Concerns around the sustainability of Australia’s international higher education exports are starting to emerge for two connected reasons.

First, it is now well documented that growth over the past eight years has led to a two-speed economy and concentration of risk. Growth in international enrolments has been heavily concentrated in Sydney and Melbourne’s “Group of 4” universities, with the vast majority of this growth being in postgraduate enrolments.

Second, concentration risk at the institutional level is leading to polarisation risk at the system level. While Chinese student numbers dominate public discourse, South Asian student growth has in fact been a key feature of the sector since 2010. This has been driven largely by Indian students (a four-fold increase since 2012), but also by Nepal, Pakistan, Sri Lanka and Bangladesh. Many universities are highly concentrated in either Chinese students or South Asian students. In crude terms, Australian universities can be categorised as being either a ‘China university’ or an ‘India university’.

Polarisation at the provider level is of course exacerbated when looking at particular campuses and courses. Diversity in the student body of many programs is sorely lacking, with implications for the experience of domestic and international students alike.

There are of course a range of other socio-cultural and geopolitical factors also at play that are cause for concern, both in Australia and across our competitor and source countries.

The last downturn provides important lessons that could inform future expectations, especially since the 2010 downturn did not impact all Australian universities in the same way. For Group of Eight universities for example, those that grew their Chinese enrolments in the lead up to the peak were less impacted by declining student numbers. This was not the case for other universities.

South Asian enrolment patterns showed the opposite trend to the general market. In general, those that experienced more significant growth out of South Asia were proportionally more impacted by the decline. South Asian growth was therefore at the time a higher risk, with a resulting adverse impact on those that were highly reliant.

The timing of the impact on student flows from both markets also differed. Commencements from India turned down earlier, an immediate response to violence against students and visa changes. In contrast, enrolments from China were not affected for another two years.

Given concentration levels and polarisation have only increased since, the impact of a potential downturn is likely to be as profound next time around.

Concentration and polarisation are important systemic concerns for Australia’s higher education sector because international revenue is growing as a proportion of total university revenue. Reliance on international revenue ranges from less than 10 per cent for some and upwards of 30 per cent of total revenue for others.

It would be wrong to expect all universities to perform equally well in the dynamic international education environment. Many of the observed outcomes are a function of Australia’s attractiveness and a well-functioning market.

The fact that Australian universities are moving towards best practice in international marketing and recruitment functions is a positive development. However, this is eventually a zero-sum game for the sector — universities are increasingly competing at the margins for a slice of a finite or even shrinking pie.

There are the makings of an arms race through the ever-increasing costs that universities are incurring, particularly by way of acquisition costs: marketing spend, agent commissions, country discounts and offshore staffing. Administrative costs associated with applications and admissions are also non-trivial as universities start to explore prospective student segments that are less-obviously academically prepared.

These investments would not be an issue if they led to increasing net yield but, at least for the moment, many universities are trading off yield for market share.

We draw a distinction between the immediacy of ‘turning on taps’ to deliver rapid growth, versus the longer-term investments in ‘digging wells’. Universities need to think creatively about how to pursue diversified international strategies, beyond location, promotion and price. In particular, new approaches to the product offering will need to be part of the solution.

There are at least three key areas that should constitute the ‘digging wells’ approach for Australian universities: a focus on product, a focus on experience and a focus on value and yield. A renewed focus on delivering growth in numbers and value for students without compromising yield will be the new trifecta.

For governments, the rapid emergence of such stark trends across the sector may support the need for more diligent market stewardship. The Financial Services Royal Commission has highlighted how misaligned incentives and a culture focussed on growth and profit can undermine the value proposition to customers, and cause providers and their agents to behave inappropriately. The fact that such significant issues have emerged in the banking and finance sector, a much more regulated sector than international education, should be cause for concern.

This article was originally published in The Australian on 29 August 2018.

Written by Jonathan Chew during his time as a Nous Principal.