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

J-Cast News takes a look at what brought about GEOS's bankruptcy and what's in store next. Here's a summary.

As is already known, G.communication will take over 70%, or 230 schools, of GEOS and close the remaining 99 schools.

In explaining how business went from bad to worse, GEOS executive Hitomi Suhara said that the collapse of Lehman Brothers (and the ensuing recession) resulted in fewer students. She said that GEOS was trying to cut 1.2 billion yen in costs (roughly $12.8 million USD) but was unable to do so due to the drop in revenue. A GEOS lawyer also said that the company had negotiated with its banks to extend loan repayments, but fewer students meant GEOS couldn't carry out its restructuring plans, and the company eventually ran out of money.

METI statistics show the drop in student numbers to be drastic. In February 2007, there were approximately 750 thousand students taking foreign language lessons. By 2008, the number was halved to 360 thousand. One factor in the decline is the kyuufukukin allowance to help people find work. It paid 40% of tuition fees up to 200 thousand yen. In October 2007, the allowance was cut to 20% or a maximum of 100 thousand yen. Then came the collapse of Lehman Brothers which forced many households to cut education expenses from their budgets.

From the ashes of the collapse of large eikaiwas smaller schools have emerged offering cheap lessons at around 8,000 yen a month. There are also Internet-based classes which are yet cheaper. While the large schools couldn't withstand the deflationary pressures on them, smaller schools are bound to take their place as the language market retructures.

There is the infighting at GEOS to consider. Management was split as to whether to file for bankruptcy, and ex-president Kusunoki has been adamant that the bankruptcy wasn't necessary to the point that he's trying to stop the bankruptcy and get his company back.

Whatever the problems within GEOS, they must have started long ago as the company went from accepting large, up front tuition payments to bankruptcy in the span of a couple of months. As the bankruptcy proceeds, it'll be interesting to see if what happened behind the scenes comes to light.

Comment: The first thing that came to mind was that J-Cast was equating the large schools to the dinosaurs. It's an apt comparison as the collapse of Nova and Lehman Brothers can be seen as extinction events that changed everything. There are new rules in play and the model of large schools charging everything up front is going the way of the dinosaur, making space for the small, furry schools to thrive.

Down but not out, ex-GEOS president Tsuneo Kusunoki has launched an immediate appeal against the bankruptcy procedures.

According to the Sankei shimbun, Kusunoki claims that there was no need to file for bankruptcy and that it amounted to an abuse of authority as the board was not unanimous in its decision.

You will recall that at the press conference on the 21st, a GEOS lawyer explained that the procedure was entirely legal. Kusunoki challenges this assertion claiming that the court allowed the bankruptcy to proceed without asking any questions and that this is a violation of the constitution which protects against such perfunctory procedures.

Comment: Get out the popcorn! Kusunoki's appeal is called 即時抗告（そくじこうこく sokujikoukoku) in Japanese. From what I can glean about it from the Supreme Court website, this appeal is filed within 2 weeks of the initial ruling when the defendant disagrees with the ruling. I don't know what this kind of appeal would be called in the West. Clearly, Kusunoki would like his company back.

When G.communication scooped up GEOS I wondered how much blood they could squeeze from the GEOS stone. Apparently, they think quite a bit. It seems G.communication has gone on a media blitz this week with President Hideo Sugimoto giving interviews in the Yomiuri shiumbun, Mainichi shimbun, Sankei shimbun, and The Japan Times. The purpose of this interview was to stress that everything is under control and it's business as usual:

Sugimoto also stressed that the chaos at the time of the failure of Nova Corp., another major language school chain, will not be repeated because of his company's speedy rescue of Geos. G.communication took over operations of some Nova schools in November 2007.

"People may be worried because of the experience with Nova. In Nova's case, we took over some of their schools awhile after the company went bankrupt and we had to start in a situation where more than 1,000 teachers didn't have places to work," Sugimoto said.

"This time, we raised our hand (to rescue Geos) at an early time," he said. "If it was a week later, it would have been more chaotic."

The Japanese dailies, however, took a different angle and focused on G.communication having the Nova and GEOS brands. Sugimoto believes that the brands offer a choice to students and that there's value in GEOS' use of Japanese teachers, which he thinks will help attract beginners.

As the Japan Times story notes, although the foreign language market has drastically shrunk from 826,858 students in 2006 to 335,604 in February this year, Sugimoto aims to return GEOS to profitability within a year. It remains to be seen whether G.communication can pull this off, but it has a history of buying up failed or failing businesses on the cheap and turning them around. Unfortunately, that profitability will come in the form of cost-cutting measures which will likely be borne by instructors when they sign on to new working conditions once their three-month contracts are up. In the meantime, G.communication has quietly established itself as one of the major eikaiwas in Japan.

Debito has it:

With the absolutely regrettable news of the bankruptcy of Geos Corp, I must tell you that your salaries for the time period between 2010, March 16th to 2010. April 21st Will NOT be paid to you. There isn’t any cash left. We will work on a way for you all to collect some of your money back through the government. We are still unsure of the procedures to do this.

G-Education has offered to take over the Geos Corporate sales Division and resume all corporate class operations from the May 6th 2010. However it will be under the new payroll system as follows:

• All previously negotiated hourly/rates between the GCI and part-time teachers will remain in effect.
• New Payment period will be as follows: For work done between 5/1 and 5/31+ transportation expenses will be paid on 6/21. For work done between 6/1 and 6/30+ transportation expenses will be paid on 7/20. etc.
• Paydays will now be on the 20th of the month or previous business day should the 20th of the month fall on Nat. Holiday or weekend.

Read the rest...

Uh-oh. No pay. This will not end well.

Don't worry, the collapse of GEOS Australia has no effect on operations in Japan.

In response to its customers not getting enough information about their lessons in the aftermath of GEOS' bankruptcy, GEOS has posted a brief FAQ [PDF] dated April 24 in an attempt to explain things. Here's a quick summary.

Will I still be able to take lessons?

Yes, but they will be provided by G.education. Students affected by school closures will be able to take lessons at a Nova school nearest you, but note that under Nova's system, you may be subject to extra fees. If your school is not on the list of schools to be closed, you can continue taking your lessons as usual at no extra charge.

What do I have to do in order to take lessons at g.education?

Fill out and submit the paperwork at any GEOS school (not slated for closure). If you intend on studying at g.education, g.education will ask that you sign a waiver regarding refunds. We understand that individuals who decide not to continue taking lessons may find it unfair that those who continue may receive refunds (see the following question for more details).

What happens to the lesson fees that I haven't used yet? Can I get a refund if I don't want to continue taking lessons?

If you do not intend to continue taking lessons at g.education, you will have to fill out a claim for a refund, but at this point in time it is unclear whether refunds will be forthcoming or not. Individuals who do not intend to continue taking lessons at g.education do have a claim to refunds for the unused portion of lesson fees already paid. However, as GEOS has started the bankruptcy process, it is not clear whether refunds will be forthcoming or if they are, when they will be available.

I want to know which schools will stay open and which will be closed.

• A list of schools that will remain open can be found here [PDF].
• A list of schools that will be closed can be found here [PDF].

When will lessons re-start?

You will be able to take lessons from Friday, April 24. Please see this file [PDF] to check if there are any changes at your school.

For a company that sells English lessons under the pretense that it will allow you to communicate with the world, G.communication has been very poor at communicating with its staff and customers. The Asahi shimbun reported yesterday that although g.communications set up a toll-free number for students to call, people are finding that it's almost impossible to get through.

In the immediate confusion of the bankruptcy, students have been trying to call the number in order to get some information about their lessons and contracts. METI and the Consumer Affairs Agency have learned that due to the lack of circuits for the phone number, students have been unable to get through. METI has since ordered G.communication to fix the problem.

Meanwhile the Consumer Affairs Agency has been collecting reports from consumer affairs centers across the nation and found that consultations about GEOS have largely been about inquiries about unused tuition fees and getting refunds, despite the fact that students can continue taking lessons at the nearest GEOS/G.communication school.

Also, G.communication, it seems, has been engaging in a little thievery of its own by apparently been having GEOS students sign away their rights to a refund (返還請求権放棄書) as a pre-condition for continuing their studies. In other words, GEOS/G.communication would prefer that students keep studying at the nearest GEOS/Nova schools and use up their lessons instead of asking for a refund.

Comment: I don't even know where to begin with the antics GEOS is pulling. The bankruptcy hasn't been a huge deal in the news like Nova's collapse was since refunds and being unable to book lessons haven't been the problem until now. Although G.communication has said GEOS students can keep on studying as usual, its failure to adequately inform its customers and GEOS engaging in some really slimy practices (isn't trying to have your customers sign away their rights to a refund outright fraud?) stand to make a bad situation into an ugly one, especially if getting a refund becomes a problem.

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Edit: Corrected fourth paragraph to reflect fact G.com, not GEOS, is asking students to sign a waiver.

Edit 4/26: I retract my comments about the waiver being fraudulent. It's not (see post entry above for FAQ that clarifies what g.education is doing). It's my fault for not reading more carefully. G.education has said that students do have a claim to a refund for the unused portion of lesson fees, but it's not clear how long the bankruptcy proceedings will take or if any money will be forthcoming.

As I wrote previously, Oh to have been a fly on the wall at GEOS. You already know the obituary:

The failure of major language-school operator Geos Corp. occurred because the company didn't trim unprofitable branches fast enough at a time when the industry was facing a drastic drop in students, people in the industry said.

Although the bankruptcy of industry leader Nova Corp. in October 2007 damaged the image of the commercial language school industry, the impact this time is likely to be contained somewhat by the swift response of G.communication Co., another language chain that has offered to take over about two-thirds of Geos' branches.

"I think the biggest factor was the decline in students," said Masami Sakurabayashi, director of the Japan Association for the Promotion of Foreign Language Education, a Tokyo-based organization that promotes sound management of foreign-language schools. Geos, the second major language school to fail in the past three years, is not a member of the group.

And you know that the executives filed for bankruptcy because the board members couldn't agree on whether to keep GEOS alive or not. Now there's this:

The decision to file for bankruptcy was not his, the president of language-school chain Geos Corp., Tsuneo Kusunoki, implied in an unusual statement released Thursday.

"The company's board of directors did not reach a consensus on filing for bankruptcy, and the action was taken by one director and some employees," Kusunoki said in the statement. "Although it has given the impression that the company filed for bankruptcy, it is actually not the company's will."

And this:

The founder and president of Geos Corp said Thursday he will ask the Tokyo District Court to avert bankruptcy proceedings for the major language school operator.

Tsuneo Kusunoki expressed his intention a day after Geos filed for such proceedings with the court, which ordered the protection of the company’s assets from creditors. ‘‘A company has come forward to extend financial support to Geos, so it does not have to go bankrupt,’’ Kusunoki, 62, said.

An executive in charge of financial affairs, who is one of the three board members at Geos including Kusunoki, decided to file for bankruptcy protection, according to Kusunoki.

The Geos president said he is considering taking countermeasures as he did not agree with the executive’s decision.

Shades of Sahashi? He claims to be acting in the interests of the students (who gives a damn about the teachers, eh?), but a power struggle like this strikes me as exactly the worst thing to do if you want to protect your students.

Kusunoki needs face up to reality and accept that it's all over. If anything, fighting for control of GEOS would further damage his credibility. How can he be trusted now when he said not long ago that the closure of GEOS Australia wouldn't affect operations in Japan? More importantly, GEOS teachers may not be paid for April. If the teachers won't get paid, then it's game over for sure.

Adamu at MutantFrog has taken the time to graph the numbers for the foreigner language market in Japan. If you've been following developments, you know that the numbers are bad. That said, he has an optimistic take on what's in store in for eikaiwa.

Paradoxically, this sort of downsizing is exactly what the industry needs, but when schools collapse so suddenly and spectacularly it scares people away and hurts business even more. Nevertheless, I would not be so intensely pessimistic as some of the commenters I have read. The initial success of these schools has created the “eikaiwa paradigm” that will live on, I think, even if all the big chain schools fall to the wayside. Just as small-time piano teachers can make good money anywhere in the world, any halfway decent teacher who can reliably provide value for his/her services can do OK. Maybe not “tens of thousands of western immigrants descend on Japan” kind of OK, but OK nonetheless. Japanese people still want to learn English and are willing to pay for it. They just can’t afford it as much anymore and don’t want to hand their money to crooks.

The problem is that these major players set up large-scale businesses that profited by essentially gouging customers – promising stellar results and pressuring them into long-term contracts only to give sub-standard lessons to people who may not have really been able to benefit from them in the first place. Now, a combination of factors – tighter laws, the bad economy, rise of the Internet as a study tool, people generally getting wise to the con – has come crashing down on Geos.What the numbers don’t show is that the major operators seem to be offering more or less the same product as before – if anything, they are diluting the product with less value and more part-time teachers – and customers just aren’t as interested anymore.

Can't say I disagree. Read the rest of the article and download the Excel file he used for the graphs.

When Nova went bankrupt in 2007, two central themes of the collapse were the large pre-payment of lesson fees and the inability of Nova to provide refunds. The fallout was so large, the media dubbed Nova's collapse as the largest consumer wipe-out since the end of the Pacific War.

In the nearly three years following the the end of Nova, you'd think that things have changed--that people wised up to the pressure sales tactics and that the schools themselves took steps to avoid a fate like Nova's. Apparently .

A 22-year-old female student at a closing Geos school in Sangenjaya in Setagaya Ward, Tokyo, says she just paid her entire yearly tuition last month. She had previously paid her tuition on a monthly basis. However, around autumn of last year, the school started repeatedly recommending she pay her yearly tuition in a lump sum.

The student's mother is a former student at English conversation school chain NOVA, which also went bankrupt. She warned her daughter that it was suspicious that the school was trying to get her to pay so much money up front. The student says she hesitated to pay until the last minute.

"If they recommended the lump payment while knowing they would be going bankrupt, it's depressing," she said sadly.

Since no refunds will be offered, the student is considering continuing at the nearest school that G.Communication will take over, but said, "It's far from my home, and I'm worried that a new teacher wouldn't teach in the same way as the old one."

The Yomiuri shimbun also illustrates some of its own hard luck stories.

A housewife in Chofu talks about how she lost money at Nova and now GEOS. She paid a year's worth of lesson fees up front to send her son to GEOS, but now wonders what will happen to the money and the lessons.

A young woman going to the Sangenchaya school in Setagaya ward, Tokyo recently paid 25 thousands yen in March for her lessons. She regrets having given in to GEOS's pressure sales. A young man at the Jiyugaoka school paid over 300 thousand yen in February for his lessons. While he was aware of what happened with the Nova fiasco, he didn't figure the same thing would happen at GEOS.

The same is happening with the instructors, too. From the same Mainichi article:

Elsewhere, at a school in Nara that is scheduled to close, a 23-year-old American teacher who had come to find out the latest news complained angrily, "At yesterday's meeting, the school manager told us that Geos's financial condition was fine, but this morning we got an e-mail about the bankruptcy. We were lied to. If I don't get paid, I can't afford a flight back home."

The Yomiuri also reports that G.communication isn't guaranteeing that salaries will be paid.

Naturally, a bit of panic is setting in. GEOS set up a toll free phone number to address the concerns of its customers, but according to the Yomiuri shimbun, nobody is picking up.

Instead, customers are greeted by a recorded message. Nobody is answering the number on the GEOS website hasn't worked either. That's left the Consumer Affairs Center to be flooded with complaints about not being able to get in touch with GEOS.

The Yomiuri did manage to track down a few staff members at GEOS's Shibuya head office, but they all said that they knew nothing. Apart from not being able to get a hold of anybody at GEOS, the Consumer Affairs Center has been fielding a lot of calls from students wondering if they'll be able to get a refund.

The that students have three options:

1. Continue studying at the nearest GEOS
2. Continue studying at the nearest Nova.
3. Take lessons using the old Nova Ginganet videophone system. It's not clear whether students would be subject to any extra fees with this option.

While it doesn't look like the GEOS bankruptcy will descend into the chaos of the Nova collapse at this point, one thing is clear: the lessons of the Nova collapse have been forgotten or ignored.

If you saw the GEOS press conference on TV this evening, one thing was very conspicuous by its absence: Kusunoki wasn't there. In his place was Kazumi Suhara giving the bad news.

According to the Jiji Press, Kusunoki didn't attend because he wasn't prepared to file for bankruptcy while some of his executives were. A GEOS lawyer at the press conference said that due to divisions within the company, bankruptcy proceedings went ahead without the consensus of the board.

Oh to have been a fly on the wall at GEOS for the past few months...

With GEOS gone, here comes the fallout. Stop me if you've heard this one before:

The fate of Geos teachers, meanwhile, is uncertain, even though G.communication says it will try to hire them.

Brian Gilliland, who works about five hours a day three to four days a week teaching corporate customers for Geos, said he hasn't received his pay for the first half of April and hasn't heard from Geos whether he will get his salary.

"Last night I got a call around 9:30 and I was told my class tomorrow will be canceled," Gilliland, who has no other source of income, said. "This month, my classes finished, and I was ready for new classes. They said there are a bunch of classes starting in April, but I only had one class in April.

"Basically you can't teach here anymore. Salary is going down and there is no work," he said, adding that he is looking for a nonteaching job as he speaks Japanese.

The Yomiuri Shimbun also got into the act noting how the end came swiftly without the knowledge of the teachers or students. The article notes that the lights at the GEOS Umeda school in Osaka were off, which came as a surprise to a 54 year-old housewife who was shocked to learn of the bankruptcy and closure of the school. The staff had told her that everything was alright. She had paid 130 thousand yen in lessons for the rest of the year.

The doors at the Namba school were also closed. An American who had worked at GEOS for the past year and a half found out about the bankruptcy when he showed up for work only to find the school closed.

A young woman who had been going to the Namba school for the past five years had just paid 250 thousand yen in lesson fees. She doesn't know if she can get a refund or she she'll be able to transfer to another school, but she does know that she wants GEOS to contact her and tell her what's going on.

At the JR Sannomiya Higashiguchi school in Kobe, the windows have been papered over so no one can see in. A teacher posts a sign saying that the school is closed Wednesday and Thursday. A Japanese staff member says she knows nothing and wants to cry.

Although G.communication is allowing students to transfer to Nova schools, the closure of so many GEOS schools is going to be a sore point with many students. Can demands for refunds and lawsuits be far behind?