Edu-leaders

Following the McDonalds franchise model, can India create top-notch institutes right at its doorstep? A National Knowledge Commission report estimates that approximately 1.6 million Indian students studying overseas spend close to $4 billion annually (at current exchange rates) on their education. The sum is impressive. And it has drawn the attention of domestic players to this sector. The players are mulling a decision to offer better opportunities and options right here. In the process, they hope, the gross enrolment ratio would also rise from its current 12 percent to the required average of 30 percent— a miracle that they and the government plan to perform by 2020.

Destination India
Developing countries such as India have been the ideal destinations for foreign educational providers (FEPs). And the imminent passage of the Foreign Educators Providers Bill is likely to accelerate opportunities and collaborations. But the big question is: why should top international universities consider setting up  operations in India? Aashima Agashe, the head of the international office of Symbiosis, asks, “Where else will they go? China’s population is getting older. India has a young demography, which is relevant to higher education institutions.” With an estimated 50 percent of its population falling under the 25 years bracket; about 80 to 90 million students become eligible for higher education every year. However, the more immediate provocation for foreign education providers to look at overseas pastures has been the call for a reduction in tuition costs that rose sharply in the past years. And the most popular model, pursued by British and Australian universities, has been to franchise their courses. The Institute of Development Studies, University of Sussex, estimates the franchising trade to be worth $250 million annually. The latest Franchise India report states that in India education services (including IT) leads all sectors in franchising, accounting for almost 32 percent of the market share. With 17 percent share in organised sector of education industry, it offers an impressive potential for providers interested in spreading their concepts through franchising.

Ready to Race
The president of Franchise India Holdings Limited, Gaurav Marya, says that in any franchising model, the franchiser gets the benefit of a brand penetrating deeper into markets that it would have otherwise not ventured into. The model also offers greater access to capital and a reduction in the risk of setting up operations. On the other hand, while the franchisee provides infrastructure (physical and people), it benefits from putting lower investment, reduced risk, a shorter learning curve and economies of scale.

It also receives the support from the franchiser for business systems, operations, advertising, promotions, recruitment and training. “But, in the education sector franchising is not just about lending a name. International experience shows that the franchisee has full power to run programmes designed by franchiser,” said professor T.M. Sathyanarayanan, the director of Pune-based Overseas Education Consultancy Services. He adds that in a sound franchise agreement, the franchisee has control over the academic, administrative and financial issues (read: admission criteria, academic eligibility, infrastructure standards and overseas faculty). In return, the franchisee pays a royalty and a fee to the franchiser. Depending on the model, royalty varies from 10 to 30 percent of the total tuition fee. So, a franchisee fee can be anywhere between 100,000 to 300,000 units of the franchiser’s local currency. The franchising institution continuously monitors certain aspects— quality of teaching, industry-readiness of students, adherence to critical parameters and finances.

Model Glitches!
A closer look reveals that none of the FEPs have given any franchise licences to their Indian counterparts. Rather, the Ivy League (Harvard or Oxford) have been cagey about it. Some, like Leeds Met of UK and Lancaster have set up campuses here in association with Indian partners—Jagran Social Welfare Society (JSWS) and the Goenka Group, respectively. Wharton School of Business and the Kellogg School of Management have tied up with Indian institutions, provide content and faculty, or take in students for a semester or two for international exposure.

Then, why has franchising not succeeded in higher education? India partner for Ernst & Young, Amitabh Jhing an, says that franchising is fundamentally not encouraged in Indian higher education space. However, the impending education Bill is expected to pave a path for franchising in the distance-education segment. “Once the franchising model there, it will help form guidelines for franchising of physical campuses,” he adds.

While no inroads have been made in higher education, franchising has found takers in vocational and training sector, in coaching centres and even in the playschool space. Jhingan says, “The model works because it’s a mass-market product with a three to six month course duration, uniform delivery and it requires a widespread distribution.” According to E&Y-Edge 2009 report, this model was responsible for almost 50 percent of the operations of both NIIT and Manipal Group. In fact, the success of the NIIT led the Far Eastern Economic Review (FEER) to dub it as the “McDonald of Software Business” in 2000.

Since education is also about the brand, franchising makes a brand reputation fragile. “There are limited positive upsides, and several downsides to franchising,” said a representative of a reputed foreign university, who preferred to remain anonymous. He explained that while the positive side was the possibility of expansion of the brand name and economic benefits, the problem was exposure to reputation damage. “While only a couple of hundred students are involved in vocational or coaching courses, some 10,000 to 20,000 careers are at stake when it comes to a university campus,” he explained. He added that at the university level, one dealt with a sophisticated consumer with high expectations.

Choosing the right partner, therefore, becomes crucial. “If the franchisee is in it only for the money and misuses the franchiser’s name, the brand equity of the parent institution will suffer,” says professor Ashok S. Kolaskar, the advisor of National Knowledge Commission. Kolaskar said that unlike a McDonald’s or a Pizza Hut, that can sever ties with a franchisee immediately, an institution cannot close down overnight. “It will  take at least three to four years to wind up, as students cannot be left in a lurch,” he added. The advisor also believes that while it is possible to standardise the quality and delivery of products such as a sandwich or a pizza across outlets, it’s not possible to churn out the same students from every campus.

Educators also stress that education is not about delivering content alone. “Students learn in a cultural context that is tough to standardise,” says Parag Shah, the chairman of Foundation for Liberal and Management Education (FLAME), a Pune-based institution. Interestingly,while franchisers remain wary, so do the franchisees. The director of Leeds Met India, Abhishek Mohan Gupta, said, “When we asked Leeds to set up its campus here, we wanted it to have complete control over curriculum, content and faculty.” He explains that the present breed of students were wise enough to gauge what was being offered.

Apart from the risk of diluting quality, other risks include overpricing, fraudulent documentation (of students and faculty) and conflict of interest created by multilateral programmes. For instance, UK-based educational chain Wigan & Leigh faced a number of complaints regarding their fee structure, faculty and degrees in its Pune branch. Last year it lost a case filed by a student who alleged that the institute had failed to deliver.

Collaboration Route
Manish Kumar Baheti, the chief executive officer at Knowledge Tree Infrastructure Limited (KTIL), believes that a symbiotic relationship between Indian partner (providing physical infrastructure) and foreign partner (providing financial and intellectual infrastructure) was more likely to work than a typical franchising model—even after FDI is allowed and regulations are eased.

Models will develop around two considerations— giving international exposure to domestic students and bringing overseas universities to India.

“As the market opens up, all models will coexist because there is enough demand,” Jhingan (E&Y) said.

Franchising will not be the wisest move unless careful monitoring is done by the home institute, believes Agashe of Symbiosis. She adds that India is ready for education liberalisation and the entry of FEPs would infuse a healthy competition— if regularised and monitored.