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Four years after ‘Nova shock,’ eikaiwa is down but not out

by Patrick Budmar

Ask any ordinary person what significance Oct. 26 holds and you might find them struggling for an answer, but for many involved in Japan’s beleaguered English teaching industry, it was the day the nation’s premier operator fell into administration and took much of the rest of the industry with it.

This year, Nova marked its fourth anniversary of operation following restructuring, and while Louis Carlet, executive president of Zenkoku Ippan Tokyo General Union (Tozen), admits it has been a long time since the collapse, he feels that the English conversation school (eikaiwa) industry as a whole “continues to convulse.”

Carlet is no stranger to the Nova saga, having been a spectator to it from the start of the chain’s public troubles in early 2007 and the eventual bankruptcy to Nova’s restructuring by Nagoya-based holding company G.Communication in the following years.

Although the media at the time asked Carlet for his thoughts on a seemingly daily basis, he admits it was difficult to get a historical perspective on what impact Nova’s collapse would have on the industry.

“One thing I did say during several press conferences was that the business model of profits over people does not work in the long run,” he says.

Once the Ministry of Economy, Trade and Industry became involved in investigating Nova’s business in 2007, the eikaiwa chain seemingly went from a fully operating business to bankruptcy within months.

Shawn Thir owns and operates LetsJapan.org, a website that acts as a community for English instructors in Japan, so he has seen his fair share of ups and downs in the industry, though the implosion of Nova four years ago still caught him by surprise.

“Nova was the largest English conversation school, and I certainly had no idea that it would collapse so quickly,” Thir recalls.

The root of Nova’s financial problems in 2007 could be traced to the long lesson contracts the company sold to students. When word got out that Nova could not pay wages, students rushed to undo their contracts, and very few students were prepared to purchase new contracts under such circumstances.

Thir admits that if someone had been closely following the company, the signs of things to come were all there to see, such as a shady refund policy, lawsuits, unsustainably rapid expansion, and not enough teachers.

“With the flood of students demanding their money back, it became clear that Nova operated on a ‘bicycle business model,’ ” Thir says. “Everything is fine as long as you keep pedaling and taking in money, but once you stop you quickly fall over.”

During the course of Nova’s downward spiral, the atmosphere at branches took a slightly unusual turn as Nova management, or more specifically then President Nozomu Sahashi, tried to allay instructors’ concerns about delayed payments through bizarrely worded faxes, which instead seemed to have the opposite effect.

Thinking back to those faxes, often referred to as “Jesus memos” for the spiritual metaphors and starry-eyed rhetoric Sahashi utilized, Carlet describes them as “creepy” and says they gave employees the feeling Sahashi “was losing it,” which only further lowered the confidence of everyone involved.

Thir also found the faxes to be “laughable and not worth the fax paper they were printed on,” adding that vague promises do not mean anything when someone has bills to pay.

Nova finally collapsed under the weight of its debt on Oct. 26, 2007, though while many knew it was coming, Carlet admits he was surprised to hear that the Nova board had conducted a coup d’etat by holding an emergency meeting without Sahashi in order to fire him and immediately apply for court protection from creditors.

Immediately after, the National General Workers Union (NGWU) found itself thrust into the difficult position of providing support and advice to Nova’s entire foreign workforce, in addition to dealing with a surge in membership in the hundreds.

The labor group managed to organize the instructors into rallies and visits to the Labor Standards Office, as well as holding seminars to explain the complicated system behind the government’s guarantee that 80 percent of unpaid wages would be repaid in the event of bankruptcy and how to apply for unemployment benefits.

“We did a public relations campaign to make sure everyone in Japan knew how bad it was for unpaid teachers, some of whom had trouble getting food,” explains Carlet, who was then deputy secretary general of NGWU’s Tokyo Nambu branch.

The NGWU attempted to assist instructors in this predicament with a highly publicized “Lesson for Food” program, where private students would compensate an instructor for an impromptu language lesson with a meal instead of the normal tuition fee.

While the union’s intentions behind the initiative were noble, Carlet admits in hindsight that it had the “unintended consequence of lowering the private lesson market rate.”

By the end of 2007, Nova had found a sponsor in G.Communication, which made one of several unusual business moves by attempting to revive the business while retaining the tarnished Nova name.

“I must admit that I was surprised at that decision, because I didn’t think the Nova brand had any value anymore given the scale of the collapse,” Thir says. “I’m still amazed that G.communication still uses the Nova brand.”

In spite of the odds, Nova has restructured and continues operation to this day, although Carlet attributes this feat to “nothing but momentum.”

Thir, on the other hand, feels that Nova has succeeded in that “they got small,” as the chain is now a fraction of the size it was in its heyday.

“In taking over Nova, and then later Geos, G.communication essentially bought itself a captive student audience and then went about shutting down a lot of schools,” Thir says.

One senior instructor in western Japan, who chose to remain anonymous for this story, has worked continuously with Nova since 2000, both under the old regime and after its restructuring, and witnessed the scaling down of Nova firsthand.

“The old Nova had a hierarchy of supervisors who conducted training and evaluations, called titled instructors, and gave day-to-day feedback on teaching performance,” he explains. “They did not always do the job very well, but as G.education hired so few people, there hardly ever seem to be any lesson observations anymore.”

The instructor describes the current Nova management as “extremely poor,” and while it was not especially good at the old Nova, he feels that the people running the branches now are “much worse.”

“There needs to be a proper system for training and supervising teachers, and while the various companies running Nova want the teachers to get more involved in sales, they have no good ideas about what they want the teachers to do,” he says.

Nova was invited to respond to teachers’ concerns, but the company declined to comment.

Another senior instructor in eastern Japan, who has also been with Nova since before the bankruptcy and declined to be identified, admits that the new Nova is significantly more cost-conscious than under the previous regime, which he feels might be “holding the business back.”

He says the day-to-day work has changed very little, with the books and teaching methodology remaining the same, though an intranet-based record keeping system introduced in 2009 has replaced the old paper file system and modernized that aspect of the business.

“There’s also much more interaction with the Japanese management now compared with old Nova, which can be good or bad depending on the personalities involved,” he says.

The instructor adds that he has seen the level of professionalism and the quality of teaching improve in the last few years, with the bankruptcy having weeded out a lot of backpackers and short-termers whose teaching skills were of questionable quality.

“A lot of instructors with old Nova were fresh out of university and here for a year of fun and frolics before going back to their home countries to start a ‘proper’ career,” he says. “Most of these scurried off after the bankruptcy, so the majority of those remaining are those with a longer-term investment in the country such as family or property.”

While Nova has managed to pull off the massive feat of restructuring, it is clear that the eikaiwa industry has suffered significant contraction following the collapse, with competing language chain Geos going bankrupt in the middle of 2010.

“The economy is bad and young people’s employment is so unstable that most people have little extra time or money to spend learning a foreign language,” Carlet explains.

Thir also feels that the “overt thievery” of Nova and Geos has put a lot of people off eikaiwa, and the nature of the job itself has changed as well.

“It used to be that you worked full-time for ¥250,000 a month and that was enough to make decent living on,” he says. “Now, there’s much more part-time work and the pay is not good to begin with.”

Looking to the future, Carlet does not foresee things improving drastically for the eikaiwa industry as a whole, but sees some opportunity for smaller operations.

“To recover, the eikaiwa industry would have to overhaul its business model and take language learning seriously as an educational exercise, treat teachers as long-time careerists and, ultimately, charge more,” he says.

Thir still expects there to be a strong demand to learn English in Japan and that eikaiwa will at least continue operating on some form of plateau, though with Japan’s economy being moribund for decades, he feels it is difficult to say whether eikaiwa has bottomed out or not.

“Rather than improve eikaiwa, I’ve always wondered if teaching English could be done better in the public schools,” he says. “English has been introduced in elementary schools, and I wonder that if it was taught well, the demand for eikaiwa would fall.”

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