Local operating model bridges the gap

NEGOTIATIONS had stalled.

Private education business boss Barry Gregory was on the verge of losing a battle to secure a contract with Murdoch University.

The parties couldn't agree on a couple of key terms, and the proposed partnership was all but dead.

At the time, in the early part of this decade, universities around the country were entering relationships with private educators to tap into the rapidly growing international student market.

Rod Jones and Peter Larsen, one-time employees of Mr Gregory turned competitors, were invited by Murdoch into the process with an alternate bid. Their private education model, which prepared full-fee paying foreign students for a degree, was proving effective at other universities.

But Mr Gregory, a plumber by trade, had a knack for surprising people - he once famously lugged a mini-bar from his room in a Malaysian hotel to the poolside so that he and his colleagues could continue celebrating on their overseas work trip, after a bar closed before his liking.

At the 11th hour, as Messrs Jones and Larsen cemented their agreement with Murdoch, Mr Gregory produced an exclusive contract signed by the university's previous hierarchy.

A battle ensued, and ultimately the university was obliged to work out an agreement with Mr Gregory.

Mr Gregory won the battle - and started up a rival pathways-style program - but as the saying goes, Messrs Jones and Larsen would go on to win the war, with their education business growing to become a listed $1.2 billion company, called Navitas.

To get an understanding of the issues facing the country's third-biggest export industry - private education - it's necessary to rewind a few decades, to when the sector was born.

During the 1960s, Australian higher education expanded through generous government funding, which petered out in the following two decades.

Reforms in the 1980s led to an increased emphasis on relationships between industry and education, and as a burgeoning overseas student market demanded attention, the legislative restraints were lifted and universities were allowed to target full-fee paying international students.

Not dissimilar to a gold rush, the speculators appeared from all corners. The pioneers, many from Perth, would have a profound impact on the future of the industry.

There was Con Barris, the former head of the collapsed Perth Finishing College, who was found guilty of illegally authorising payments of funds to his private company.

The college collapsed, and the out-of-pocket foreign students had to be taken in by other schools around the city, which would become a precursor to today's placement system.

“I thought I was working for a reputable school, I was totally devastated," recalls Robynne Walsh, who was teaching at the college when it collapsed in the late 1980s.

Ms Walsh's Phoenix Academy "rose from the ashes" of that failure, along with a government-imposed $150,000 trust fund designed to make sure colleges could no longer collapse and take students' money with them.

Ms Walsh continues to run the academy 20 years on.

The other great collapse of the early years belonged to the late Jack Evans-run education provider ABC, which cost the co-founder of the Australian Democrats his house. The business couldn't meet its debts after the Tiananmen Square protests led to local and Chinese government laws impeding study.

From the failure of the two providers to the introduction of trust funds to protect students, the private education industry was forging ahead.

Over at Mr Gregory's Beaufort College, which largely provided secondary education to international students, a couple of employees saw an opportunity to better aid and get into the foreign student market.

Universities had opened their degrees to overseas students and were enjoying the economic benefits that flowed from the relationships. Yet, faced with cultural and language barriers, a large number of the students were failing subjects and/or pulling out of the degrees altogether.

“While it was not good for the image of the universities there was always another student willing to take their place," Mr Jones says.

Mr Jones, then in a market development role at Beaufort College, left Mr Gregory's business in 1994. Mr Larsen soon joined him as his business partner.

One educator who knows the pair well says Mr Jones is more the deal-making entrepreneur, while Mr Larsen enjoys the academic role.

“Rod is in the air, while Peter is on the ground," the educator says.

A new model

Groups such as commercial education provider Insearch on the east coast were developing bridging courses, preparing international students for degrees through intensive language and subject training.

Mr Jones, who had been developing his own bridging model, took the idea to Edith Cowan University and the Perth Institute of Business and Technology was born.

Mr Jones says success rates for international students increased dramatically, proving the students faced cultural not intellectual barriers.

“Kids were failing and I just recognised there was a better way to do it," he says.

About three years later, Messrs Jones and Larsen rolled-out the program in Victoria's Deakin University and Sydney-based Macquarie University.

The new model had many financial advantages on top of the improvement in foreign student results and retention rates. By partnering with universities, private providers were able to minimise their upfront capital costs by using on-campus buildings, via a profit-share arrangement.

The pathway courses were also more easily rolled-out than an expensive secondary education curriculum.

Western Australia was in many respects well ahead of the game, buoyed by supportive government ministers and pioneering entrepreneurs.

“WA at one stage had 25 per cent of the country's international students," Mr Jones says.

Numbers have increased rapidly ever since, although the state's share of international students now hovers at around 8 per cent, after major cities Sydney and Melbourne ramped up their campaigns.

In terms of government support, there is a feeling in the industry that it doesn't get any where near the help that one of the major exports and money spinners for the state deserves. South Australia, by comparison, is generally perceived to enjoy greater levels of support.

One educator recalls having to pay for Tourism WA brochures when travelling overseas.

The international education sector is worth almost $840 million to WA and employs more than 2,200 people across the state, according to an Access Economics report. The commissioned report found that education had risen to become Australia's third-biggest export industry, behind coal.

“There's never been the recognition of what private education had been bringing into Australia," Mr Jones says.

Tourism, entertainment, restaurant and accommodation providers are also huge beneficiaries of the steady flow of students.

Gary Martin, chair of industry body Perth Education City, estimates that the number of private providers outstrips the number of public institutions with international students 10-fold and contributes close to a half of all international student enrolments in WA.

“I doubt that Western Australia's public institutions would be anywhere near as successful as they have been, if there were not such a strong private education sector presence in Western Australia," Professor Martin says.

They certainly wouldn't have as much money.

Leg-up or crutch?

Curtin University heads the lists of WA universities when it comes to income from international students. In 2008, the university generated $136 million from international student fees, which represents consistent year-on-year growth.

International students often pay upwards of $20,000 a year in tuition fees to either learn English and/or work towards a degree. Language schools linked to universities can tie students into several years of study, first to learn English and second to obtain a degree, creating a boon for the sector.

Most universities now have relationships with offshore public or private educators, offering Australian-styled courses to overseas students.

Curtin vice-chancellor Jeanette Hacket says the link between universities and private educators has, at times, been controversial.

“People were suspicious of it. It was a new model so we needed to get people to understand the idea of partnership," says the vice chancellor, formerly head the international student arm of the university.

But money isn't everything.

Curtin's focus on international students dates to the mid 1980s, when it started a partnership with an educator in Singapore.

Professor Hacket says the offshore partnerships and onshore programs also raise the profile of the university and enrich the education process by allowing local students to work with people from different backgrounds.

“Curtin doesn't want to be only a suburban university," she says.

“The revenue generated is very significant but it's not about the money alone."

In a paper by Universities Australia, the industry body says Australia's higher education sector has the highest proportional intake of foreign students among OECD countries.

Critics argue the focus on international students, which now regularly provide upwards of 20 per cent of a university's revenue, has shifted emphasis from the core teaching responsibilities of an educator to marketing.

Heavy concentration of students from any one country can also pose a problem, because a shift in sentiment or government legislation can have devastating effects.

Local competition for international students looks set to increase with plans for a sixth university in Perth.

Raffles Education Corporation has received general government approval for its privately funded university plans that are part of a goal to revitalise Midland as a strategic regional centre.

Professor Martin describes the move to establish a sixth university in Perth as bold.

“If we have a new university that does more of the same, then we run the risk of cannibalising the existing domestic and international student pool here in Western Australia rather than attracting capable students from interstate or overseas," he says.

Raffles Education has a concept plan through 2030 allowing for 10,000 students at its Midland campus, with half of those coming from overseas.

National record

A Korean education agent was last month blamed for packing 37 foreign students into a two-storey Brisbane home, reportedly to cover the cost of his upstairs home-office.

The revelation came after similar stories of overcrowding emerged out of Sydney and Melbourne, where one house received the dubious national record of housing 38 foreign students.

“Very often we find that when there is an issue ... the agents are seen pretty negatively," says Patrick Tan, senior student counsellor at Blue Education.

Speaking at a recent industry event, Mr Tan called for better standards to draw out the rogue agents.

“I think policing is the key factor here," Mr Tan says.

Negative publicity flowing from the sector hasn't been limited to overcrowded houses, however.

Attacks on Indian students earlier this year spurred Indian groups to stand guard at railway stations in Melbourne's west and sparked a protest in Sydney.

Further, a Four Corners report revealed how dodgy business practices were being used to rip off foreign students seeking qualifications in Australia, and how vocational training for foreign students had become an immigration scam.

Widespread media coverage in India provoked criticism from the country's prime minister, and the South Asia Times dubbed a visit by Education Minister Julia Gillard as a "diplomatic charm offensive" with few concrete changes to help students.

In fact, plenty is being done, raising fears of a red tape nightmare for education providers.

The Education Services for Overseas Students review, or Esos, is probably the most pressing issue. Esos regulates Australia's education and training sector's involvement with international students.

The submission process has earmarked changes in several areas including: plans to provide further protection to students when a provider closes; and plans to improve student complaint services.

The message local educators and industry bodies are sending to the Bruce Baird-led Esos review is that the system is fine, but that it just needs to be policed better to weed out the bad operators.

Debate is under way in those key areas, however an amendment to the legislation is causing angst among providers, as all businesses that educate or train international students must be re-registered by the end of 2010.

There are 120 groups in WA that fit that criterion.

Richard Strickland, chief executive of the Department of Education Services Western Australia, says there are two main reasons for the federally imposed re-registration process.

“One is that they want to clean up the register. They are [also] trying to send a signal right out around the world ... we are addressing these issues in Australia," Mr Strickland says, referring to the spate of bad publicity.

WA is arguably better regulated than other areas in the country, because it is also subject to state legislation that came out of the collapses from the 1980s. Queensland is the only other state with similar requirements.

Local educators say it is no coincidence the recent problems were located in Sydney and Melbourne, rather than Perth.

One local educator, who had the state department of education services go over the provider's financials, says the process is tough but ultimately good for the sector.

“It's hard nose," the provider says. "You can't financially sneeze here without being found out."

A lucrative business

The private education business of Messrs Jones and Larsen is now an international company called Navitas. It has plans to roll-out its programs in the lucrative American market next year, after having already tapped into overseas market including the UK.

The founders are very wealthy.

Mr Jones is the public face of Navitas, holding $190 million worth of company stock. At last count, Mr Larsen, who has stepped down from operational duties, holds a stake worth $102 million.

As for Mr Gregory, he has just sold the Murdoch pathways program, but continues to have an interest in the secondary education business linked to the university. He also has an interest in a major plumbing business that bears his name.

Mr Gregory, 69, announced last month that the pathways program, branded the Murdoch Institute of Technology, had been sold to American education provider Kaplan, which is probably the biggest competitor to Navitas.

No-one was surprised Mr Gregory didn't approach Messrs Jones and Larsen to buy the college.

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