Reading ‘ignored warning signals’ over Malaysia branch campus

The £27 million loss at the University of Reading’s Malaysia branch campus last year should provide lessons about the challenges associated with opening overseas outposts, according to sector experts.

Reading’s latest accounts, published in November, reveal that the Malaysia campus’ deficit pushed the institution as a whole into the red to the tune of £20 million for the year ended July 2018. They state that a detailed financial review of the outpost had concluded that “the current loss-making position would continue for around four years” before the campus breaks even.

However, an internal document seen by Times Higher Education suggests that the shortfall was far more significant than anticipated: a report from Reading’s chief financial officer in February 2017 forecast an £8 million loss for the campus in 2017-18. It opened in 2016.

The document says that a review by KPMG highlights that the university had already invested £21 million and “this will get to between £50 million and £70 million over the five-year period” between 2016-17 and 2020-21. It adds that the campus “could physically exit/close down on 1 June 2021, having invoked the lease break a year earlier”, but whichever decision is made “at least a further £40-45 million of funding will be needed for Malaysia over the coming five years”.

The report notes that the outpost “opened later, and cost more than planned” and is located “in an area that doesn’t have the best reputation in Malaysia”, close to the Singaporean border, which has made recruitment difficult.

It also highlights Malaysia’s visa regime, economic difficulties and degree accreditation process as reasons for the loss, claiming that “the crucial law degree (around which much of the initial business case was constructed) [is] now looking unlikely to be approved”.

Minutes of the university’s council meeting in November 2017 state that the executive board recommended continuing with the campus “subject to significant conditions”, including capping the university’s total investment in the outpost.

But one source told THE that there had been “weak accountability and no transparency over business planning and financial projections” for the Malaysia campus.

“Reading was naive in how it approached Malaysia and ignored the warning signals that were there at the very early stage,” the source said. “It is a salutary lesson. You can’t make a quick buck opening overseas campuses.”

Jason Lane, director of the Cross-Border Education Research Team at the State University of New York Albany, said that Reading’s Malaysia campus was “illustrative of the challenges many international branch campuses have faced over the years”.

“These are essentially start-up organisations that higher education leaders have limited experience creating – particularly in a foreign environment. Universities tend to overestimate enrolments and underestimate the difficulty in navigating the local environment,” he said.

Paul Hatcher, president of Reading’s University and College Union branch, said that the “continual cost of Malaysia” was a “common concern on campus” and was fuelling “resentment” among staff, particularly in the wake of the announcement of a voluntary redundancy scheme.

Vincenzo Raimo, pro vice-chancellor of global engagement at Reading, said that “a high level of investment was always anticipated in the start-up phase of our Malaysia campus”.

“We have made no secret of the fact that the environment is more challenging than originally forecast and so the campus has not grown as quickly as anticipated,” Mr Raimo said. “We are fully committed to the students enrolled at our Malaysia campus and to our position as a global institution. As with any major investment, we continue to monitor the development of our Malaysia operations to ensure that the desired outcomes can be achieved.”

ellie.bothwell@timeshighereducation.com