Global MBA rankings: a Pakistani perspective

For almost any educational program, there is almost never just one reason why it exists and why students may choose to pursue it. That, however, is not the case with the MBA, a degree designed with a singular purpose in mind: to help its students advance their professions and to maximise their earning potential.

As such, it is a relatively easier task to create an objective ranking of MBA programs than any other type of degree. In our inaugural rankings of global MBA programs, Profit starts off with a simple premise: what is the menu of options available to Pakistani students and young professionals contemplating an MBA program, and how should those programs be ranked?

As far as we can tell, this is an exercise that has never taken place before, and hence, the list we have produced looks nothing like any of the other rankings of global MBA programs you may have seen. You will notice in our rankings, for instance, that Pakistan’s two top MBA programs – the Lahore University of Management Sciences (LUMS) and the Institute of Business Administration (IBA) – appear quite prominently. That is almost by design: as the two most desirable local options in business education for Pakistanis, both universities would naturally feature at least somewhere in the list of a person considering an MBA.

But before we delve into our list – and explain why there are three of them – a few notes on our methodology and how and why we decided to produce yet another ranking of MBA programs.

Methodology

The problem with most other MBA rankings – from our perspective – is that they tend to judge MBA programs on several factors, but ignore the ones that should be absolutely crucial to a Pakistani student or young professional about to embark on an MBA program.

The most important factor that is ignored by virtually all rankings is the US immigration system, and the fact that getting a work visa in the United States after graduating with a degree there is now subject to a lottery, and not like most other countries, where it is a much simpler application. This is not a trivial detail: more than half of all top-ranked MBA programs are in the United States, and American programs tend to be more expensive than European ones, and the starting salaries of the graduates of US MBA programs tend to be higher than those of just about anywhere else.

What happens to international students in the United States matters, but no ranking captures the changed immigration law calculus that most non-Americans now undertake – at least informally – when making a decision as to whether or not to head over to the US for an MBA.

At Profit, we have sought to formalise that hitherto informal calculation and offer our readers a quantitative assessment of the following question: is going to America still worth it? Obviously, that question has many components of its answer, but we have provided through our rankings a beginning of how to think about the economic trade-offs involved in that decision.

Unlike most other rankings, ours is based on a single, objective measure: how much does a particular MBA program add to your earning power relative to what you would have earned had you not gone there at all. There are three key calculations we make in order to arrive at that number, which we then use to rank all of the major MBA programs across the world, plus the two major Pakistani ones.

The first calculation is simply understanding the post-MBA lifetime earning power of a graduate of all of the 109 top programs for which we collected data. This is done by relying on some observed data and then making certain assumptions.

The observed data points that we have are the post-MBA starting salaries, and the salaries of alumni six years after graduating from the program. We then assume that a typical MBA graduate – who is 28 when they join a business school and 30 when they leave it – sees the most rapid increase in income in those first six years, and then sees a further 50%, inflation adjusted, increase in their earning power over the next 12 years, until they hit their peak income in their late-40s, following which their income grows only at inflation rates until they hit retirement age, which we have assumed to be 65 years.

This pattern of income growth is based largely on patterns observed in historical data about income over time for people in the United States and Europe, which are the primary markets in which graduates of top-tier global MBA programs work.

We recognise that we have not factored in the differences between men and women and how they are treated in the workforce in these assumptions about earning power. We will attempt to correct for this oversight in subsequent editions of this ranking.

The next calculation we make is to figure out how much graduates of these programs would have made had they never decided to get an MBA. The calculation is similar to the one described above, except that its starting point is not the post-MBA salary, but the pre-MBA salary.

The third step we take is to then adjust the lifetime earnings number for US MBA programs by assuming that there is only a 65% chance of getting the H-1B work visa that would allow a graduate to stay on and continue working inside the United States (this 65% is based on our estimates of probabilities of getting the visa in recent years.) The remaining 35% is assumed to have the same earning power as a typical LUMS graduate. We think it is reasonable to assume that if you come back home to Pakistan with an MBA from Harvard, you will at least get the same salaries as a LUMS MBA graduate.

For the Pakistani MBA programs, we used a slightly different methodology. Since Pakistan is a low-income country where incomes have a long way to go before they hit a plateau, we did not assume that a person who continues to work in Pakistan will see their income flatline after their late-40s, but rather will continue to rise faster than inflation until their retirement.

We also excluded some business schools from this list, most notably all Indian business schools. The reason we did this is because this list is meant to reflect the realm of possibility for Pakistani students: living, studying, and working in India are not realistic options for Pakistanis and hence we decided to exclude the four Indian MBA programs that would otherwise have made this list.

The list was restricted to business schools for which it is possible to attain full cost-of-attendance financing for the entire MBA program. We did this because we want to make sure that our list represents the options for all Pakistani professionals, not just those whose families have the money to be able to afford to send them to elite universities abroad. The list, therefore, consists entirely of business schools for which it is possible to get a loan to cover the full cost, including living expenses.

The numbers are not adjusted for purchasing power parity, because we believe that for globally mobile professionals, a dollar is a dollar. Lifestyles of the global upper middle class have a surprising degree of convergence, and hence understanding the absolute differences in earning potential is important to be aware of. We also did not factor in the cost of the programs into our rankings, though we did include the rate of return on each program in the data we list to demonstrate how much cost can play a role.

Finally, we used US dollars for this entire exercise because more than half of the MBA programs analysed are based in the United States, and because using US dollars allowed us to avoid astronomically large numbers in Pakistani rupees that would be difficult to make sense of, given the much higher rates of inflation in Pakistan compared to the US. We assumed that the long-term rupee depreciation rate of 6% per year would continue into the future (and we took into account the recent sharp weakening as well.)

Why the 3 lists?

To be clear, we have produced only one ranking: the one labelled “By adjusted MBA premium”. The other two lists are included in this inaugural ranking only to illustrate just how much of a difference our Pakistani-perspective-specific adjustments make to the otherwise standard global lists of top MBA programs. These lists will be excluded from next year’s ranking onwards.

The first list is organised simply by the raw lifetime earning power of each MBA program’s graduates. It shows you why Harvard and Wharton are considered to be the powerhouses that they are: nobody earns more than Harvard MBA graduates, with Wharton close behind. Interestingly, Berkeley appears to slightly outearn Stanford, which is otherwise thought to be considered a more prestigious MBA program.

The other thing this first list shows is just how dominant the United States is, and just how much richer the American upper middle class is relative to the rest of the world’s upper middle class. Eight of the top 10 schools by earning power are in the United States, and 17 of the top 20. Only IMD, INSEAD, and London Business School make it as non-US programs in the top 20.

And in case you think that America and Canada are almost the same, take a look at where the first Canadian business school makes its entry: the University of Western Ontario’s Ivey Business School at number 30. Australia’s best business school – the University of Melbourne – is all the way down at number 41. The top-ranked Asian business school is at the Hong Kong University of Science and Technology, at number 47.

In this ranking, LUMS is ranked at 92, and IBA at 108. It is absolutely true that in terms of raw earning power over the course of a lifetime, Pakistani MBA programs still lag relatively far behind, though it is likely that they will continue to climb higher in subsequent years.

In the second list, we adjust for not just raw lifetime earning power, but how much of that power comes from attending that specific business school versus how much comes from other innate qualities of the people who attend it. After all, if you are talented enough to get into Stanford, odds are pretty good that you were doing better than average even before you applied.

In short, we want to see what premium in your wages the MBA program actually delivers over the course of an average graduate’s lifetime. Once we adjust for the MBA earning premium, we see a very different list: Harvard retains the top spot, but INSEAD moves into second place. LUMS jumps up to number 19, and IBA leaps up to number 30.

The third list – the actual Profit ranking of global MBA programs – shows a very interesting picture. Once we adjust for the risks of US immigration laws and assume that a foreign MBA delivers LUMS-like earning power to returning graduates, there is a stark difference: Harvard is dethroned and American universities are wiped off from the list of the top three completely, with IMD, INSEAD, and London Business School taking their place. LUMS breaks into the top 10, and IBA makes it to number 13!

This list, we believe, reflects how economic decisions should be made: by comparing each option to its next best alternative, and by weighting the probabilities of competing scenarios based on their statistical likelihood of occurrence.

This, of course, does not mean that this list will represent the hierarchy of factors that go into deciding how each individual thinks about their future. It does, however, illustrate one example of how one should weigh the publicly available information to suit one’s own needs and one’s own personal context.

What the list means

At Profit, we believe it is important not just to present data, but also to make an effort to interpret the data. The two most important elements of our ranking are the following: the hit to the rankings of American schools, and the surprisingly higher ranking of LUMS and IBA.

How attractive is the US option?

Let’s address the first question: is an MBA from the United States still worth the costs and the risks?

America invented the very concept of a graduate business education, and Harvard specifically invented the MBA. America is also still much richer than just about any country in the world, and the American upper middle class, specifically, is the single biggest concentration of wealth on the planet. There are many ways to break into that class of people, but for a foreign citizen, getting an MBA from a top-tier MBA program is – or perhaps used to be – the easiest way to get that done.

In recent years, however, specifically since the election of President Donald Trump, the United States government has a adopted a different approach to immigration policy, which has consequences for people who might still be considering moving to the US for an education. Specifically, the H-1B work visa, which has not been particularly easy to get over the past decade, has become even more difficult to obtain.

In such circumstances, universities in Canada and Europe appear to be safer options for students, and indeed, that seems to the verdict by students from around the world. According to data from the Graduate Management Admission Council, the body that conducts the GMAT exam, the number of applications from international students to MBA programs in the United States declined by 10.5% in 2018, dropping from 75,683 in 2017 to 67,731 in 2018. During that same year, applications from international students to European business schools went up by 3.4%, to Canada by 16.4% and to business schools in the Asia Pacific region by 15.1%.

And unlike previous years, the decline is hitting even elite universities like Harvard, Stanford, and Wharton. Applications to Harvard declined by 4.5% this year, at Stanford by 4.6%, and at Wharton by 6.7%, according to reporting by The Wall Street Journal.

Does the rise in the fate of non-US business schools mean that Pakistani business schools – both of them – will also see an increase in interest from both students and employers? The answer to that question is likely yes in the long run, though the short run is unlikely to see much impact. Pakistani business schools do not attract a global pool of employers, and hence they do not attract a global pool of applicants, which limits the incomes generated by graduates of these programs to the specific dynamics of the Pakistani economy, where wages continue to rise, but have a long way to go before they will reach the levels of developed economies.

Nonetheless, if Pakistani students face a tougher environment in other parts of the world, it is good to know that local business schools are still available and open doors to tremendous opportunities.