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Eikaiwa on the ropes after fall of Geos

School's bankruptcy another nail in coffin of the 'Nova model'

RICHARD SMART
Special to The Japan Times

A chain of English conversation schools is closed down. Thousands of employees are left worrying whether they will get paid or keep their jobs. Students are told refunds will not be given on advance payments for lessons. G.communication steps in to pick up the pieces.

The Geos bankruptcy on April 20 had much in common with the implosion of Nova in 2007. Then as now, foreign and Japanese staff working for an eikaiwa company face an uncertain future as G.communication gets to work restructuring a broken business.

It’s a situation Ken Worsley of the Japan Economy News Web site sees as a sign of the times in Japan.

“Asymmetry in supply and demand (help explain the bankruptcy),” says Worsley. “The number of new students registering at conversation schools has declined in five of the past six years, and fell by 35.7 percent last year. At the same time, revenue at such schools has fallen by somewhere around 40 percent in the past four years.”

“The demand for these services is shrinking due to a number of factors, including economic conditions, public perception of the industry . . . stricter consumer protection laws, the decreasing effectiveness of relying on sales of large contracts as a business model, and others,” he adds.

One difference, however, between the collapse of Nova and Geos is the time at which G.communication stepped in. The sale of the bare bones of Nova came after weeks of chaos in the wake of the announcement that Japan’s biggest eikaiwa chain had gone bust, but an internal memo obtained by The Japan Times shows that an agreement was reached for G.communication to buy the rump of Geos’ operations on April 16, four days before bankruptcy proceedings began.

“A written agreement was concluded on April 16, 2010 between our company and G. Education Ltd., whose parent company is G. Communications (sic),” the memo, written by administrative trustee Nobuyuki Kobayashi, reads. The agreement, approved by Tokyo District High Court, has left a bitter taste in the mouths of some former Geos staff, with many opting to quit rather than continue under the new G.communication contract.

Adam Richards, a 28-year-old translator and writer on Japan at the Web site and travelogue Mutant Frog, argues that the G.communication takeover has in some ways made the best of a bad situation.

“Geos seems to have done relatively well by students and teachers by finding a backer before announcing the bankruptcy,” he says. “That said, Nova’s messy bankruptcy was such a nightmare Geos can’t help but look better by comparison.”

After the bankruptcy, confusion among staff ensued.

“At this point, the GCI has been completely decimated,” Junichiro Kase of GCI, Geos’ corporate arm, wrote to teachers in an e-mail leaked to The Japan Times. “Our clients are outraged and our teachers left on standby.”

In another mail, a member of the Geos human resources team wrote: “All of us in our division were dismissed. . . . At this moment, we don’t know who will take over these positions (in HR), but someone in G.education or someone from our division will continue (to manage teachers’ schedules).”

The worker also said that in the initial days of administration, no HR employees were allowed to talk to staff or access their offices without special permission.

For teachers, the situation was equally grim: The Kobayashi memo explained that employees’ wages for hours already worked were not guaranteed to be paid, and that all staff were dismissed as of April 21. While some of those teachers now work for the reopened company under G.communication, 99 schools — employing 483 people — were closed down by Geos.

“The company said it was proud to have me working there, as an example of just how much students could achieve through study,” says Ricardo Paes, a fluent English-speaking Geos teacher from Portugal. “That didn’t change the way I was treated during the bankruptcy, though.”

At an April 20 meeting, most Geos teachers were told to keep up the hard work, but the next day the bankruptcy was announced and another meeting was scheduled for the afternoon. Tuan Hong, 29, a British teacher who has worked for Geos in Tokyo since February 2007, described the atmosphere as “passive.”

“We were in their hands, they were our new employers. Before the meeting people were very angry, but once they got there people were subdued. After it ended, most of the foreigners were confused, because the vast majority (of the meeting) was conducted in Japanese, with only five minutes of English,” Hong said.

That confusion was shared by Paes, who teaches in Tokushima Prefecture.

“In the days after the bankruptcy, we have been kept in the dark, we were stalled, and that seems to have been to keep control,” he says. Despite this, he opted to sign the new three-month contract with G.communication. Hong did not.

“After the meeting with the new company, I felt the terms G.communication was offering were very vague,” Hong says. “It felt like too big a risk to stay with them.”

Filling just one side of A4 paper, the brevity of the new contracts has fueled some employees’ fears about the job security offered by their prospective new employer. For instance, point 4, article 5 of contracts seen by The Japan Times reads: “The instructor will be discharged (if they have an) unsatisfactory work attitude/achievement.” No definition is given of what G.communication considers to be “unsatisfactory.” The contracts run until July 31, or the expiry date of an employee’s work visa if that comes sooner.

Two weeks on, with contracts — however vague — signed, for those who have chosen to stay it seems the initial confusion has dissipated. The fallout from the bankruptcy bombshell, however, remains: uncertainty, distrust, a feeling of helplessness.

“We are being disregarded and the students’ interests are not being listened to at all,” says Paes. “This seems like a period where they are checking whether they can make a profit, and whether the teachers suit their interests.”

The remaining eikaiwa chains, meanwhile, far from basking in schadenfreude, are busy bracing for a possible repeat of the “Nova effect.”

“Every time something like this happens it just gives students and potential students a worse image of eikaiwa as a whole,” said a senior figure from a major eikaiwa school chain. “Every time something like this happens customers lose a bit more trust, and a conversation is started about the behavior of teachers. It is not helpful.”

While the industry is in rapid decline, Japan as a whole has seen conditions in its service sector worsen in recent years. The latest statistics released by the Cabinet Office show that, when compared to average levels in 2005, there was 3.2 percent less activity in Japan’s tertiary sector in February. In February 2008, activity was 6 percent higher than 2005 levels.

Wages are also in decline. Basic earnings for the average worker in Japan stood at ¥245,503 in March, according to statistics released Friday by the government. It was the 20th consecutive month that earnings had dropped.

Less money means less disposable income, something that has had a dramatic effect on the conversation school industry, which relies heavily on those studying English as a hobby rather than out of necessity. That helps in part to explain the dramatic decline in eikaiwa revenue, which stood at ¥17.2 billion in February 2006, more than three times the figure for the same month this year, ¥5.7 billion.

Some, however, argue that the management and sales methods at some of the major chain schools are in large part to blame for the industry’s reversal of fortune.

“There are two massive problems with eikaiwa policies: tie-ins (which commit students to staying at the same school for long lengths of time) and a complete lack of pricing transparency,” says 39-year-old Patrick Sheriff, the founder of Tower English, a conversation school in Abiko, Chiba Prefecture. “It’s ironic because they demand long-term commitment from their customers but, as many of our students have told us, they can’t keep hold of their native English teachers.”

“If you want to learn a language, would you be happy to pay for a year’s tuition based on one trial lesson at a company that may go bankrupt? I wouldn’t, and neither would our students,” Sheriff adds.

Japan Economy News’ Worsley agrees that the eikaiwa schools need to change to survive.

“The industry itself will continue to shrink as does the population and number of younger people in Japan. In order to avoid disappearing, language school operators are going to have to embrace new technologies, diversify their products and services, and appeal to new market segments,” he says.

This, argues Richards of Mutant Frog, is likely to lead to worse conditions for newcomers to Japan.

“It really looks like the era of easy employment is over, though it seems like there are still opportunities out there,” he says.

Despite criticisms leveled at G.communication on popular Web sites such as Let’s Japan of disorganization and putting profit before quality and teachers rights, the demand for lessons remains, and the teachers The Japan Times spoke to about current conditions at Nova were generally satisfied.

“The bankruptcy shook off a lot of the frat boys and the people just out of college looking to have fun for a year,” said one teacher, who spoke on condition of anonymity, fearing a reprimand. “The teaching at Nova has much improved because the staff that have remained tend to have a longer-term investment in this country.

“My salary is as good as it has ever been. In the days of Nova, there were too many people collecting high salaries but doing very little. It seemed that departments in the company such as HR were very bloated,” he added.

Among those who opted not to move from Geos to G.communication during this unstable period, however, there is a feeling that their plight has not been taken as seriously as the travails of “Nova refugees” were a few years earlier.

“When Nova came down, it was a huge story, it seemed to be big in Japan and internationally,” says Hong. “I remember embassies and other organizations offering help to those that lost their jobs. Geos has been a strange situation; nobody knows where they stand. Some people are in the same situation as the Nova teachers were, but they aren’t receiving the same help.”

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