Three years ago higher education exports were worth $18 billion, and they're still the country's third largest export earner after iron ore and coal.
But now, competitors from the United States and China are threatening to leave Australian universities in their wake.
Correspondent: Karon Snowdon
Speakers: Sean Gallagher, Chief Operating Officer, US Studies Centre, University of Sydney; Tony Chan, President, Hong Kong University of Science and Technology
SNOWDON: Universities have been run as enterprises for so long the innovate or perish slogan is not out of place.
GALLAGHER: For almost two decades Australian universities have recruited Asian students without competition. And for almost two decades, Australian universities have come to rely on this rich revenue stream to basically underwrite all operations, so research programs, infrastructure and so forth.
SNOWDON: Sean Gallagher is the Chief Operating Officer of the US Studies Centre, at the University of Sydney.
His new paper co-authored with the Head of the centre and Dean of the University's Business School Jeffrey Garrett says threats to that funding are a threat to Australian higher education.
It says cash strapped US universities are shifting emphasis and are aggressively trying to take market share off Australia, by attracting foreign students to their campuses.
They're competing on cost, have much better accommodation options and provide an integrated study and living experience.
Sean Gallagher says it's having an impact.
GALLAGHER: The threshhold of one in four students at the undergraduate level being international is starting to decline now and at the post graduate level they've started to soften in that. So we are definitely seeing what I would call the end of the business model lifecycle for higher education export in Australia.
SNOWDON: The United Nations expects there to be 7 million students studying away from home by 2020. China aims to have half a million of them.
In Australia, 20 percent of total higher education students are from overseas, and it has been a leader in setting up university branches in other countries. But Europe and the US are trying to catch up. Hong Kong and Singapore, because of their proximity though much smaller, are also attractive to young Chinese students.
Tony Chan, President of the Hong Kong University of Science and Technology, says the city has relaxed its enrolment and immigration policies.
CHAN: This year we have 7,000 students from Mainland China applying to us for 150 places. So I tell people it's harder to get into us if you're from Mainland China than to get into Harvard.
SNOWDON: Australia's challenges are mounting -- demand from Asia might peaked, the high Aussie dollar makes it a relatively expensive option, student safety concerns linger, and there's a lack of suitable accommodation. If that isn't enough, US universities are also exploring joint ventures with Chinese institutions funded by China and bearing high profile US brand names. Such multi-national universities are yet to prove their mettle but could be a significant part of the new landscape. Online degrees are another growing area. How should Australia adapt?
Sean Gallagher says quality could improve on several fronts including accommodation and internships.
GALLAGHER: We need to move up market. Australian universities need to improve the quality of the offering they have for international students. We can then compete with the Berkleys, the UCLA's and Washingtons that are coming out of the United States and quite aggressively, targeting China in particular, those students.
SNOWDON: How do you see the next couple of decades in Australia?
GAL LAGHER: US universities recognise with the centre of gravity for higher education rapidly moving towards Asia and particularly, emerging Asia that they have to project themselves into Asia. And they're doing that by hardwiring themselves into China, into Singapore and Australian universities need to follow that lead. We need to be where the action is.
SNOWDON: Sean Gallagher says India and Indonesia remain largely untapped markets, with large future potential.
Tony Chan believes Asia's growing middle classes will increasingly be sending their kids overseas for education, including Australia.
CHAN: So Australia should not worry about the source. Australia should worry about is how to attract the students. The source is expanding. But I think imagine after the students get the bachelor degree they want to reach out, they want to learn about the world, so in terms of graduate studies there will still be a big demand. So I think that will also be a potential area of growth.