The first batch of students from the center on Nanjing Road graduated in the year 2000, and almost everybody received an attractive job in Shanghai. This was an eye-opener for the city government. The NIIT model did not need any campus, the government was not spending any money, yet people were being trained in IT and getting good jobs. Menon felt that it was time to start spreading the company's wings. NIIT applied for permission to set up a wholly foreign-owned enterprise (WFOE) that could set up franchise operations throughout China. A WFOE status would free the company from dependence on the Shanghai government contract and enable it to start opening centers in other cities.
The government officials were perplexed as to how one could franchise education. How, for example, do you clone a professor? NIIT explained that their entire approach to training rested on almost complete standardization of the content as well as delivery methodology. As such, it was much closer to McDonald's than a typical university. Once the officials understood what NIIT did, how it operated, and how this approach had worked well in the center on Nanjing Road, they agreed. NIIT China (Shanghai) Limited came into being and began to look for franchisees.
The year 2000 was important for NIIT China in another respect as well. Because of the dotcom bust that year in the United States, NIIT USA faced serious financial challenges. As Menon recalled, the company's co-founders informed him, "Look, from here on, you're on your own; don't ask for any more money." On the one hand, this constraint meant that NIIT China would now have to generate its own cash flow to finance future expansion. On the other, it meant that Menon now had an even freer hand to take an entrepreneurial approach to NIIT's expansion in China.
The journey has turned out well. NIIT has continued to expand in China, with more than 140 centers as of 2013, and Menon has not felt the need to ask his bosses for any more capital since 2000.
As NIIT discovered, however, getting permission to start franchising did not automatically translate into finding franchisees. As had been the case with NIIT back in 1997, each franchisee needed a license from the city government. In the educational sector, this was not easy, as the city governments were determined to ensure that the students would not be fleeced. NIIT looked around to check who already had the licenses. The answer was clear - the universities and colleges. Consequently, NIIT decided to see whether they might be interested in signing on as franchisees. They were. The success in Shanghai served as a credible evidence of NIIT's effectiveness. The academic institutions also boasted excellent infrastructure, including plenty of classrooms and computers. Much of the time, the infrastructure sat idle or, in the case of computers, was used by the students for gaming. The university administrators could see that becoming an NIIT franchisee would enable them to generate fresh revenues from these idle resources at no extra cost.
For NIIT, signing on universities as franchisees solved two major problems. First, universities already had the licenses to offer educational programs. Second, unlike private entrepreneurs, universities already had the requisite infrastructure and would not need to make any new investments. Thus, on both counts, universities could get going much more rapidly. The biggest challenge for NIIT was to figure outhow to train the trainers at the universities. The most difficult thing of all was to train the professors to teach NIIT material the NIIT way. Professors believed that, they already knew how to teach. And over the years, their teaching habits had become almost hardwired.
THE SILK ROUTE REDISCOVERED: HOW INDIAN AND CHINESE COMPANIES ARE BECOMING GLOBALLY STRONGER BY WINNING IN EACH OTHER'S MARKETS
AUTHOR: Anil K Gupta, Girija Pande and Haiyan Wang
" The need to look outward is common to India and China"
Alliances, even between two purely private sector companies, are always a mixed motive game, Gupta tells Rohit Nautiyal
How did the idea of writing The Silk Road Rediscovered come to you?
Haiyan Wang and I have been doing research, writing and consulting on topics related to China and India for over ten years. Girija Pande was, until recently, chairman, Asia Pacific, for TCS. Thus, all three of us came to this subject with deep exposure to the big picture as well as the ground-level realities.
In my view, the timing of this book is just about right. India needs to launch an infrastructure revolution just like China did starting in the mid-1990s. This will require large amounts of capital. Chinese machinery is not only less expensive often it also comes with lower cost financing. Thus, having Chinese suppliers and banks play a role in the infrastructure buildup. From the Chinese side, the picture looks just the mirror image. The Chinese economy is slowing down. Thus, it has an even stronger motivation than before to look outside China for growth. India emerges as clearly the most attractive opportunity.
In the book you say that going for a JV or acquiring other strong foreign brand is one of the best ways to enter China. What do the Indian companies lack?
The answer varies across sectors. Indian companies have very strong credibility in China in the IT sector. More than one Chinese mayor has talked about transforming his/her city into China's Bangalore. However, there are very few other sectors where one can not say the same thing.
Take the auto sector. China's auto sector is about five times as large as India's. Also, no Indian auto brand (including Tata or Mahindra) is well-known globally. However, as Tata Motors has succeeded brilliantly in China by adopting the indirect route - leveraging the strengths of Jaguar and Land Rover. Mahindra Group is now attempting the same by leveraging its Korean subsidiary SsangYong. There should be no "shame" in entering another market via an indirect route if that would lead to faster success at a lower risk.
Anil K Gupta
Michael D Dingman Chair & Professor of Strategy, Globalization & Entrepreneurship, Smith School of Business, The University of Maryland
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