year, compared to an average of €35,000 ($47,000) for a master’s program at one of the private universities. Less than 10 percent of private school students in Germany are paying full tuition.

“We don’t have a loan repayment tradition here,” said Katja Windt of Jacobs University, which is located in the Hanseatic city Bremen in the northwestern part of Germany. Jacobs University is also struggling to make ends meet.

Compared to other European countries and the United States, private schools in Germany have a bad reputation. They are generally considered schools for the rich and lazy. “When Germans hear the word ‘private,’ they immediately connect ‘tuition fees’ with ‘elite,’  two words with negative connotations,” Mr. Wolff said.

When, in 2007, seven of Germany’s 16 federal states decided to introduce tuition fees of around €1,000 ($1,340) per year at their public universities, they ran into fierce opposition from students and politicians. A few months later, new elections changed the political landscape in local parliaments and under the pressure of public opinion, all the states abandoned this project again and universities became tuition-free once again.

But experts think the concept of private education combined with the famous “Made in Germany” label is still viable.

“Germany as an important economic global player should have a substantial amount of internationally reputed and successful business schools,” Mr. Wolff said. “Company’s needs have changed considerably in the last two decades and they prefer to recruit students with an international background and/or international experience,” he said, adding that his school is increasingly focusing on recruiting students from abroad. Currently 30 percent of 1,350 students are foreigners.

Private schools in Germany that are holding up financially are the ones that secured funding from foundations and wealthy individuals. One sponsor alone is not enough. In 2006, Jacobs University, which was founded in 1999 as International University Bremen, received €200 million ($268 million) from the foundation of Jacobs, a large German coffee maker. But one single cash injection was not enough to keep the school alive.

At least €500 million ($670 million) would have been needed to avoid bankruptcy, according to experts.

“We simply do not have that many alumni that would transfer millions to our accounts. ”

Joerg Rocholl, President of Berlin-based business school ESMT

“We want to collect additional donations. So we must offer something to financiers and companies in return,” Ms. Windt said. Jacobs University is planning to restructure its educational model, offering master curricula more popular among local and foreign students.

“It does not work with only one (donor), one has to look for other options too,” said Klaus Brockhoff, the deputy chief executive of Otto Beisheim School of Management, a private school in Düsseldorf that runs two campuses thanks to funding from its sponsors, including two foundations. In general, additional sponsors are difficult to find in Germany, a country where higher education has always been free and is regarded as a government responsibility.

“We simply do not have that many alumni that would transfer millions to our accounts.” said Jörg Rocholl, the president of international business school ESMT in Berlin. His school has a capital stock of €127 million ($170 million) from 25 different founding corporations and institutions. Revenues make up 13 percent of its budget, which allows Mr. Rocholl to concentrate on his core business. He is confident that a significant amount of  financing will eventually be drawn from alumni networks.

“But I believe that (financing through alumni networks) will soon become reality in Germany, too.”

 

The author is an editor at Handelsblatt Global Edition in Berlin. Malte Buhse contributed to this story. Contact: scheven@handelsblatt.com

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