‘Eikaiwa’ firms face Nova fallout


Too big, too fast, and with too little quality — that’s the consensus view of many industry analysts on former language-school market leader Nova Corp., whose collapse left over 420,000 students and 4,000 non-Japanese instructors without an “eikaiwa” home.

The Nova affair has already hurt many people: Hundreds of instructors have had to leave Japan and many of those who stayed are struggling to get by — the National Union of General Workers has even set up a “meals for English lessons” deal to help teachers and students. Meanwhile, customers who paid up-front fees to Nova are struggling to regain some of their substantial losses.

After Nova filed for bankruptcy with some ¥43.9 billion in debt, preparatory school operator G.communication took over some of its schools and rehired less than half of Nova’s former employees.

According to industry observers, shock waves from the crash are likely to be felt across the whole industry — which employs a sizable percentage of Japan’s expat community — and beyond.

“Nova was a fairly large interface for foreigners to come here and work,” said Tokyo-based business consultant and journalist Ken Worsley. “Japan was certainly one of the most appealing places until a couple of years ago, and even until this Nova incident I don’t think if you went around the Internet and looked at forums that you would have found people saying it was risky to take a job and go over to Japan.”

“It hurts Japan in a way that no one, certainly the government, anticipated.”

A declining supply of teachers is likely to mean lower wages and poorer work conditions for teachers in Japan, Worsley reckons.

“Given the trend toward negative salary growth in the general economy over the past decade, I don’t think there is much hope for wages at ‘eikaiwa’ (English conversation schools) to go up.”

Combine this with the relatively weak yen, at least compared to the bubble era when many viewed Japan as a plum destination, and the country’s attractiveness as an employment location dips markedly.

Osaka General Union’s Dennis Tesolat believes as a result smaller “eikaiwa” will suffer staff shortages when the effects kick in early next year, “especially (for) the smaller ones, which relied on Nova to bring over its employees.”

In the long run, however, Tesolat is hopeful that the Nova affair will lead to better hiring practices and work conditions.

“Because the supply will go down it is actually going to force schools to attract better people. They are going to have to focus on improving quality because of the lack of supply.”

In fact, product quality is one area that nearly all analysts agree has been lacking. Simul Academy’s David Yenches believes Nova’s decline is indicative of declining standards in the conversation-school industry.

“It’s another step in the race toward the bottom,” he said.

Both Worsley and Tesolat contend that the expansion rush came at the expense of quality and has contributed to driving the industry into its current downturn. After the market peaked in 2003 with combined sales of ¥375 billion, sales shrank to ¥346 billion in sales in 2006. That figure is expected to drop by a further 4.7 percent to ¥330 billion by the end of March, according to Yano Research.

In particular, a lack of teacher training is one area schools have neglected, said Tesolat. As a result, “there’s no motivation on the teacher’s part, unless they are thinking of being here for a long time. Companies that offer two weeks of training brag about it!”

The impact of the Nova implosion should not be underestimated, he warned. Tesolat claims he has told the industry associations, which represent companies like Geos, ECC and Aeon, “You actually can’t sit back and watch it happen because the impact it is going to have on you is tremendous.”

Worsley is also concerned about the possible effect of the Nova collapse on English teaching standards in the regular school system.

“You keep hearing about needing to make the effort at elementary schools and high schools and that is where it is really going to hurt, because you’re not going to get people staying for longer than a few years and actually developing into teachers who can fully function with regards to the needs of Japanese students,” Worsley explained. “When you don’t have health (insurance) and any benefits, you’re never going to keep any long-term teachers.

“That makes me think that the government is kind of only paying lip service to the idea of English language education. If they were concerned they would be doing something now to make up for the inaction of the ’70s and ’80s.

“Instead, the education minister under (former Prime Minister Shinzo) Abe asserted that English just isn’t necessary at the elementary level. The government has no clear policy on how to develop skills necessary for the next stage of economic growth and global integration,” Worsley added.

On the positive side, for corporate training firms and other niche companies the forecasted impact seems to have been rather benign, if not positive. Simul’s Yenches says the impact on his company has been limited.

“We have only interviewed two former Nova teachers here since the crash,” he said. “As for students, there has not been any great rush either, as the business-to-business market remains strong.

“Over 90 percent of our students are company- or institution-sponsored.”

Yet for the “eikaiwa,” where most foreign instructors work, the picture looks gloomy in the short term.

“Industry-wide, the foreign language education sector’s image has dropped,” lamented Geos spokesperson Susumu Ikegami. “We have several students asking if Geos is OK.”

About 800 former Nova students have taken up Geos courses since the company’s failure, said Ikegami. While this is encouraging for the company, it is only a fraction of the huge number of disgruntled ex-Nova students.

Another large “eikaiwa” chain, Gaba, said its net profit for the business year to December is expected to plunge 53 percent to ¥387 million. Since launching their IPO in September 2006, the firm has lost over 50 percent of its share value.

Gaba’s managing executive officer of marketing, however, remains positive.

“I think the eagerness of Japanese people to learn English will continue despite this Nova incident” said Kazuko Nakada. “But I think consumers will be more selective about the school and lesson quality that they can provide. Gaba is receiving many calls about our services from students who want to continue studying. Because of this Nova incident a lot of people want to know about the services and payment system before they join.”

ECC’s Naoki Yoshiba also maintained a positive view on the market.

“The market for foreign language instruction remains strong,” Yoshiba wrote by e-mail. “Though there may be some fallout from the collapse of Nova, the fact remains that many Japanese want or need to learn foreign languages. We hope that those students who were previously enrolled in classes with Nova do not lose their enthusiasm for learning.”

Benesse Corporation, which operates the Berlitz Language School chain, has also had a mediocre year. After suffering a drop in share price of almost 30 percent in early May, they have rebounded to be slightly down for the year.

However, when fallout from the Nova bombshell clears, the industry should rebound considering there are literally millions of Japanese who want to learn the language, reckons ECC’s Yoshiba.

“It is true that Nova was an important competitor in the ‘eikaiwa’ industry,” said Yoshiba. “However, we must assume that the market will remain as competitive as it has been in the last few years.”

However, with a drop in sales predicted to push wages down and a perceived lack of employment security in the “eikaiwa” business, it is unclear whether this rebound will lead to better conditions industry-wide. Indeed, from a general teachers’ and students’ perspective the damage might have already been done. The Nova hit to English language education in Japan might not be a knockout blow, but it certainly has some industry figures patching wounds in their respective corners.

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