UP A PRIVATE TERTIARY EDUCATIONAL INSTITUTION THROUGH A JOINT VENTURE
PARTNERSHIP: PROBLEMS AND PROSPECTS
YTM Tunku Dato' Dr. Ismail Jewa
Tunku Dato' Dr. Ismail Jewa berkelulusan B.A. (Hons.), M.Ed., dan
Ph.D., ialah bekas Dekan, Pusat Pengajian Ilmu Pendidikan dan Profesor
Pentadbiran Pendidikan di Universiti Sains Malaysia. Beliau merupakan
ahli seumur hidup Commonwealth Council for Educational Administration
dan Institut Pengurusan Malaysia. Selepas bersara dari Universiti
Sains Malaysia, beliau melibatkan diri dalam pendidikan tinggi swasta.
Tunku Ismail telah dianugerahi Tokoh Guru Negeri Pulau Pinang pada
The number of places for qualified students in public universities
in this country is limited. Students who are unable to enter local
universities but with the necessary qualifications and financial
means more often than not will go overseas to get their tertiary
Overseas education can be expensive depending on the countries
where our students choose to continue their education. The outflow
of funds from Malaysia to support our students overseas is quite
substantial. About 60,000 Malaysians are studying abroad and it
is estimated that between RM2.5 billion and RM3 billion are spent
on them annually.
Our government has limited resources to expand tertiary education
and so private education can provide an important service and a
useful alternative to public education. By providing more educational
opportunities locally private higher educational institutions can
help to reduce the outflow of students and foreign exchange. Thus,
today in Malaysia private education has become a multi-million dollar
industry with active involvement of large corporations.
With the implementation of the Private Higher Educational Institutions
Act 1996 only those invited by the Minister of Education can establish
a private higher educational institution with the status of a university
or university college or a branch campus of a foreign university
or university college. Due to this legislation many private higher
educational institutions in my opinion would prefer to have twinning
arrangements, credit transfer or other collaborations with foreign
universities leading to the award of degrees for their students.
With such arrangements the students will normally do their studies
partly locally and partly overseas thus saving a substantial cost
of having their higher education totally overseas.
In this article a specific type of collaboration in the form of
a joint venture partnership between a local company and a foreign
university to set up a private tertiary educational institution
will be examined to determine the problems and prospects of running
such a venture.
Establishing A Joint Venture Partnership
To establish a joint venture partnership with the aim of setting
up a private tertiary educational institution two formalities have
to be attended to. The first one is to form a company limited by
shares and incorporated in Malaysia under the Companies Act and
with a predetermined authorised share capital and the number of
shares to be issued and paid up. The second one is the establishment
of the institution itself.
Forming the company is not difficult as long as it has a clear
objective, the necessary funding, the right choice of a foreign
partner and certain regulations pertaining to the participation
of Bumiputera partners are met.
It is most important that any company wishing to venture into private
education needs to have a clear aim and purpose and not to rush
headlong into such a venture with the false belief that private
tertiary education in Malaysia is a profitable enterprise. Once
the purpose is clear the Ministry of Education will be supportive
in facilitating the establishment of the joint venture project especially
if it helps to produce the necessary skilled manpower required by
In setting up a joint venture company to establish a private college,
the company must have an effective Board of Directors preferably
with a Chairman who is knowledgeable about education and educational
development in this country so that he can contribute effectively
in the discussion with foreign partners on the Board who are normally
Vice-Chancellors and Deputy Vice-Chancellors.
One problem, which the company may face initially, is seeking suitable
Bumiputera partners to fulfill the Bumiputera equity in the company.
The company must make the necessary attempt and effort to get well
qualified and effective Bumiputera partners whether individual or
institutional into the Board who can contribute significantly to
the business of the company and not just to be appointed for political
A major problem, which often occurs at Board meetings, is that
foreign partners are unfamiliar or insensitive to local business
practice and tradition and this can cause conflicts and misunderstanding
at times. It is therefore very important that foreign partners who
are academic administrators especially need to conversant with local
legislation and regulations, traditions and culture pertaining to
their duties in the company.
The existence and survival of a company is dependent on its financial
standing. This can be a major problem in a joint venture partnership
where the local partners may lose out in the end by venturing into
education before carrying out proper studies and evaluation of the
advantages and disadvantages of such a venture. By anxiously accepting
a service agreement prepared by the foreign partners, for example,
without first making a detailed study of it or consulting local
experts and later only to realise that such an agreement is so one
sided that it favours the foreign university which is involved in
the joint venture partnership. This may create much dissatisfaction
and unhappiness between the local and foreign partners. It is therefore
very important to have a review period, say within two years after
the joint venture project is launched to modify or rescind such
Foreign investors especially from overseas universities may be
reluctant to invest their money in any joint venture partnership
in our country if they are not certain of the benefit. However,
if they choose to participate in the venture they may agree to equate
their shares in terms of the value of intellectual property rights,
which they have deemed to contribute. So in this arrangement the
intellectual property rights will increase with the increase of
the company's paid up capital.
For example, if the paid up capital is increased from an initial
sum of RM100, 000 to RM10 million and a foreign partner has a 20%
equity in the venture then the foreign university's contribution
in terms of intellectual property rights will automatically be RM2
million. It is therefore necessary that the value of intellectual
property rights be quantified and capped at a realistic amount.
Otherwise it can be a sore point later for whenever additional funds
are required only the local partners have to bear the burden of
getting the extra money.
Establishing A Private College
A private college, which is established through a joint venture
partnership between a local company in this country and a renowned
university overseas, can have many advantages for the benefit of
our Malaysian students. This partnership, which I am referring to,
is not a twinning arrangement but an offshore operation of one foreign
university in a local campus built by a Malaysian company. Students
completing their advanced diploma courses of the university conducted
at the college in Malaysia will be accepted automatically by the
parent university if they wish to pursue degree courses of their
At present the Education Act and the Private Higher Educational
Institutions Act do not allow any college with such a joint venture
partnership to be known as a branch campus of the foreign university
in the partnership or even use the name of the university even though
the courses are prepared and controlled by the university concerned.
Therefore because of such restrictions the college in the joint
venture partnership cannot offer degree courses but only advanced
diploma courses. Students after having completed their diploma courses
will still have to do their degree courses at the university overseas
as explained earlier.
This type of partnership with one foreign university only may also
be a preparation for setting up a university college or branch campus
locally to enable our students to complete their degree courses
in the country, thus helping to stem the outflow of foreign exchange.
With a branch campus status if granted by the Ministry of Education
then such a university college can enroll a large number of foreign
students for diploma and degree courses and help the government
in its efforts to turn Malaysia into a center of educational excellence.
Such a college with the support and help from its parent university
will be in a better position also to undertake Research & Development
activities, conduct part-time classes for working adults, implement
distance education programmes, conduct certificate courses, etc.
A minor disadvantage with a partnership of this nature is that
the students' choice of going to other universities to complete
the same degree courses may be restricted. However, such a college
has the potential of expanding its foundation studies programme
to prepare students for admission into other universities in different
countries. Local students may also save a year of studies by following
the foundation studies programme by not going to Sixth Form after
their SPM examination.
In my opinion private colleges in this country may experience similar
problems when dealing within the Division of Private Education of
the Ministry of Education, the Immigration Department, the Foreign
Investment Committee, the Inland Revenue Board, State Governments,
local authorities and political parties. It is therefore unnecessary
for me to repeat them here as I intend only to highlight the major
financial implications pertaining to this particular type of venture.
The first consideration in building a college especially a purpose
built college for teaching engineering and technical courses is
its location because this will have an influence on the cost of
land and the enrolment of students. The enrolment of the students
will have an impact on the income of the college. A college without
sufficient revenue cannot sustain itself for long unless it is supported
by a large corporation with the aim of fulfilling its social obligation
without making much profit.
The initial capital outlay of building an engineering and technical
college in a joint venture partnership is huge due to large amounts
of fund required to purchase or lease a piece of land for the campus
and the purchase of machineries, equipment, furniture and so on.
Funding therefore has to be sought through bank loans or from other
sources. If the foreign partners are not involved in providing their
share of the capital then the burden of getting money to see the
project through will become the sole responsibility of the local
While waiting to get the permit to operate the institution, staffs
have to be recruited, trained and paid. The waiting period may be
long and this unproductive period when the institution is not fully
in operation may be a financial strain on the company, as the college
gets no revenue. I think every private college has to go through
To attract and enroll students a new college has to spend large
sums on advertisements, road shows and marketing the institution
locally as well as overseas. The foreign partners when marketing
the college internationally normally may use their agents and this
means a depletion of the revenue for the college, as agents have
to be paid their commission or fees. In a joint venture partnership,
the services agreement, for example, requires the college to hire
a certain number of expatriate heads of department and lecturers
and the foreign staff will normally be paid salaries fixed by the
foreign university. These lecturers will not only be paid their
basic salaries but they will also enjoy other perquisites. With
the amount of money paid to the expatriates the college can actually
employ more local staff with the same or even better qualifications.
What I have discussed are some of the costs associated with the
establishment of a private college through a joint venture partnership.
Such a venture may involve a lot of extra expenditure on the part
of local partners due to hasty acceptance of services agreement,
which may favour the foreign university in the partnership. However,
in any joint venture agreement it is prudent to have a review period
to vary, modify or rescind it so that the joint venture project
can be salvaged early.
At present the country's law does not allow the establishment of
a private tertiary educational institution unless interested parties
are invited to do so by the Minister of Education. Existing private
tertiary educational institutions in a joint venture partnership
with a foreign university will have to contend with conducting diploma
courses only at present and our students still have to go overseas
to complete their degree courses. This and other factors such as
payment of bases fees, start-up fees, and expatriate staff salaries
will not help to stop the outflow of funds. Students will still
not have a cheaper tertiary education as expected.
The advantage of a joint venture project as discussed in this article
has the necessary facilities, infrastructure and capital to apply
for the status of a branch campus of a foreign university. If the
application is approved by the Ministry of Education then our students
can obtain their foreign degrees locally through on campus studies
and foreign students can also enroll in the same institution thus
helping the government to make Malaysia a center of educational
excellence. The foreign branch campus of the renowned university
in the joint venture partnership can also involve in Research &
Development activities, conduct short courses for adult workers,
implement distance learning programmes and so on. In this way it
can help to realise the country's goal of becoming a developed nation
as it can provide market-driven science and technology courses.
In view of the depreciation of our ringgit it will be more expensive
to study overseas and this may be an opportune time for the Minister
of Education to consider granting a foreign branch campus status
or university college to existing joint venture tertiary educational
institutions which have fulfilled the requirements stipulated by
the Ministry of Education in their application.