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Circa 1999. The race is on. NIIT and Aptech, the big two of the Indian IT training industry, are on a high, outdoing each other in the rollout of new franchisees across Africa. First discovered by NIIT through a franchisee in Botswana, it's the untapped virgin land with great potential. This is a land where education is in short supply and India's IT training numero unos have the tools-that magic 'franchise model'-with which to cultivate and harvest the region. A model that's worked so well back home. All is well!

Circa 2003: All is not well. Ragged stickers of the familiar blue logo on a few cars and a dilapidated billboard are all that remain of the NIIT brand in Tanzania's capital city, Dar es Salaam. NIIT's training centers have been shut for the last two years. The spanking new building housing Aptech's training center on Zanaki street is the third franchise attempt to pick up where predecessors have left off. And there is talk of a new franchisee opening a center in Arusha, a tourist destination in the northern part of the country.

An Aptech class room in Dar es Salaam, Tanzania: Dwindling occupancy

But it's the promotion of US-based New Horizons, UK-based NCC, and local players Learn IT and CATS that dominate attention in the media. The reputation of NIIT and Aptech is at a low among local training and education business operators. They point out the one-sidedness of the home-grown franchise model and its inability to derive respectable returns in these markets. But what's got them simmering most is the high-handed manner of the Indian vendors. So what's brought about a situation alien to anyone used to looking at it from the Indian 'side of the barrel'?

In 1997, the $125 million UK group, Export Marketing, with interests in hotel management, trading and IT consultancy decided to enter the IT training business in East Africa. It set up Techno Brain as the franchisee partner of the Delhi-based NIIT for Tanzania. In 1998-99, it expanded its franchise agreement to include Kenya and Uganda as well for a term of three years. It was therefore NIIT's master franchisee for East Africa. Not a small undertaking for either of the two partners. Says Techno Brain's Group general manager in Tanzania, Manoj Shanker, "We spent a lot of money and made the brand really popular here, literally the #1 brand in IT education." But the honeymoon was to be short lived.

At the end of the three-year period, the return-on-investment projections made from NIIT's franchise model appeared awry and pay-backs appeared to be lopsided in favor of NIIT according to the franchisees. Efforts by Techno Brain to rework the agreement with NIIT's regional representatives in the Middle East failed to make progress. They tried to escalate it to New Delhi but without success". To be fair to NIIT, 2001 was also the year the financial decline began in the Indian training business. And for NIIT. With the dot-com bust, the company's high exposure to IT education ensured that its management was battling for positive cash flow on a day-to-day basis. Appeals by a relatively recent operator in a remote geography would hardly have attracted their attention.

Techno Brain gave up!
NIIT has a different story. A statement from the Indian training major says: "The East African market was affected by economic slow down in 2000. With market size shrinking and becoming price sensitive along with low realization for IPR products, both parties did not see value in continuing the relationship. So, NIIT and Techno Brain discontinued their association with mutual consent."

Reading between the lines, this explanation appears to indicate that NIIT did not find Techno Brain's three-year performance noteworthy enough to renegotiate the contract. Yet Techno Brain's approach to their new line of business was anything but that. With investment in centers across three countries as a master franchisee, as well as substantial media spending to build the brand, it's obvious they were there to stay.

Alternatively was Techno Brain a less than suitable partner for NIIT? Applying NIIT's own cyclic 'hospital and college model', Techno Brain's active IT consultancy and software business provided its newer IT education a suitable hands-on and recruitment outlet, notching up plus points for continuing the relationship.

Shanker blames NIIT's franchise model and the Indian rub-off for trusting it to work in this market. "The relationship was based on faith and trust for getting a return on investment. NIIT was also a very big brand in India and we thought it suitable for our [similar] third world kind of environment. That's how we signed up with them." The learning, he says, has been bitter. With the type of spending they had planned to do, they could never have got adequate return on investment because of the way the franchise model had been designed.

Is Techno Brain and NIIT's divorce an isolated incident of sorts? Or are there shortcomings in the franchise model of the Indian IT training stalwarts? In other words, is there a limitation in the business feasibility of the franchise model in different countries and under different market conditions?

It appears there could be a mix of two answers: The local characteristics of the African market-this huge continent accounts for below 5% of global sales-and limited flexibility of Indian IT vendors to use feedback from global partners to improve their sales models.

Under the Carpet
The African market place is somewhat similar to India with large labor pools and untapped markets. But that's where the 0comparison ends. When a franchisee sets up operations they will typically find two formidable obstacles. The first is the lack of formal education amongst the youth. Less than 10% of 18-25 age-group in Africa pursues college education. The second is the lack of disposable monthly income to see them through the duration of the course.

How do these factors translate into every day realities for training operators? Hanif Abdulrasul, who operates a 50-seat graphics and multimedia training academy in Dar es Salaam, believes there is a contradiction between demands for market development and corresponding sales. "When large organizations look at Tanzania, the volume of business seems small compared to other Asian countries. From the franchisee's point of view we are not getting enough support. From the vendor's point of view, they are giving out too much and not getting enough," he says.

Another interpretation of local market nuances comes from Ramasubra–manian Raju, centre head for Aftech Computers Tanzania, Aptech's franchisee partner in Tanzania since 2002. Raju worked with an Aptech franchisee in Chennai for more than ten years before leaving for Africa and is well versed with the vendor's business model. He benchmarks the maturity of the African market to the Indian one. "Tanzania is what India was more than ten years back. A major drawback here is the lack of awareness." And because of this players have to invest considerably more in market development. "Since you have to educate people from scratch there could be a case for a differential in royalty," he feels. But on the flip side, he also staunchly defends the Aptech model. "It is a successful model that has worked in over fifty countries. I don't see any reason why it won't work here. Probably it's just a question of time for people to understand it and get focused."

And when a vendor has other issues on hand, like NIIT had in 2000-1, a small geography may get even further sidelined. Techno Brain's frustration at the turn of the century was not an isolated incident. In that year, Techno Brain terminated its contract as a master franchise for Kenya, Uganda and Tanzania, along with partners from South Africa and Namibia. And while Aptech like NIIT went through its share of disengagements in Tanzania and elsewhere, both companies have been unanimous in rejecting shortcomings in their global business approach and point to their African success stories.

Vendors Defense
Aptech claims to have 260 international centers out of a total of 3,208. In Africa, it is active in Nigeria, Uganda, Ghana, Zambia, Mauritius and Tanzania.  According to Sudhir Mathur, senior vice president of international operations, the franchise model has undergone changes with the global market scenario. "We have tried to ensure flexibility with business partners in adapting and localizing our product offerings as well as our marketing efforts." The company stresses its model has greater flexibility than others.

With regard to relationships with partners, Mathur is emphatic that the policy is not to break contracts easily. And if it does happen it's again policy not to ruminate on the pros and cons of the partners exit. "Whenever we have disconnect with a franchisee it's usually because of lack of entrepreneurial skills, like weak management and ability to focus. We also realize a partner's priorities may change. And one does not dwell on reasons for a partner breaking with us as long as our presence in the region remains unaffected."

NIIT's stonewalling arguments are along similar lines. It has increased the number of centers in Africa from 19 in 2002 to 35 in 2004 and is now active in Nigeria, Ghana, South Africa, Zimbabwe, Botswana. It also claims to have modified its model based on feedback from partners. "As a result of economic conditions operators in East Africa are forced to sacrifice quality and originality of content to operate under extreme price sensitive conditions. Specific to Africa, our franchisees had expressed a desire to spread the education model to smaller cities. We have created models for different cities and customized products and pricing."

But Mathur throws further light on possible reasons that can muddle a franchisee's understanding of the local market and sales strategy, somewhat similar to the turmoil that Techno Brain went through. Both Aptech and NIIT have a 'career education' based approach versus the 'vendor technology' approach. In a market like India, where there are considerable numbers of school and college graduates wanting to build an employment guaranteed career, flagships career programs GNIIT and ACCP ensure full or half-full classrooms. That argument doesn't work well in the African market. There is considerable demand for professional courses while the education market is still at the 'infant-toddler' stage. In fact a serious player here has to have good blend of both education and professional courses, with the latter being a weak offering from both the Indian IT vendors.

Profit margins are slender and the price game is an important component of local player upmanship. The depth and breadth of courseware available with the parent company and bundled with the royalty understanding is critical to profitability. Aptech and NIIT don't score high marks in this area and Mathur clearly delineates their focus, saying, "We are not aligned to any vendor."  

Techno Brain's Shanker reflects along these lines. He points out NIIT tried to roll out courses meant for India. The GNIIT program never got going during their three-year association, and contrary to NIIT's statement, they were not given flexibility to change its structure. On the other hand, SWIFT courses had better response and were selling well. But their biggest grouse was NIIT's lack of certification courseware around Oracle RDBMS, a big demand area in Tanzania and elsewhere in Africa. Techno Brain had to pay additional fees to obtain Oracle copyright software from NIIT, boosting up costs.

All these matters would probably have died a slow death, if Techno Brain had decided to retreat and cool its singed fingers. But far from that, their failure to make headway using the NIIT brand and determination to become a significant player in Africa made them search for a partner with the right franchise model.

Roll Out
After disengaging with NIIT in 2001, aided by IDC's ranking of global IT education vendors, Techno Brain initiated a scan of the vendor landscape.

That took them almost a year and they decided to go for the best-US-based New Horizons, ranked by IDC as the world's largest training player. At first New Horizons was reluctant to come to this part of the world since they felt they would be unable to provide adequate support to a partner here. But Techno Brain sold them the possibility of opening up not just East Africa but the whole African continent outside South Africa. New Horizons then initiated a due diligence of the UK based parent group and its operations. The whole process took another year.

In hindsight, Techno Brain regards disengagement with NIIT and engagement with New Horizons as the best thing that could have happened to them. With NIIT, the contract was for three years. With New Horizons, it's a whopping 10-year deal, an indication of the trust and commitment both partners are ready to put into the relationship. "They have a fantastic business model that is absolutely even for franchisees all over the world. And the courseware is far superior," says Shanker. A summary of positive improvements that Techno Brain can now see after the signing the deal is an arm long. And herein may be the learning points for Indian IT training vendors. 

New Horizons requires its partners worldwide to upload their un-audited profit and loss statements every month on the company extranet. That way there is complete transparency in the financial agreements that the parent company has with its partners. As a matter of fact this is common practice for multinationals using a wide franchise and dealer sales structure like McDonald's, Samsung and others. Such transparency is relatively absent in the Indian IT training franchise model, say disgruntled franchise partners, who learnt the hard way that financial anonymity amongst themselves is an absolute pre-condition.

A New Horizons partner can escalate a delayed action right up to the CEO level, explains Shanker, and expect a suitable response. In the same breath, he also mentions that in the last 18 months he has had no reason to do so. Partners can also expect to meet their CEO at least once a year. They also have complete access to courseware which they can utilize on a pay and use basis. They can structure courses according to local conditions and dynamics. Availability of Oracle certification and other vendor technology courseware is no more a sore point for Techno Brain.

A lot of water has flowed since the heydays of the IT training boom in India and its onward global charge to the current pragmatic view of the business. And a lot of learning has happened. The question is have Indian IT training vendors been part of that learning? The conclusion is murky. That the Indian IT training franchise model is not amongst the best in the world appears indicative from the experience of Techno Brain and attrition towards other local and global vendors. The early advances of NIIT and Aptech franchises in Africa were amongst the fraternity of partners of Indian origin, who bolstered the Indian cause. "Expansion was because of connections not the brand," they say. Compare this with New Horizons' cautious approach towards entering Africa, first assessing its ability to extend support and then the diligence of the partner.

Once bitten and shy, there aren't many franchise replacements coming forward from the local community, also indicative of Indian vendor sluggishness. Shanker's final words may be appropriate, "NIIT should learn how to become a multinational training company." 

Arun Shankar a former editor of Dataquest is a consultant based in Dar es Salaam, Tanzania mail@dqindia.com

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The Aptech Franchise Model

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