Japan’s eikaiwa industry in serious trouble after the bankruptcy of GEOS

By JORDAN PEARSON

appearing on The Comment Factory at:
http://www.thecommentfactory.com/japans-eikaiwa-industry-in-serious-trouble-after-the-bankruptcy-of-geos-3015/

There once was a time when recent university graduates could escape to Japan to stave-off adulthood and responsibility for a few more years while making a decent living and paying off their student loans. The days of this glorious loophole in adult life are now all but over with the bankruptcy of Japan’s largest remaining language school, Geos, less than three years after the spectacular collapse of Japan’s biggest language school chain, Nova Corporation. This latest bankruptcy from an industry giant surely signals the final nail in the coffin of the large scale eikaiwa (English conversation school) industry.

It was deja vu all over again April 21st when Geos suddenly filed for bankruptcy, leaving staff and students in the lurch, with instructor’s salaries unpaid and students contracts unfulfilled in scenes reminiscent of Nova’s October, 2007 collapse (dubbed by the Japanese media at the time as “the largest consumer wipe-out since the end of the Pacific War”). In a surprise move, G.communication, the same company that stepped-in to pick over Nova’s carcass, announced that it would take over 70%, or 230, of Geos’s schools, and close the remaining 99, offering students and staff the chance to potentially continue at their respective branches, with a few catches.

While Geos’s bankruptcy hasn’t become quite the media spectacle in Japan that Nova’s was, the same hard luck stories of unpaid salaries and thousands of dollars lost abound, with the lessons of Nova apparently unlearned.

Despite widespread reports of Geos’s shakey financial situation, and the company closing its Australian operations in February, many seemed to have believed Geos’s lies that everything was still fine.

The Yomiuri shimbun reported on a “23-year-old American teacher” who 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.”

“Tommy,” writing on Japan’s social networking site, Mixi, said he “didn’t know [the bankruptcy] would happen. It was a complete surprise” and has found himself in a similar situation: “I will not get paid for the work I did in April. GEOS has no money, so they have no money to give me. I worked for free for one month. So, I have no money right now. Also, I was supposed to get a bonus when I finish with GEOS. I will now not get that money either… if I [recontract with G.communication] I will not get paid until May 15th. Also, that payment will be small. I have no money now, so I can’t wait for a small paycheck in the future. I need to make money quickly or starve.” (Which he apparently, in all seriousness, hopes to do by becomming a singer; his Mixi page also saying: “TO MUSICIANS: I have no job now. I can play any concert you want me to play. I [have] the free time to play any day – any time!”)

Students too, of course, lost out big in many cases from not paying attention to what happened at Nova and falling victim to Geos’s aggressive sales pitch. The Yomiuri shimbun also reported various tales of student-woe, ranging from a houswife in Chofu who “paid a year’s worth of lesson fees up front to send her son to GEOS” after losing money at Nova three years prior, to a man at the Jiyugaoka school who paid over 300,000 yen in February well aware of what happened at Nova but figuring the same thing wouldn’t happen with Geos. Other students reported losing comparable sums and regretting “having given in to GEOS’s pressure sales”.

The Mainichi Daily News reported on a “22-year-old female student at a closing Geos school in Sangenjaya in Setagaya Ward, Tokyo,” who had “just paid her entire yearly tuition” at Geos the month preceding bankruptcy. “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 paper reported. The student added “sadly,” “If they recommended the lump payment while knowing they would be going bankrupt, it’s depressing”. One could also argue criminal.

And like Nova with company president Saruhashi, it seems Geos’s financial problems were compounded by having a criminal dunce at the helm; founder and president Tsuneo Kusunoki in Geos’s case, who, much like Nova’s currently incarcerated “Monkey-Bridge” (as the former-president’s last name translates to in English), refuses to accept reality — even going as far as petitioning against the bankruptcy proceedings in the Tokyo District Court, potentially complicating and prolonging matters for all involved.

As reported in the Japan Times, Kusunoki has publicly stated: “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… Although it has given the impression that the company filed for bankruptcy, it is actually not the company’s will.”

It seems everyone but Kusonoki (as his name is often intentionally misspelled, thus translating to “shit tree”) has dismissed this idea as ridiculous however. One poster on Let’s Japan explaining Kusonoki’s delusional attitude as a result of “30+ years of running a large company, surrounded by yes-men and never ever being questioned by anyone ever” having “unhinged the stupid bastard who is now completely detached from reality.”

“He’s been ousted…” continues the post, “but being the mad old git that he is, he’s unable to accept that his life’s work is not only worthless but has been leaking money like a Saudi on a gap year for a decade or more.”

Like any country in the world, lying pricks in positions of power are a yen a dozen in Japan, G.communications president, Hideo Sugimoto, claiming his company’s interest in Geos is purely altruisitc, stating in numerous interviews they bought-out Geos only to “protect the students”. He has said G.comm hopes to have Geos returned to profitablity within a year, which they did reasonably successfully operating a drastically reduced number of Nova branches, however, as Shawn Thir of Let’s Japan notes, “[u]nfortunately, 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.”

The future for Geos staff is obviously very uncertain — their contracts with G.comm expiring this July 31st — and like Thir says, probably not particularly bright, especially if this grim warning from an ex-Nova G.Comm employee is anything to go by: “You will NEVER feel comfortable working under G. Com…I gaurantee it. You will feel… you could be screwed over at a moments notice. G. Com has no problem breaking its contracts with its teachers and students…this company will lie its ass off to make a dollar.”

This is a pretty reasonable appraisal of G.Comm in my personal experience, thinking back to when Nova went bankrupt and G.Comm categorically promised to hire back EVERY former Nova employee in November 2007, but started backing-out on this too-good-to-be-true offer on December 24th and Christmas Day, 2007, with eventually about 50% of the instructors who hoped to recontract having their offers of employment rescinded as they were “no longer needed”. To be fair, many people I knew were stroking G.Comm in a similar fashion; using them to whip-in students, or making off with their 150,000yen “stand-by” offer, but one can’t help but feel the ex-Nova G.Comm emplyee above is right when they say that G.Comm is presently “making all these promises to GEOS teachers so they dont run off and G. Com has to hire and train new GEOS teachers…a system they dont know anything about yet… once the picture is more clear…expect alot of GEOS teachers to get axed…”

They also note that recontracting Geos instructors will most likely have to sign technically illegal contracts to keep their jobs: “Be prepared to sign the same contracts as NOVA teachers and you will find that you will receive a “regularity bonus” of 25,000yen if you dont miss any days during a pay period…its actually part of your monthly salary, its not a bonus at all…if you miss a day of work…you will be penalized and your regularity bonus is forfeited and a day of wages deducted from your salary…you could easily lose 40,000 yen for one day….so NEVER miss a day of work!! If you are late…you forfeit your regularity pay and a prorated deduction for the time you were late. ITS ILLEGAL and the labor ministry and labor union have both said this activity is illegal, but G. Com has brushed it off.”

Despite — or more likey because of — this, G.communications has now established itself as one of the major players in the eikaiwa market. But one can’t help but echo Shawn Thir’s question regarding the company’s latest purchase: “how much blood do they think they can realistically extract from the eikaiwa stone?” Indeed, with Geos’s bankruptcy coming so quickly after Nova’s collapse dominated headlines, and many unverified reports floating around that another major chain school, Aeon, is on the verge of bankruptcy, many are questioning the future of the eikaiwa industry at all.

A simple look at the numbers shows that large-scale eikaiwa operations are no longer viable, and Japan is no longer the attractive destination it was for recent university graduates and the lazy. The figures from METI show that as recently as February 2007, the overall number of students taking foreign language lessons was around 750,000. The number plummeted to approximately 360,000 by 2008, and according to Nikkei, the number of new students enrolling in 2009 “plunged 35.7%” further from even the post-Nova bankruptcy levels.

The global economic recession is generally cited as the major reason in the decline of students, but another major factor was the reduction of the government’s kyuufukukin allowance to help people find work. As noted on Let’s Japan, “It paid 40% of tuition fees up to 200 thousand yen”, but “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.”

Relating this to the larger schools business models, renowned entrepreneur and respected commentator on Japanese affairs, Randy Poehlman, offers the following similar summation:

“The business model for large chain schools is clearly broken… The demand for language lessons is constant, and the recent recession cited by many as a main factor in the failure of GEOS, is somewhat of a partial convenient truth. The reason these chains are failing is because they are based on signing up new students and renewing existing contracts in an environment where more and more consumers are unsure about the stability of the chain approach to learning English.”

Poehlman’s expert opinions are echoed by the blogosphere, “Adamu,” (who offers an excellent statistical analysis of the eikaiwa market at his site) adding:

“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… has come crashing down on Geos… 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.”

Shawn Thir’s analogy of the old eikaiwa giants to the “dinosaurs” is particularly apt:

“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.”

And indeed, the general consensus regarding the future of smaller-scale eikaiwa operations is vastly more optimistic, Poehlman stating, “You are going to see a growth in smaller independent companies that are rooted in individual communities.” He predicts that: “As Japan continues to become more globalized the need for both children and adults to learn English is going to grow. Students should be looking towards smaller independent schools that are rooted in the community and do not expect students to pay for lessons a year in advance.”

The attractiveness of Japan to foreigners as a destination for working holidays or longer-term stays looks set to keep declining however, and even in my three years in the country it has changed dramatically. Stories like that of an employee for Tokyo-based Japan Advanced Labour Staff Services, who hasn’t recieved his final month’s salary from the company because they know he is scheduled to return to the U.S. soon and are betting he won’t have the time to go to the Labour Standards Office or hire a lawyer to try and actually get his pay, are becomming increasingly common. Overall, salaries, benefits and working conditions for eikaiwa and ALT (Assistant Language Teacher in schools) jobs have steadily gotten worse, with Japan’s somewhat indifferent attitude to all things non-Japanese showing through more and more.

For all the comic book geeks, anime fans, and anyone else with their heart set on coming to Japan, for whatever abberant reason they may have, there is only one half-decent option remaining in these dark days: come with the government’s JET programme, or don’t come at all.