With focus on poor, firms vie for piece of global market

Wednesday, May 31, 2006

By JOSHUA BENTON / The Dallas Morning News

Gerald Heeger is a newcomer to Texas, but he isn’t afraid to set Texas-size goals.

In five years, he wants his company, Whitney International University, to enroll more than half a million students around the world and be on its way to becoming the biggest provider of higher education the Earth has ever seen.

“How’s that for audacity?” Dr. Heeger said in his downtown Dallas office. “I believe there’s a big problem in the world, and big problems need big solutions.”

The big problem is that billions of people in developing countries can’t afford higher education. Whitney plans to offer it on the cheap ? at one-quarter the price of competitors ? by relying heavily on standardized lessons and the Internet.

Whitney International University is in talks with Politecnico Grancolombiano, a Colombian university.

“We’ve got to get the cost of a college education under $1,000 a year,” said Whitney creator Randy Best. “The whole mission is to reach the bottom of the pyramid.”

That “bottom of the pyramid” phrase comes up often when Mr. Best talks about Whitney.

He said his efforts were inspired in part by reading The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits. That book, by C.K. Prahalad, argues that by targeting the global poor as a market, corporations can raise living standards ? and make money.

Whitney, which has raised $35 million from investors, plans to reach the bottom by buying existing universities around the world. It also plans to use the brands of elite global universities to deliver courses primarily over the Internet.

The company has kept a low profile since its incorporation on the island of Bermuda in August 2004. But company officials promise that will soon change. It recently struck an alliance with a college some call “the Harvard of Mexico.” More deals ? in places like Morocco, Brazil and China ? are coming.

“No one seems to know a whole lot about Whitney,” said Sean Gallagher, who studies the education industry as a senior analyst at the research firm Eduventures. “But they’re very intrigued by whatever it is they’re pursuing. They’ve generated a lot of interest.”

In many countries, particularly in the developing world, higher education remains accessible only to academic superstars and the wealthy. That leaves a large tier of students seeking options.

In the past, some of those students would have sought to study in the U.S. But visa restrictions since the Sept. 11 attacks have made that tougher. For-profit private colleges have filled the void ? both homegrown institutions and a new breed of American companies like Whitney.

International leader

The undisputed leader in the field is Laureate Education. Laureate began life as Sylvan Learning Systems, a company best known to the public for its chain of tutoring centers aimed at K-12 students. But in the late 1990s, it began looking for overseas universities to invest in or acquire outright.

Eventually, company management came to consider the international part of its business the most promising. In March 2003, the company announced it would sell off its Sylvan Learning Centers to focus completely on the global higher-education market.

Investors have responded positively, pushing its stock from $11.43 a share to around $46 now.

The Laureate system today includes 24 colleges and universities in 15 countries, most heavily concentrated in Latin America. It enrolls 217,000 students ? more than the entire University of Texas System, which enrolls around 180,000 students.

Whitney completed its first acquisition last year, when a company controlled by Whitney officials purchased the New England College of Finance, a Boston-based two-year college that provides training for the financial-services industry. NECF will eventually provide a financial-services curriculum to Whitney’s other institutions around the world.

Whitney struck its first international deal last month with the Universidad de las Am?ricas (UDLA), a prominent university in Puebla, east of Mexico City. The deal allows Whitney to offer classes using UDLA’s brand name. The classes will meet once a week in person and otherwise be conducted online, Mr. Best said.

“You need the name, you need the reputation [of a top school] if you’re going to reach the bottom of the pyramid,” Mr. Best said. “People at the bottom of the pyramid are more brand-conscious.”

By doing so much of its work online, with a standardized curriculum, Whitney can create massive cost savings, Mr. Best said. “We’re going to be offering the best college education in a country, we believe, at about an 80 percent reduction in cost,” he said. He also said that because course materials will be standardized, Whitney can maintain consistently high quality.

But J. Douglas Toma, a professor at the University of Georgia who studies U.S. universities’ work overseas, said he’s not sure cost savings on that scale are possible while maintaining quality. He points out that many domestic for-profit universities, despite potential cost savings, still charge higher tuition than an average community college.

“People are still willing to pay more for the convenience that a University of Phoenix can provide,” he said. “But cutting costs 80 percent seems like a stretch.”

Whitney officials counter with an example from Dr. Prahalad’s book. In American hospitals, a cataract operation costs more than $1,600. But Aravind, an eye-care company in India, performs the same surgery for about $10.

Aravind’s leaders are able to keep costs low by stripping away luxuries like single-patient operating rooms. Instead of buying medical supplies on the open market, Aravind manufactures its own to control costs. And because its prices are so low, Aravind can generate the volume of patients necessary to generate serious cash flow ? which then helps finance free care for the poorest patients.

“I want to reach everybody,” Mr. Best said.

Whitney is in talks with Politecnico Grancolombiano, a 25-year-old university in Bogota, Colombia, plus colleges in Brazil and China. After that, the company’s plans include Eastern Europe, the Middle East and India.

Online curriculum

The online curriculum will include videos, readings and discussion forums. While Mr. Best said qualified professors would produce Whitney’s course materials, they won’t necessarily be the ones presenting lectures to students online.

The company recently advertised for Dallas-area actors to pretend to be professors for online video versions of their courses. The ads sought a 30-something Hispanic to play the role of a “Portuguese-speaking on-camera ’professor’ for college course video.” It also advertised for a Middle Eastern actor to play a similar role in Arabic.

To lead his new company, Mr. Best sought out Dr. Heeger, who had been president of the University of Maryland University College. It enrolls more than 90,000 nontraditional students, many of them accessing online courses overseas.

Whitney isn’t the only company chasing Laureate in this market. The Carlyle Group ? a private equity firm known for its ties to former President George Bush ? recently purchased Universidad Latinoamericana, which has three campuses in Mexico. The Apollo Group, parent company of the University of Phoenix, has launched joint ventures in China and India.

But analysts say the markets overseas are large enough that many companies can be profitable serving them. “I would expect other entrants in the field and that they’ll all be successful,” said Chris Symanoskie, Laureate’s director of corporate communications.

Source: Dallas Morning News (link opens in a new window)