What is the credit crunch impact on MBA employers and applicants?

The anxious glances that MBA applicants are glancing over their shoulders are similarly unfounded; despite the stories of gloom that cover the front pages of the newspapers in late 2008, the economic downturn is not going to be the death of MBA recruitment or business school applications.

During the last economic downturn, in 2001, MBA recruiters took a very conservative line on their hiring policies, in many cases downsizing their hiring numbers into less than single figures. Many felt that the economic upturn was further away than actually proved true and this left them with a black hole of qualified leaders when the inevitable upswing occurred. The knock-on effect influenced business school recruitment, applications and admissions went down and some reported the death of the MBA boom.

The reports of this death were exaggerated.

In 2008, MBA recruiters and schools are not going to bitten in the same way as 2001. Despite gloomy predictions, most professors that we have spoken to actually predict a bumpy ride followed by an upturn in the near future. The effects are in evidence already. “MBA recruiting results for the class of 2008 have been outstanding, both in terms of job offers and salaries achieved by MBA graduates – ahead of levels achieved in 2007,” says Judith Hodara, Associate Director of Admissions of The Wharton School in the USA.

Although the credit crunch impacted at the start of 2008, most banks remained committed to their MBA hiring targets through the hiring cycle. Banks have seemingly preferred to lay-off more senior professionals, whilst continuing to hire fresh talent whom they can train in time for the next upturn. The banking sector is expanding rapidly in Asia, Eastern Europe and the Middle-East, with increased demand for young MBAs across all these markets.

The bumpy ride referred to is likely to be felt in 2009 and principally in banking. During September and October 2008 the banking sector has been subject to violent swings in investor behavior as the credit crunch impact reaches its peak. Fear that banks would collapse under the weight of toxic debt associated with sub-prime mortgage derivatives has seen share prices of many investment banks collapse.

These short-term conditions will result in reduced MBA recruiting into the financial services sector in spring 2009. The QS TopMBA.com Recruitment and Salary Trends Report 2008 predicts a 9% decline in financial services recruitment of MBAs in 2009. If the situation continues to deteriorate, this reduction will be even more pronounced. TopMBA research suggests most banks will continue to actively recruit new MBAs in 2009, albeit in smaller numbers than this year.

On a positive note, the real economies of Asia, North America and Europe have continued to grow output, productivity and profitability, suggesting that forecast growth in MBA hiring in the consulting and general industrial sector of between 5-10% will be achieved. In effect, the drop away from banking will be counterbalanced by the growth in consulting and general industry, and other MBAs will be diverted towards careers in other sectors.

A benefit of the MBA qualification is that each school has a large alumni network and when the job market in one sector falters, many alumni come back to the school seeking to hire young talent whom they otherwise might not be able to attract. According to Hodara, this is already beginning to happen. Such jobs may pay lower salaries and bonuses than investment banks, but they offer attractive career opportunities for MBAs seeking an international management career.

Nuria Guilera, Admissions Director at ESADE observes that the ESADE MBA Career Fair in October 2008 will have 30 companies taking part, more than in 2007 and only Lehman Brothers has dropped out of the event. “The real economy is still business as usual and looking to hire MBAs,” says Guilera, though she adds “it is perhaps too soon to know whether the situation will improve or deteriorate.”

Applicant numbers are increasing this fall in the financial centers most severely affected by the credit crunch like London, Frankfurt, New York and Tokyo. The QS World MBA Tour visited New York in mid-September with 120 business school and attracted over 2,000 applicants, an increase on 2007 attendance. A Wharton seminar which preceded the fair, attracted over 250 visitors with a significant number of the audience consisting of current bankers seeking a career change. A popular topic was the assistance a business school can offer entrepreneurial start-ups – another option for many ex-bankers.

The QS World MBA Tour Wharton seminar* highlighted the increased competition many bankers face in gaining entry to top schools for 2009. Schools seek a diversity of students in terms of their education, industry background and interests. Just because there is a glut of bankers on the market this year, does not mean these top schools will admit a much higher proportion of them into their programs. In order to gain an edge, applicants are going to have to differentiate themselves through their non-work activities and interests. It is perhaps poetic justice that bankers who have been most active in charitable works, non-profit and community based initiatives stand a much greater chance of being selected to the schools of their choice than colleagues who focused entirely on career success.

At IESE in Barcelona and IE Business School in Madrid, applicant numbers are well above 2007 levels. At ESADE, Guilera comments “We expect an increase in applicants at the onset of a recession. Candidates are attracted to ESADE because we have a partnership with Banco Sabadell, which means that international students can secure a loan to study at ESADE without a co-signor. This has become more important, especially for US, Indian and Latin American candidates who are struggling to secure loans from their domestic banks because of the credit squeeze.”

2009 will be a difficult year to find a new job in investment banking. Joining an MBA program will be a safe haven for many young professionals. The challenge now will be gaining entry to the school of choice.

Source: topmba.com