The Reality of Franchising Schools
On 6th February 2014, CBSE issued a circular prohibiting franchisee schools’ payouts for logo and brand. While the circular holds firm and safe on the website, a range of litigations and tweaking of agreement occurred in the real world. Is the circular still valid?
Photo Credit : Akash Singh, Akash Singh, Akash Singh,
Franchise is “an authorization granted by a government or company to an individual or group enabling them to carry out specified commercial activities, for example acting as an agent for a company's products,” defines Oxford dictionary.
Franchising as a concept started much earlier with the so called McDonalds and Singers. Dating back to the middle ages, franchise then was a license provided by the local government to the church officials to maintain peace and manage taxes. The ‘royalty’ paid in turn was for ‘protection’. Who knew ‘colonization’ in the later colonial period was also a form of franchising. Kings either granted franchise for specific business activities or for creating a ‘colony’. The local citizens or businessmen who managed to ‘franchise’ in turn paid taxes and royalties to protect the ‘crown’. Joel Libava, The Franchise King, and the author of ‘Become a Franchise Owner! The Start-Up Guide To Lowering Risk, Making Money, And Owning What You Do’, said, “Isaac Singer and his partners were able to find an easier way for consumers to buy their product… Henry Ford played a part in the actual design of the franchise model….Ray Kroc’s contributions to franchising have to do with uniformity and cleanliness.”
Franchising essentially evolved through protection taxes and licensing of tangible products like machines and foods. Historically, it has been a tool in capturing new geographies and territory. Core idea was to make ‘standardised quality of product’ accessible to a mass market. Market has crossed over the boundaries of ‘products’ and entered the ‘services’ bound with education.
Nature of Franchising in the K-12 Industry:
Post globalization, like any other market, education sector too opened itself to choices of brands that parents can select for their child. Concept of franchising in schools became popular when Delhi Public Schools Society started franchising in 2007. They aimed at sharing their ‘quality of education standards’ with individuals interested in investing in setting up a school.
Bindu Rana, Founder and CEO of Millenium Education Management, said, “We often encounter two kinds of populaces interested in setting up schools. The first kinds are people who have lands and wish to do some social welfare for their town. The second kind is unique. They are the youngsters who have inherited their father’s business. In order to build their reputation and social stature blended with the urge of doing something better, they show their interest in opening up schools. Since the nature of their ‘inherited business’ is usually disorganized, they look for regulated and organized processes for their new initiative.”
“Bulk of the requests come from prominent businessmen of the area who may or may not have experience in education but has a similar vision, young entrepreneurs and owners of automobile dealerships. Surprisingly, not many real estate owners show interest,” explained Shreevats Jaipuria, Vice-Chairman, Jaipuria Institute of Management and Group of Schools.
Market Expanse, Investment and Projection
According to the KPMG- FAI (Franchise Association of India) Report, pre-schools and IT vocational training institutions were to revenue $94 million with 21000 outlets and $2700 million with 8500 outlets respectively in 2017. K-12 schools, though finds a minimal space in this percentage, has a high value among parents, especially of the Tier 2 and Tier 3 towns.
Shreevats Jaipuria estimated, “There would be roughly 700-800 schools under franchising or licensing model. On an average, an investment of INR 20 Cr excluding land is required to set up a school. The setting up cost however varies between INR 10 Cr in a small city to 30-40 Cr in a big city. We have a total of 13 operational licensed schools and 7 more in line, present primarily in UP and Bihar. In the next 5 years, we look forth to expand in Madhya Pradesh and Rajasthan.”
The minimum requirements for DPS franchisees, as its website lays down, are, “87000+ sq. feet total area in a commercial landscape and investment of 8 to 10 crore to start a DPSS School. We plan to open 200 franchise centers by April 2020.”
Anshul Pathak, Vice Chairman & Treasurer of the Delhi Public School Ghaziabad Society (DPSGS), details the investment, “We look at a minimum of 10 acres to set up a school. In Gurgaon, per acre is close to 8cr. Cost of construction is close to 30-45 cr. Pre-operative costs in the first 5 years is close to 100cr. Therefore, we have to look for a partnership in land. Only then, a total cost to set up a school would come up to 130-140cr. The number tolls up to 150 cr in Delhi.”
Some big and esteemed names viz. Ryan group, Heritage Schools, Pathways are more towards setting up their own school and not licensing.
Manit Jain, Director, Heritage Schools, decoding the costs, explains, “ A 3000 capacity school allocating an ideal space of 60 sq ft per child with a cost of construction @ 3500 per sq ft and a pre-opening expense of 5-7cr would total to about an investment of 100-150cr in a Tier 1 city and a little lesser in Tier 2. Lack of funds for schools roots from India’s deficient culture of alumni-donation.”
Robin Aggarwal, Director, Learning Path School and an ex-franchisee of a popular brand said, “Apart from the land and building, a one-time payment of INR 10 - 50 lacs is required to franchise. 10-15% of the total revenue has to be shared with the franchisor as royalty. However, one must remember that opening a school is difficult and capital intensive. The name of the brand, administrative processes, protocols and nature of the curriculum MAY help getting admissions since the brand equates the standard and quality of education.”
‘Circular of 2014’- Cause and Effect
CBSE, on 6th February 2014 released a circular (CBSE/AFF/Circular /2014/ 675578) against commercialization of education. Rule 19.1 (ii & ii a) ordered to ensure that “the school is run as a community service and not as a business and that commercialization does not take place in the school in any shape whatsoever.” It further inscribed that, “franchisee school making payment on account of use of name, motto and logo of franchiser institution or any other non-academic activities would be termed as commercialization of institution and to provide an affidavit that the school/society has not entered into any such contract to use Name, logo, motto for consideration of fee.”
Post the circular, school franchising industry was shaken. DPSS revised their agreement with their franchisee schools and placed it before CBSE Affiliation board for approval. Based on the RTI filed by Akash Singh of Learning Path School, Chandigarh, DPSS’ agreement was ruled out. DPSS was asked to reimburse all amount charged by the Society to its franchisee schools on account of logo and brand. However, neither of the authorities were ready to talk about the further discussions and impact post the 2014 dialogue.
This popular dialogue pushed all the franchisors to move from the word ‘FRANCHISE’ to ‘LICENSE’ or ‘PARTNER’ in their agreements.
Most of the ‘partners’ of education have changed their agreement language to charge for the teacher training services, lesson plan, ERP systems, curriculum plans, teacher selection, etc. in place of the brand and logo.
CBSE, traditionally, is an assessing authority and not a regulatory authority. However, even though it regulates, detailing of bye-laws and regulations, is a necessity especially when it comes to franchising since India does not lay down clear franchise legislations. Regulation of fees, 7th Pay Commission, non-commercialization of education, government’s no-subsidy on school lands and now GST on education’s ancillary services are cross-contradictory. Needless to say, behind all these chaotic confusions, sufferers would only be the children of India.
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