NIIT versus NIIT

On August 26, all hell broke loose between NIIT and a section of its

franchisees. The franchisees under the banner NIIT Franchisees’ Association

went on the aggressive and held a press conference. They announced their

grievances against the vendor and demanded that they be addressed. NIIT

dismissed it, saying the association was "non-representative", and

retaliated by calling a meeting with some franchisees to reiterate the

confidence they shared in each other.

The proceedings of the meeting are not known, but according to insider

information the vendor wanted to assess the extent of the franchisees

grievances. A second issue was to measure whether they would be able to handle

the load of additional students in the event of the closure of some agitating

franchisees–clearly an indication of the tough times with the inevitable

rationalization of its franchisees.

NIIT, on its part, claims that it had issued warnings about the downturn in

the sector as early as April 2001. Pradeep Narayanan, head of business

development at NIIT Training, says, "Needless to say, the pressures are

being felt by those few centers who have not been able to cope proactively with

the situation." The Association contends, "If that’s the case, how

does NIIT explain passing on business pressures to us?"

In October 2001, NIIT reworked its business agreements with franchisees. The

new agreement renounced NIIT’s contract with students with a new one now to be

made between the franchisees and students, "so that in case of any legal

issues, NIIT is clearly out of the picture," say Association members.

Also claims a franchisee, "Why has NIIT hiked the renewal fee for

franchisees by three times if they acknowledge that the sector is passing

through difficult times? In my last contract in April ’99, I paid Rs 2,75,000

as fee which has been increased to Rs 6,42,000 when the contract was renewed in

April 2002." NIIT has maintained that there has been no increase in renewal

fees since January 2000. The reworked agreement also lowered the revenue-share

by 17.5 % but made it the franchisees’ responsibility to arrange their own

faculty and to buy the curriculum from NIIT. The Association’s contention is

that it escalated costs by a huge margin. While NIIT’s estimation for

courseware was calculated at 6.5 %, the actual cost worked out to be around 12

%. Similarly the cost for faculty was calculated at 5-6 %, the actual cost

worked out to 15%, says the Association.

The Association has stated other grievances also. It has been made mandatory

by NIIT to buy courseware kits in multiples of 12, which prove to be a strain on

franchisees’ resources. IT being a fast changing sector, there are frequent

upgrades in courseware and each time franchisees have to pay an increased TRM

for the upgraded courseware. The exit clause for franchisees is very stringent.

Franchisees would have to forgo the initial investments made in the center. The

center has to be sold only to NIIT and the franchisees are barred from having

any commercial relations with competing vendors for a period of two years.

While the Association alleges that the vendor has been adopting a policy of

divide and rule, NIIT maintains that the Association is just a handful of

disgruntled franchisees. The Association says it has 500 registered members from

all across the country. A quick sampling across the country revealed that

support for the Association is sporadic. Some have maintained that while there

were issues with NIIT, they disapproved of the way the association was going

about its way.

Observers have maintained that this outburst by the Association is a

reflection of the tough times faced by the sector. While NIIT demands a bigger

revenue-share than its competitors, (most vendors stipulate revenue share on an

average of 20%) it undertakes the responsibility of building its brand and

driving students to its franchisees. At the local level, franchisees are

expected to shell out around 7 % of their expenditure for direct marketing. The

arrangement worked fine during boom times. But the pressure felt by all the

players has resulted in frustration spilling over in the face-off between the

vendor and its franchisees!

Balaka Baruah Aggarwal/Cyber News

Service in New Delhi