English-language teaching industry in bad shape

By Terrie Lloyd

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.

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.

Sahashi finally coming to trial reminds me of the downfall of not just Nova, but also the general post-Nova malaise which is affecting the entire English learning industry in Japan. The late-2007 images of students and teachers alike being left out in the cold after Nova went under have clearly been burned into the public’s subconscious. Trust in English schools in general is at a low, and the current economic difficulties simply compound the situation by preventing workers from investing in language for their career development.

According to the Nikkei, there were about 4.51 million people enrolled at foreign language schools around Japan in 2008—this information apparently comes from statistics collated by METI. Although this number includes those learning foreign languages and presumably foreigners learning Japanese as well, I can imagine that at least 4 million would be those learning English in the conventional way—by attending English language schools.

The 4 million number also includes all ages, from seniors through to kids—so if we were to slice this number some more, we could probably say that around 60%, or 2.4 million, are people of working age—ie, the bulk of people who would have been most hurt by Nova going under, due to the large amounts they were having to pay as tuition deposits.

What’s interesting is that if you look at the companies remaining in the market since Nova imploded, none of the majors seem to be 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.

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.

Also, as far as I can see, very few schools are competent in using IT and automation in educating their students. This is starting to change now, but it is still quite noticeable in the larger chain schools, that confidence in using IT is low. Experimentation is going on, but no one in Japan has created a convincing improvement in learning speed or cost by using technology yet.

So how bad is the English-language education market, for adult students, at the moment? Unfortunately only two of the top 10 foreign language companies operating domestically are publicly listed, so we can’t get accurate numbers for the others. However, both Benesse and GABA have published recent numbers and both suffered significant decreases in profit in the last 12 months. This must surely, then, indicate that things are not well in the industry.

1. Benesse

Most of Benesse’s business in the foreign language sector is performed by Berlitz International, although Benesse does have some other holdings in the industry in Japan as well. Sales for FY2008 through to March 2009 were 68.4 billion yen, and net profit was 4 billion yen, down a whopping 37% from FY2007’s 6.4 billion yen. According to Benesse, this loss was primarily caused by goodwill amortization and foreign exchange losses after remittances from overseas operations. However, I’d hazard a guess that a third reason is simply that the average person outside Japan as well as domestically is struggling to pay the higher-level Berlitz fees, and companies who might normally sponsor them are cutting back as well.

2. GABA

GABA is a good reference English school to look at when trying to figure out where the industry is going. This is because not only is the company and its financials public, but the management is willing to try whatever it takes to make the business grow and profit as well, and have proven themselves to be capable marketers. They are also more focused than giant Benesse, and so their numbers are easier to crunch.

GABA was founded in 1995, then subject to an management buy-out in 2004 and refinanced. It went public in December 2006, with a valuation of 11.39 billion yen. Sales in FY2008, ending December, were 9 billion yen and the net profit was 278 million yen. The net profit was well down on FY2007’s 522 million yen and thus it is perhaps no surprise that GABA’s market cap last week was just 1.228 billion yen—less than 10% of what it
was 2 1/2 years ago.

And so perhaps GABA’s market valuation tells us what the public—only individuals would be investing in such a small cap stock—think about the English-language learning industry. Their assessment is that it’s in bad shape and they don’t think it’s going to improve any time soon.

Terrie Lloyd writes a weekly newsletter for entrepreneurs and business people about business and political opportunities in Japan.

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Latest 15 of 76 Total Comments Show All

realist at 06:24 PM JST - 27th June

Most Japanese do not like foreigners and certainly dont like their langugaes, English included. The education system is geared to make students hate English. Its not a subject for communication, it is a subject for passing university entraqnce examinations. The Education Ministry seems to do all in its power to destroy English teaching in schools and universities, because the inflouence of English teachers and their language/culture might pollute holy Japan with foreign ideas of free-thinking and daring to challenge the status quo. Japanese eduation is all about training, not education. It trains people to be good, obedient, unthinking slaves, or robots,who question nothing and have no opinions about anything, other than the opinions they are taught to have.
amerijap at 03:56 AM JST - 28th June

The Education Ministry seems to do all in its power to destroy English teaching in schools and universities, because the inflouence of English teachers and their language/culture might pollute holy Japan with foreign ideas of free-thinking and daring to challenge the status quo.

Simply they don't have any clue about language pedagogy and vision throughout academic discipline. Their ignorance in language education is of a kind. Whether it is English or Japanese, their education policy leaves so many problems that many Japanese are growing up with poor understanding of human communication in general.
tigerguy at 12:50 PM JST - 28th June

I’ve worked with teachers are complete nutcases who wouldn’t be fit to workback home. I’ve seen too many unprofessional, immature, tardy, and whiny teachers. Seriously the eikaiwa industry needs to take a serious look at who they hire. I truly feel sorry for the Japanese students who like to waste their money on these foolish clowns.

Seriously, you lose brain cells if you do this degrading job, like a monkey on a leash performing to gullible customers. You get no pay raises, and no benefits that all the other full-time Japanese workers get. That’s the truth and fact of Eikaiwa and the English teaching industry in Japan. I heard they pay more in the UK.
tigerguy at 12:58 PM JST - 28th June

I apologise for my bad grammar in the previous post.
Disillusioned at 08:14 AM JST - 29th June
The reason that Japanese have such pathetic levels of English acquisition is a matter of need and motivation. Nothing more nothing less

This is what most foreign English teachers like to believe because it is a simple observation although, it is very far from the truth. It is because of the teaching and learning styles set in the Japanese school system that students fail to achieve a good level of competency in all foreign languages studied in Japan after years of study and thousands of dollars spent. The school system does not promote the open-minded thinking and self-study techniques needed to master a second language. Most students come to class expecting the teacher to pull a rabbit out of his/her hat and magically make English appear from their mouths. Most have one 40 minute English class per week and do no other form of study. Then, after three to six months they quit because they feel the teacher/English school is crap and they go to find another one. - My personally favorite example is this: I have male student in his 30's studying English for his international business. He told me, he didn't want to study textbooks or to learn grammar. He only wanted to practice speaking. However, he couldn't tell me this in English. He then went on to explain how he has no chance to use or study English through the week and our single one-hour class per week was his only English time (in Japanese, of course). After this typical BS request that I have heard many times, and while trying to contain my sarcastic laughter, I told him I was not a magician and if he is serious he must be consumed by English and take responsibility for his own education (a very strange thing for a Japanese person). Over the next three months I didn't teach him English, but spent the whole time teaching him the philosophy of learning and breaking this Japanese learning style of, "where is the answer?". As a result, after two years he has a good command of English and studies constantly.
- This article is very long-winded and doesn't really come to any conclusion.
bushlover at 11:02 AM JST - 29th June

Disill, that was a wise comment. Yes it truly is the land of complacency here. That is why I have gotten out of this business. I couldn't stand it any longer. I am no magician and cannot pull labbits out of hattos.
Omoro at 06:45 PM JST - 29th June

Yawn. The ever-present drone of English teachers complaining about their bad lot in Japan...

No wonder 'the Japanese don't like foreigners'. Actually, they do - they just don't appreciate the constant snivelling and funky attitude that are the hallmarks of so many foreigners in the country.
jonnyboy at 06:51 PM JST - 29th June

No wonder 'the Japanese don't like foreigners'. Actually, they do - they just don't appreciate the constant snivelling and funky attitude that are the hallmarks of so many foreigners in the country.

stop applying your opinions to others. in actual fact, most japanese are completely unaware of whether foreigners are happy or not, owing to the fact that the vast majority of them have a grand total of zero interaction with the non-japanese minority.
nigelboy at 11:37 PM JST - 29th June

but spent the whole time teaching him the philosophy of learning and breaking this Japanese learning style of, "where is the answer?"

Then you woke up.

You can't even fill out a point card application for your local supermarket so lets not make up stories shall we? Just be thankful that there are enough suckers in Japan who still buys into this eikaiwa scheme and your're just paid for looking the part
UnagiDon at 10:39 AM JST - 30th June

I'm really torn on this issue. On one hand, fewer eikawa "teachers" in Japan would be a good thing, as the overall quality of the gaijin population would be consequently bumped up. On the other hand, Japan is doing my country and others a valuable service by taking on the underachievers of the Western world and giving them a job. What a dilemma.
frontandcentre at 02:30 PM JST - 30th June

UnagiDon - that's not really fair. Of the English teachers I've met in Japan, most seem to either be passing through anyway, or here for the duration and having to make a career out of it, in which case they must strive to get the best jobs by being suitably experienced and qualified. There are quite a number of losers, but you could say the same about any job or profession.

Given the amount that you post on these boards, I assume you are retired rather than in gainful employment yourself...
UnagiDon at 09:13 PM JST - 30th June

frontandcentre;

To clarify, I did say "eikaiwa" as opposed to all English teachers as I too have met some good ones who are serious about it. I've just found the ratio of losers to non-losers to be far higher amongst the eikaiwa crowd, probably more so for the long-termers.

As for your assumption about my employment, you'd be wrong and I dont post here that often.
JapanPete at 10:33 AM JST - 1st July

I am a TESOL teacher, have worked in or with Japan for over twenty years, am an owner of an eikaiwa school, but primarily work in business for an Australian University.

That said, language teachers never fail to amaze me with their simple, narrow, little minds.

I have met Terry Lloyd at many a business event and I found his article interesting. He is a successful businessman and was having a look at the industry from a business perspective. This was a worthwhile study as the industry here does have its own peculiar idiosyncrasies and areas of stress.

Amazingly, but not surprisingly, all the comments here have focused on the teachers and not the business.

Terry’s point is interesting, that no one organization has taken up the challenge of dominating the market here. I would argue that these are different times in a unique industry, which may not fit the stereotypical Japanese model.

Indeed this is an interesting discussion and one in which I enjoy, for it is my work and my hobby.

But please teachers, pull your head out of wherever it is placed and stop worrying about "the me" factor all the time. The business of teaching English is a lot bigger, and to some of us more important than your petty arguments and gripes.
StephenEFY at 03:01 PM JST - 1st July

Tigerguy maybe you taught like a monkey? or the place you worked just liked to hire idiots? from what I have experienced most English teachers cared and wanted their students to improve or do well in English. English educaton is about relationships and telling the students what to do, and how to study, as well as the actual teaching of conversation and grammar. I could go on...but I do agree that the eikaiwa industry as whole needs an upgrade. That is the main reason I opened my own school. Japanpete well put! Last paragraph!
tigerguy at 09:47 PM JST - 2nd July

StephenEFY, I do take back that monkey comment, as I did genuinely care for the students and their progress and motivation... somehow the other teachers I worked with didn't. But I did honestly work with knuckleheads and idiotic teachers or should I say 'average English speakers' because they had no patience nor passion to teach at all.