Let's Japan.org Debunking Eikaiwa and Ramblings in Japan

Terrie Lloyd's column in Japan Today is supposed to be a look at the state of eikaiwa in Japan, but it's a poor effort stuffed with meaningless business-speak. Teaching English has been on a downward slide ever since Japan's asset bubble burst. The collapse of NOVA only served to make things worse. Let's take a look at the column.

Last week, the ex-president of Nova Corporation, once Japan's largest English school chain, was in court to answer charges of embezzlement prior to the failure of his company. According to the prosecutors, Nozomu Sahashi diverted about 320 million yen ($3.3 million) from Nova to pay student fee reimbursements of a related company.

Quibble: the trial began on June 1st and is slated to end on July 3rd. The way this is written, it sounds as if the trial started last week.

To be honest, I'm surprised that this is the worst thing the prosecutors could come up with, because moving money between companies is common practice for conglomerates, especially if related firms are in trouble. Indeed, it's as simple, and legal, as making an inter-company loan. Maybe he didn't do the paperwork and so there is a case to answer for, but I'd be surprised if it will amount to prison time.

I think a lot of people are surprised that Sahashi was arrested for embezzlement given his shady stock dealings and the autocratic way in which he ran NOVA. Sahashi may not spend much time inside a jail cell, but he is ruined. After this trial is over, he will have to face the civil suits against him.

That said, referring to embezzlement as a paperwork error is a glib dismissal of the crime. Companies can, of course, move money around, but this ignores the relationship of Sahashi to the money. He ruled owned NOVA and pulled all of its strings. He also held ownership in NOVA Kikaku, which was run by a relative. Nova quickly ran out of cash after METI sanctioned the company and had nothing in its coffers to pay employee salaries and reimburse the torrent of canceled lesson contracts. Moreover, the money Sahashi took belonged to an employee welfare fund, and he raided the fund after colluding with a manager without bothering to consult with his board or the staff. It's difficult to say how his actions constitute a loan especially when the money was not his to use in the first place. What he did was rob Peter to pay Paul. It was no clerical error.

What's interesting is that if you look at the companies remaining in the market since Nova imploded, none of the majors seem to been able to step in and steal significant market share. Indeed, by my estimates, the five largest schools between them probably don't teach more than 500,000 students and thus I can see that the industry is highly fragmented. This is quite unusual in Japan, where normally there is one massive incumbent taking a 70%-80% market share, then leaving mere scraps for everyone else.

This fact tells me that no one so far, including Nova earlier, has figured out how to systemize the English-teaching business, and that there are lots of students who appear to be happy studying in smaller schools. Perhaps the human element of local teachers you know and trust is still very important. Or perhaps it means that Japanese business owners and managers haven't figured out yet how to extract the best business growth and financial results from their foreign teacher employee base.

I'm sorry, but "none of the majors seem to been able?" Moving on, "there are lots of students who appear to be happy studying in smaller schools" is almost laugh-out-loud funny. People are happy studying at smaller schools? Impossible! And what does it mean to "extract the best business growth and financial results from their foreign teacher employee base?" Why does English teaching have to be systemized and run by a large company, anyway? The collapse of NOVA is like the asteroid that killed the dinosaurs. The little schools are picking up the crumbs of NOVA and thriving. There's nothing wrong with this. There is something to be said about learning English at smaller, more personal schools--they generally pay better attention to their customers.

For example, right now the marketing focus of most schools is on cheaper lessons and variations of private lessons and smaller classes. This is all well and good, but smaller classes are not cheap to do, so using simple Psych 101 theory, it would follow that popular teachers should be trying to convince their students that better quality learning means more one-on-one teacher time, and thus higher fees. I appreciate that many teachers may not see themselves as salespeople out to extract more value from their students. However, if some enterprising CEO could come up with a strategy that allowed popular teachers to overcome this reluctance, then with the right in-house training and incentives, that school could be pulling in much better margins and therefore grow more quickly.

More business gobbledygook. How do you extract more value from students? Sell them more lessons with a slick PowerPoint presentation? Pick their pockets? The bit about getting teachers to be salesmen is nothing more than a rehash of the way GEOS and AEON already do business. Here's where the analysis falls flat. It focuses too much on the financial viability of schools while ignoring the elephant in the room--that the large eikaiwas are, on the whole, poorly managed and terrible places to work. They are set up to reap maximum profit, not educate.

The problem with eikaiwa goes beyond money and trying to find the right strategy, and has everything to do with delivering quality. Sadly, the large schools aren't interested in this. Instead, they treat instructors as unskilled labour. Instructors work for low pay, generally have no healthcare plan, have little opportunity for professional development, have few benefits, and have even less job security, but are expected to look and sound professional at all times. It's all about making a buck off selling time with English-speaking foreigners.

Using Berlitz and GABA as being representative of the entire industry is too simplistic. The author himself even says that the English teaching market is extremely fragmented, so looking at Berlitz's and GABA's numbers tell us about the health of the respective companies and nothing about the industry as a whole. By this metric, had Mr. Lloyd been writing about eikaiwa when NOVA was at its peak, he might have praised NOVA as a paragon of business for its high revenue stream, venture into videophones, slick advertising, and aggressive expansion policy. The numbers tell us that the schools are not very healthy, but we also need to consider what is happening on the ground.

Berlitz could have the best teaching methodologies in Japan, but the fact that they are suing some of their teachers for trying to unionize exercising their right to strike and are stalling for time suggests that they don't care about them. GABA is equally dodgy. It is more of a middleman than school, and as a result, it's "partners" work at "studios" for no guaranteed salary, no paid holidays, or any other benefits.

The pressure sales tactics used by the schools to vacuum as much money out of students' pockets, the poorly trained instructors working in even poorer conditions, and the mistrust of the whole operation by students combine for a perfect storm that David McNeil describes as an industry rigged for implosion. It's no wonder the industry is in decline because it is completely lacking in credibility.

How about this for a radical idea? Make eikaiwa about education. Set standards. Have strict curriculums. Hire instructors with qualifications and treat them with respect, and pay them a decent salary. This may be a pipe dream, but it makes a lot more sense than "pulling in much better margins," or trying to "extract value" from students. The large eikaiwas might be surprised to learn that delivering a quality product leads to financial success.