Outpost’s £27 million loss in 2017-18 a ‘salutary lesson’ on the challenges associated with international ventures.
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.”
Read more : Ellie Bothwell : Times Higher Education : 02 January 2019