MBAs and top business schools seem to be ideally placed to bypass the effects of the credit crunch that has some financial institutions running for cover.
“We’ve seen no appreciable effect in applications due to the credit crunch,” says Prof William Perraudin, Director of the Risk Management Lab at Tanaka Business School. “Most of our students come from overseas. The UK and US are the most affected centres so we have had no slackening from Far East, a big area for us, which has seen no impact from the credit crunch. I don’t see a big change here.”
Thousands of prospective MBA candidates, looking at the big picture of their future careers, are keeping an extremely close eye on developments in the big economies of the world, particularly those of the US and UK. For them, the significant financial and personal outlay that an MBA requires may seem far more risky than it was this time last year. One candidate, Geoffrey Smith, in the UK, says: “I’ve been on the verge of applying for an MBA for the last 12 months. I’m not sure that now is the time to make that commitment, with the economy in such bad shape. If the situation doesn’t improve I am concerned that I’ll be left with a whole load of debt and no significant increase in my salary when I graduate.”
Such fears are commonplace among MBA candidates worldwide and it is of course crucial that anybody considering business school pays careful attention to what is going on in the business world before taking the plunge towards the MBA as a career advancer.
The news, however, is quite opposite to what many reports suggest. It is at times like these that business school is probably the perfect way to spend the next year or two, to train or retrain while the economy does go through a downturn and, emerges through the other side in a year or two. Prof. Perraudin, an expert in Risk Management, believes this to be the case.
“There are people whose participation in financial markets will be curtailed of course, and people are losing jobs in Wall St and the City. However this isn’t a permanent crisis; it’s a stress period that will be over in two years so it is a good period to think about getting a broader training for business or finance.”
Inevitably, just as in times of war there are certain industries making tremendous profits, there are also several industries, even in the nervous financial sector, that will benefit from the effects of the credit crunch. With debt comes debt management, hedge funds, asset management and other industries that will benefit. Prof. Perraudin says there are substantial financial markets that won’t be opening in the same way and some people will have to retrain and learn new things. “The hedge fund industry will come out of this well. There will be tremendous profits from debt markets as the crisis ends so people should think about learning investment skills they can use in asset management or hedge funds and less about traditional banking skills.”
Nobody is suggesting that there is no economic downturn, or that the US credit crunch has had zero effect on the world’s economies, particularly the big markets of Europe. Several MBA recruiters are feeling the pinch and beginning to tighten their belts in preparation for a coming storm. So far this year 36,000 job cuts have been announced in the US financial services sector alone while, in 2007, the entire US financial services sector announced a record 153,105 job cuts. It is said that when America sneezes, Europe catches cold and in London's financial district job losses are likely to hit 40,000 in 2008 due to fallout from the US sub-prime mortgage crisis and global credit crunch, according to analysts at JPMorgan.
However the current crisis is not at all similar to the downturn in MBA salaries and applications that occurred in 2001-2002, during the most recent economic downturn. At that time financials made the mistake of capping MBA hiring. This resulted in downturns in salaries, recruitment opportunities, placements in business schools and a minor crisis throughout the MBA world. Diane Morgan, Director of London Business School Career Services, says: “[There is] a pretty good outlook. All the banks are still coming on campus and hiring similar numbers to last year. Several [banks] made the mistake of cutting back in 2002 and were left with a big gap in talent when markets picked up.”
David Bach Associate Dean of MBA programs and Professor of Strategy at IE Business School, supports this point: "At IE Business School, applications for the International MBA program are very strong this year. We are seeing more than 25 per cent growth over last year and very good profiles. So far it seems the looming economic slowdown is not affecting top MBA programs and may in fact increase demand for high-quality management education. We are having larger than expected numbers of applicants from North America but also from Eastern Europe, the Middle East, and Southeast Asia - so emerging markets remain strong. "
Prof. Perraudin agrees, “I find myself on the optimistic end of a large number of conversations I have with regulators and industry people; cautiously optimistic that the worst of crisis is past. The US has a robust economy and with lower interest rates, things will recover. Importantly, financial and nonfinancial corporations are different. In 2001 there was a bit of weakness in the corporate sector generally. Right now it’s only in the financial side.”
For the most part there seems to be optimism among business schools that MBA applications are not only unaffected by the credit crunch but that, conversely, figures are going to go up. Now could be the perfect time to take your MBA. For further information on available courses and to create a personalized ranking of business schools please register on www.topmba.com/scorecard.