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