Commercialisation ‘the key’ to financial security

David Bond, co-head of commercial and partner at law firm Fieldfisher, looks at international expansion as one alternative source of income

Universities are not immune from the impact of the global Covid-19 pandemic. They suffered the pressure of temporary closures and the need to implement remote learning. Financial stress is an inevitable consequence.

A report from Universities UK International revealed that the growth of transnational education (TNE) stalled in the 2018-19 academic year, with total student numbers down 3.9% on the previous academic year. However, the number of universities offering study through TNE last year hit a record 142. UK TNE is now delivered in 226 countries and territories, with China hosting the most TNE students, 78,175 in 2018-19.

Despite these positive statistics, the pandemic has severely undermined the financial security of many universities. Difficult circumstances often create conditions for innovation.

For the higher education sector, the pandemic might act as a catalyst for change, prompting universities to secure long-term financial viability by creating new, diverse revenue streams. The exploitation of university owned intellectual property can play a key role in that change.

Universities are increasingly sophisticated when it comes to exploiting their intellectual property. However, their focus tends to be on intellectual property developed through research programmes, for example copyright in software or inventions capable of patent protection. Within this environment universities will often choose either to license the use of their intellectual property to a third party who will develop and exploit it in return for an on-going royalty or they will create a new “spin-off” company into which the intellectual property will be assigned and then developed and exploited. The challenges universities face in managing this type of commercial exploitation are well documented.

Universities do, of course, own another type of intellectual property – their name or trade mark. A university’s name is of fundamental importance, representing their tradition, ethos, research and educational pedigree. As such, it is extremely valuable. Although universities do protect their name and associated emblems through trade mark registrations within their home market, this is generally defensive, intended to prevent third parties from using the name and possibly damaging the university’s reputation. Universities are less inclined to exploit the value that is inherent within their name. 

One means by which this name can be exploited is to license it, together with the university’s operational systems, to an overseas third party, enabling them to replicate the university’s operation within that local market. This franchise/licence model is widely used by others, particularly within the hotel, retail and food and beverage sectors, to facilitate international growth.  

Taking inspiration from UK independent schools

International expansion is not new within the higher education sector. Over the last decade a number of universities have expanded overseas, with varying degrees of success, but few have done so in a consistent, purposeful way. That might be about to change and if universities want to see what benefits international expansion might bring, they need look no further than the successes enjoyed by many British international schools. There are over 4,300 British international schools (i.e. schools located outside of the UK which teach a curriculum which would be wholly or in part recognised in the UK and that have a British ethos) and they make up over 45% of the international school market .  

With one university in the UK, student numbers and the revenue they bring are naturally limited. Within that setting, overseas students represent an important revenue stream.  However, if travel restrictions become more common there will be downward pressure on overseas student numbers. This can be countered by opening an alternative, local option.  Although the experience of a local university will not be the same as attending the UK university, nevertheless the student will enjoy many of the home university’s benefits.

Obviously, setting up an overseas campus is a major undertaking and not to be taken lightly. Therefore a university might decide to pilot the expansion first, for example, by licensing a partner to establish one faculty or school. If that is a success the licence might be expanded to include additional elements of the UK campus.

So what intellectual property will be exploited as part of a franchise/licence model? 

When expanding overseas, a university will primarily exploit its brand and the goodwill and reputation that are associated with it, together with its operational knowledge. The university will provide on-going support to enable the local partner to replicate the university’s operations within that local market. Potential partners are attracted by the opportunity to benefit from the university’s reputation and the support provided by the university increase the likelihood that the local operation will be a success.

But why use a licence model?

A university might choose to open a faculty itself but this requires human and capital resources and a university will face challenges, not least due to a lack of local knowledge and access to real estate. By working with a local partner a university can tap into such partner’s own capital resources, management and local knowledge.

Done properly, the execution of a university’s international licensing strategy can become a core asset of the university, helping to secure the long term future of the university as a global education brand and hedging the impact of economic risks back home. The need for diverse income streams has never been more apparent than now during the current pandemic.

Rules for success

Whether the expansion is a success will depend on many factors, not least whether the university appoints a commercial, experienced team to plan and execute the expansion. 

That team must:

  • Conduct an intellectual property audit to identify the intellectual property that will licensed, including the brand, emblem, syllabus, and ensure they are owned by the university or capable of being licensed;
  • Protect the brand through appropriate trade mark protection, both within the home market (if not already done) and the target overseas market;
  • Establish an appropriate licence or franchise model that addresses the university’s own risk and reward profile;
  • Identify suitable partners with appropriate resources and experience;
  • Negotiate and complete the licence arrangements;
  • Work with the partner to adapt the university’s system for the local market and provide support for the establishment of the local faculty or campus;
  • Provide on-going support and monitoring to ensure the local faculty or campus is operated to the required standards.

Given the level of investment and the potential student catchment, it is likely that only one campus or faculty will be opened in a specific region. A typical model would be for the university to grant a direct licence to a partner enabling the partner to set up and operate a campus or faculty under the university brand. This might be achieved through rebranding an existing site or building a bespoke facility.  

Of primary importance to the university is protecting its brand, followed closely by ensuring there is a reliable income stream from the partner. Brand protection is achieved through the licence agreement, with suitable governance measures, approval of key appointments, quality controls and exit mechanism should the partner fail to perform to the agreed standard. The university would typically receive a percentage of revenue from the local operator, protected through appropriate targets.

As an alternative, a university might consider adopting a management structure, whereby it grants a local partner, typically a real estate company, the right to establish a campus or faculty, but the university operates the campus or faculty on the partner’s behalf. The partner is responsible for all capital and operational expenses but the university is able to maintain quality because it manages the operation. The university is able to charge an enhanced royalty by virtue of providing the additional management services.

Once the strategy and structure are in place, expanding internationally can be a relatively low risk/high reward venture, and one which over time will generate significant income, with potential to transform the university into a truly global education brand.

David Bond is co-head of commercial and partner at law firm Fieldfisher

Read more: Points-based immigration system: what’s in store for universities?

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