McProgrammers Rajendra Pawar created a global chain of computer schools that churns out low-cost techies for call centers and software farms. That has made him a fortune--and a folk hero.
By Om Malik

(Business 2.0) – Crammed into a small classroom near a New Delhi shopping center, 20 of Rajendra Pawar's newest students peck at computer keyboards, pausing only to look up at a whiteboard full of abstruse equations and curious squiggles. The pupils are generally fresh-faced teens and young adults. Most come from families whose average annual income is less than $2,000. But these students figure to do considerably better than that themselves someday, which explains why they're so engrossed in today's subjects: the intricacies of creating applications for Microsoft's.Net and Oracle's high-end databases.

It's a scene repeated daily in thousands of classrooms across India and other parts of the developing world. Pawar is the co-founder and chairman of the National Institute for Information Technology, a computer education company that since its creation in 1981 has quietly become a kind of giant global factory for Third World coders. NIIT has 3,430 schools that offer low-cost courses ranging from a three-month tutorial on basic programming languages to a three-year program covering some of the most advanced coding tricks in the game. The company operates in 42 countries. Its current total enrollment--500,000--makes it one of the largest educational institutions in the world. (The University of California's system, by comparison, has 204,000 students.) More than 3 million people have graduated from NIIT, and thousands of its alumni have held important, if often anonymous, posts grinding out code at global tech powers like Microsoft, Oracle, and SAP. More notably, NIIT has forged a special--and controversial--role in the era of outsourcing: Its graduates make up much of the staffs at call centers strung across India and the developing world.

To some, that makes Pawar a bit of a villain--the foremost operator of training camps for the job-devouring foot soldiers of outsourcing. Pawar is keenly aware of the sentiment. "Maybe I should get a bodyguard," he jokes. But he adds, "Somebody's got to run all these computers, and if our students can do it more efficiently than others, it's inevitable that they'll get hired to do it." Besides, the students in his schools and many others in the countries where NIIT operates are more apt to see Pawar as a hero: His classrooms are providing a path to economic opportunities that have never before existed. And many find inspiration in Pawar's own personal tale of entrepreneurial moxie. He started NIIT based on an idea that everybody told him would never work, flirted with financial ruin, and then came up with an ingenious business model that, once again, many doubted.

His secret sauce? Pawar decided to franchise NIIT's schools rather than own them. "McProgrammers," the approach has been called.

Franchisees have spread NIIT everywhere from China to Ghana to Russia--one reason NIIT was once valued at $2 billion on the Bombay Stock Exchange. The tech bust almost destroyed the company, but Pawar has weathered the storm. In its last reporting period, covering the 18 months that ended in March, NIIT earned $9.5 million on revenue of $323 million. Now Pawar has a new expansion plan, one that he hopes will cool the outsourcing furor: He wants to bring NIIT schools to America. That he tried it once before and failed dismally seems not to concern him in the least.

In 1992, Gaja Krishna Vaidyanatha was a recent college grad training to be an accountant in the Indian city of Chennai. On his first job, he says, he stumbled onto a fraud at a government-controlled company. Krishna says company execs tried to bribe him with money and women. One night as he rode home, an auto ricksha rammed his motorcycle, almost causing him to crash. The next night it happened again. To Krishna, the message was clear. He decided to drop the audit and change careers.

Krishna signed up for a three-month, $250 NIIT course in database programming and Lotus 1-2-3 and has never looked back. Now 35 and living in Silicon Valley, he has designed apps for numerous big-name firms, including Oracle and Veritas. These days he's a software consultant, and his second book on database coding is about to be published. "NIIT gave me the launching pad for my whole career," he says. "And it might have kept me from getting bumped off in Chennai."

Krishna's story may be more colorful than those of most NIIT alums, but his success is typical of thousands of the company's graduates, and just the kind of upward mobility Pawar envisioned for students when he founded NIIT. The son of a senior Indian military officer, Pawar, now 53, studied electrical engineering at the demanding Indian Institute of Technology in New Delhi, where fellow alumni include the likes of venture capitalist Vinod Khosla and Pradeep Sindhu, founder of Juniper Networks. Unlike many of his buddies, Pawar didn't light out for America when he graduated in 1972. He eventually hooked up with Hindustan Computers, a pioneer on the Indian tech scene that built minicomputers.

It was there that Pawar had his first important insight: "It dawned on me that even though we were making these machines, corporations didn't know how to use them, and there weren't enough skilled workers to take advantage of them."

When his company's sales stalled for those very reasons, Pawar devised a training program to show corporate managers and employees how to use the minicomputers in their jobs. Sales picked up, and Pawar packed up. He roped in a longtime friend, Vijay K. Thadani (now CEO of NIIT), and set about trying to create a computer education empire.

It was rough going. "We didn't have a clue how to run an academic institution," Pawar recalls. But some conditions in India worked in their favor. Every year more than 7 million kids attend the country's 12,600 colleges. For the hordes of graduates who study something other than computer science--and in the early days of NIIT, they were the vast majority--work is hard to find. Indeed, Indians derisively call nonengineering alums "ordinary graduates." Pawar saw them instead as a vast untapped pool of potential computer jocks. He and Thadani scraped together $40,000 and set up the first NIIT school in Mumbai (formerly called Bombay) in February 1982.

The school opened with a single computer. Most of the course materials were dog-eared manuals and dated American training videos. Worse, even after the company advertised in local newspapers, "no one showed up," Pawar recalls. Eventually, someone did: a merchant seaman. He bailed after a few days.

Gradually, however, word got out and enrollment began to pick up. But it didn't really take off until 1984, when Apple Computer introduced the Macintosh PC. The Mac became a sensation, in India as in much of the world, and students flocked to NIIT to learn about the wondrous new world of home computing. "I knew then that NIIT was an idea whose time had come," Pawar says. By the late '80s, NIIT had 25 schools and was profitable. Pawar was well on his way to becoming one of India's first tech megamillionaires.

Trouble was brewing, however. NIIT's success spawned a wave of imitators that began undercutting its prices. Pawar suddenly found himself under siege, and in the late '80s, growth stalled. The countermeasure Pawar devised would prove to be his masterstroke.

Pawar knew he had to expand beyond his big-city base into smaller towns and rural India. In his wide travels, he had observed the relentless expansion of global chains--McDonald's advance through the developing world particularly caught his attention. Franchising, he could see, was a way to grow a business rapidly. After months of pondering, he came up with a uniquely Indian twist on the model: He would try to get the most respected families in small communities to sign up as his franchisees. Indians put great emphasis on the concept of pride and respect, known in Hindi as izzat. To lose izzat is to lose everything. Pawar figured that if he could get respected families to be his franchisees, they'd have powerful incentive to manage the schools well, protecting their izzat--along with the NIIT brand name.

The approach required Pawar and Thadani to comb the countryside for leaders in communities where the two executives knew not a soul. In the eastern Indian city of Bhubaneswar, Thadani interviewed eight people, grilling them about their backgrounds, before settling on Kalyan Mohanty, a former computer salesman. "It was like getting married," Mohanty says of the vetting process. In 1988, Mohanty invested $5,500 to open his first school. In the first year, he had sales of $27,500. He now operates 11 NIIT schools with total sales of more than $1 million a year.

NIIT's twist on franchising works like this: The franchisees pay for marketing and infrastructure--space, desks, computers. NIIT provides all the course materials and selects and trains all faculty members. In return, the company gets royalties of roughly 20 percent on student tuitions and also is reimbursed for the teaching materials it supplies. In a good year, NIIT's net margins can run 20 percent. For the franchisees, the deal can be sweeter: Some have racked up margins of 30 percent.

The franchising model turbocharged NIIT's growth, but the Internet boom kicked it into hyperdrive--and, ironically, led to a new set of problems. The boom created an insatiable demand for coders in Silicon Valley, and an NIIT diploma became an almost sure ticket to a sweet stateside gig. Students poured in, and so did would-be franchisees. "It was like trying to get a franchise for Krispy Kreme," says Pratap Aggarwal, who once ran 70 schools. "People were lining up outside NIIT's offices trying to sign up as a franchisee." Meanwhile, Indian immigrants in other parts of Asia, western Africa, and Europe started NIIT franchises in their adopted countries, taking Pawar's concept global. The company's revenue nearly doubled from 1998 to 2000, when it hit $281.2 million; profits in 2000 topped out at $55.6 million.

But NIIT fell into a trap that ensnares many franchisers when things are rocking. So many new schools opened--the total exceeded 1,900 by the end of 2000--that they began stealing students and profits from older schools, angering the established franchisees. "They were not taking care of us, and were riding the wave," says Aggarwal, who eventually lost many of his schools and now runs 48.

When the wave broke with the collapse of the Nasdaq, NIIT got hammered. Franchisees were up in arms. "I was getting reports from offices that parents were showing up at schools waving newspaper articles about the bust and asking about their kids' futures," Pawar recalls. "Enrollment was drying up." On March 1, 2001, after a tense daylong conclave with managers, NIIT decided to do something no company in Indian history had ever done: It preannounced its results, indicating that earnings would plunge by more than half. They did--to $22.2 million on revenue of $259 million. NIIT's market cap collapsed to $200 million, 10 percent of its $2 billion high. Things got worse in 2002, when the company lost $4.4 million and sales slid to $181.6 million.

"That," Pawar recalls, "was the toughest time of my life."

The pain would ease relatively quickly, however--thanks almost entirely to outsourcing. Even as they were laying off tens of thousands of IT workers, big tech companies in the United States and elsewhere were looking for low-wage offshore coders to replace them. Pawar had them in droves. He quickly retooled his curriculum, offering a $500 basic course to train people in the computer skills needed in the suddenly booming call-center business.

Moreover, he was perfectly positioned to provide well-trained coders for more intricate work. Through thick and thin, Pawar had insisted on continuously upgrading the level and sophistication of the training NIIT could provide; for instance, the schools had begun offering a three-year, high-end diploma called GNIIT that included everything from database maintenance to Web design to Java programming. Its cost: $1,850. (At India's premier technical institutes, such a program would cost many times more.) It turned out that the GNIIT skills were precisely what many outsourcers were looking for.

Today NIIT's course offerings are broader than ever: You can get basic training for using the Internet--a hit with many middle-age and older people, including mothers who want to e-mail their globe-trotting children--for as little as $17. NIIT's course materials also have improved vastly from the early days, and now the company sells its training manuals to tech giants like Microsoft and Sun Microsystems. At first, NIIT schools typically had one computer for every 20 students. Now each student has one, and NIIT upgrades its models every couple of years.

That potent mix seems to position NIIT to churn out capable and cheap tech workers for years to come. One cloud remaining on the horizon, however, is the outsourcing controversy. Pawar well understands why the exodus of jobs to low-wage countries causes so much uproar, especially in the United States. "There is nothing you can say that will ease the pain of someone who's lost a job," he observes. But he sees outsourcing as an inevitable outcome of the U.S.-supported push for free trade and open economies. "Displacements are going to happen," he says. "The best way to deal with them is to increase the employability of people who've been displaced."

That's why Pawar sees America as NIIT's ultimate destination. In 1997 he tried to set up schools in Atlanta. They flopped. "We had zero brand identification in the United States," he says. But NIIT already provides materials and online courses that are repackaged and marketed by Indianapolis-based ITT Technical Institute, a spinoff of International Telephone & Telegraph. And eventually Pawar hopes to see NIIT schools scattered across America, possibly retraining some of the very people whose jobs were given to NIIT grads elsewhere. That may be an irony too bitter for some to swallow, but Pawar thinks it's an antidote to the disruption of outsourcing.

He won't talk about the timing of any move into America. For now, he still has plenty of spots to fill in Third World call centers. An NIIT grad earns about $10,000 a year, while in the United States, a similarly trained programmer makes $65,000. There are plenty of NIIT students to fill those lower-paying jobs. Naveen Panthary, 22, comes from a small, dusty Indian town called Sagar. He is one of four children of a cop whose salary topped out at about $2,000 a year. Panthary couldn't find a job when he graduated from high school, but he made his way to New Delhi and enrolled in a GNIIT program. Four years later he is a trainee at an electric company, making $120 a month, and he expects to make much more--maybe $800 a month--when he moves into a full-time job. That might not sound like much, but in a country where monthly per capita income is $40, it's real money. "I've got a future now," Panthary says. "That's what NIIT has meant to me."

Om Malik (omalik@business2.com) is a senior writer at Business 2.0.