Is the American MBA losing its allure?

Is the American MBA losing its allure?

Ratan Tata and Rahul Bajaj have it, and so have the Brothers Ambani. Bankers (Naina Lal Kidwai, Meera Sanyal), business tycoons (Anand Mahindra, Aditya Mittal), and even those who have streamed into politics (from P Chidambaram to Sachin Pilot) have been through the mill. But questions are now emerging about whether the American MBA is all that it is drummed up to be.

A recent survey in the Economist reveals that America, dubbed the “spiritual home of the MBA,” still leads in the business of business schools. Eight of the Economist’s Top Ten business schools are in the United States, and it is not until the 15th place that an out-of-country entity (Canada’s York University) makes an entry.

The Top Five: University of Chicago’s Booth School of Business (Alumni include Microsoft CEO Satya Nadella; RBI governor Raghuram Rajan taught there); Dartmouth College’s Tuck School of Business (PIO pols Neal Katyal and Dinesh D’Souza); UC Berkeley’s Haas School of Business; University of Virginia’s Darden School of Business; and Harvard Business School, alma mater to many distinguished Indian alumni including Ratan Tata, Rahul Bajaj, and Anand Mahindra.

While Harvard just about makes the Top Five cut, there are others in the Top Ten who rank higher in terms of prestige and price. For instance, every one of the 245 professors who teach Wharton’s 1,600 MBA students is said to hold a PhD. Wharton, which is ranked 10th in the Economist listing and whose Indian alumni include Anil Ambani, Aditya Mittal, and Sachin Pilot, is also the priciest. The two-year tuition fee at Wharton comes to an eye-popping $130,000, some 15% higher than Harvard’s $112,000.

The highest-paid MBAs in America graduate from Stanford, which is ranked 7th in the Economist list and whose Indian alumni include Mukesh Ambani and Vinod Khosla. These can expect an average basic starting salary of around $130,000. Stanford also sets a high benchmark for qualification with average GMAT score of 729/800. In fact, of the 16 schools at which the average GMAT score is over 700, 14 are American.

But while big B-schools are booming, the Economist suggests that storm cloud may be gathering for the modest, middling ones. Life is getting tougher for American schools lower down the pecking order, the publication reports, citing reasons ranging from an oversupply of schools, to a falling return on investment (as growth in the salaries students can expect fails to keep up with tuition fees) and competition from online learning.

“In a globalised world of business education, residing in the spiritual home of the MBA will not be enough,” warns the journal.

In fact, the trope about an MBA (not just an American one) being a passport to success in life is something that has been challenged lately. In a book titled “Beyond The MBA Hype: A Guide to Understanding and Surviving B-Schools,” author Sameer Kamat outlines as a “Cliche” the belief that “The MBA changed my life.” What it really means: “A fantastic career, a great social life and a healthy bank balance…three of the things I had before I started the program.”

B-schools have also had their share of black sheep — Raj Rajratnam is a Wharton graduate (as is bad-ass hotelier scion Vikram Chatwal), while his co-conspirator Rajat Gupta graduated from HBS. Warren Buffett, on the other hand, is a Wharton dropout.

Still, Indians continue to make a bee-line to American B-schools. By some estimates, more than 5000 students from India come to the US each year for an MBA degree from among tens of thousands who take the GMAT, the Graduate Management Admission Test that provides the qualifying score. According to a survey by Open Doors, of the nearly 100,000 students from India in the US, 13.7% were enrolled in business schools, third after engineering (35.6%) and math and computer science (23.1%).

The overall trend internationally seems to be tilting towards the MBA degree minted in the US. In 2013, 22% of international students came for Business and Management studies followed by 19% for engineering and 10% for math and computer science; 64% used personal and family funds. International students contributed $24 billion to US economy, and Indian students, who constitute about 12% of the international student group, are estimated to have forked out about $3 billion to the US education industry.

The Economist report raises important questions for thousands of Indian students who make a b-line to the United States each year for the coveted American MBA — whether to fork out 100K plus to get into a prestigious, top-ranked business school, or settle for a middling one with dimmer prospects of a good placement in an increasingly competitive environment. Or perhaps even get an MBA from the growing B-school industry in India.