Yano Research Institute Survey on the Impact of the Collapse of Nova

After a look at the declining fortunes of the foreign language market, the Yano Research Institute has published a the results of its survey [PDF in Japanese] on the impact Nova's failure had on the foreign language sector in Japan.

The institute normally surveys the language market every year around June/July, but the failure of Nova, Japan's largest and most well-known language school, prompted it to conduct a special survey to gauge the impact of Nova's bankruptcy. The institute surveyed 7 major language schools and 2 industry associations in January and February through interviews in person, by phone or by e-mail. Here's a translation of the summary of the survey.

Size of language school sector in FY2007 predicted to shrink 8.5%

The language school sector in FY2007 was predicted to shrink 8.5%, or ¥316.6 billion. In June 2007, the FY2007 prediction for the sector was a decline of 4.7% , or ¥329.5 billion, but was revised down a further ¥12.9 billion following the collapse of Nova and wide coverage in the media that hurt the reputation of language schools, and dealt a blow to new student enrollments.

Following the collapse of Nova, other language schools reported an increase in new student enrollments as they took in former Nova students, but the number of students joining the new version of Nova reopened under g.education or moving to other language schools do not appear to be large compared to the number of former Nova students.

However, demand for English conversation schools for infants and children, and businesses increased. For reasons not yet known, demand for English lessons for seniors is also expected increase. The market will likely shrink significantly for FY2007, but since it is expected to recover for reasons such as the increase in demand and better consumer protection, the market looks to be comparatively stable in the future.

Reactions to the failure of Nova

When asked what business practices brought about Nova's collapse, the majority of responses consisted of "Sale of large lesson point packages that can't used up," "Violation of the Specified Commercial Transaction Law," "Rapid expansion of schools," and "Excessive spending on advertising." Other responses not directly attributed to Nova's behavior were, "Problem with government guidance" and "Increase in the number of consumers questioning the industry's practice of up-front payments."

Effects of Nova's collapse on other schools

Student enrollment in 2007 did not increase between June (when METI punished Nova) and October (when Nova went bankrupt) due to the harm done to the reputation of language schools. However, since Nova's collapse, most language schools feel things will improve citing the acceptance of former Nova students and the fact that the shock of Nova's bankruptcy will abate.

Schools appear to be paying more attention to the needs of consumers as some schools responded that they "temporarily suspended advertising" while more responded that they are "giving more careful explanations to students." They are also joining associations in order to appeal to consumers that they are safe.

On accepting former Nova students

Based on interviews, it is estimated that the 7 major language schools, which account for more than 30% of the market, accepted between 30,000 to 40,000 former Nova students. Based on these numbers, it is thought that the number of former Nova students who moved to other schools is around 100,000. Even when taking into account that the number of students started to shrink in June as they canceled their lesson contracts, the number is exceptionally small considering that in of March 2007, the number of students (adults and children) enrolled at Nova was estimated to be 417,033.

One contributing factor to the low numbers may be that most students quit studying due to their distrust of the schools. However, many responses indicated that if confidence in the sector recovers, most of the former Nova students will likely start taking lessons again.

On lesson fee systems

It was assumed that schools would switch to a monthly fee system due to the attention given to Nova's system of paying large fees in advance, but aside from g.education, which started a monthly payment system when it reopened Nova's schools, and Shane Corporation, which had a monthly payment system in place since it started business, most of the major language schools use an advance payment system (except for children's lessons).

Some schools replied that they were considering adopting a monthly payment system, but given that g.education switched to a monthly system when it reopened Nova schools and that Shane switched to a point system from its monthly system, it appears that both payment systems will continue to be used for some time.

Strategies and goals of language schools

The most common opinions were:

1. Focus on efficiency and profitability rather than opening more schools.
2. Improve the quality of lessons, instructors, and service.
3. Concentrate on children's English lessons.
4. Concentrate on corporate lessons and lessons for business people.
5. Offer lessons for seniors.

The responses indicate a trend toward sound management that places efficiency over expansion and customer satisfaction.

During the bubble economy and the period following it, language schools geared their lessons toward young women (OLs), but the focus has recently shifted to (or is expected to shift to) children, business people, corporations, and seniors.

Market outlook of schools and associations

When asked their opinion of the market, the responses from schools and associations were split between "the market will grow" and "the market will remain unchanged."

Reasons and opinions why the market will grow:

1. Demand for children's English lessons and dispatch teachers for kindergartens is increasing.
2. The number of people who need a foreign language a work due to their company expanding overseas is increasing.
3. From a global perspective, there are needs to be met overseas, not just domestically.
4. In the long run, the market will recover as the negative image from the collapse of Nova fades.

Reasons and opinions why the market will remain unchanged:

1. Demand exists but it will probably not increase significantly. Efforts to improve the level of service are more important than rapid expansion.
2. Consumers are using their free time for pursuits other than studying a foreign language.
3. The number of young students in their 20s is declining due to the low birthrate.
4. The number of consumers who think it trendy to study English conversation is declining.
5. Schools will probably go out of business or restructure and only those with sound management will survive.