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

Like many readers here, zakzak wonders about the odd combination of restaurant companies and English conversation schools.

As you know by now, G.communication, which operates Nova and GEOS, which in turn was owned by Foodys, is now owned by Hanshin Shuhan after it acquired Foodys' 50.9% share of the company. Foodys sold its shares in G.communication in order raise money when its main bank, the Incubator Bank of Japan, was shut down by the Financial Services Agency on suspicion of obstructing an FSA audit. According a source that spoke with zakzak, Foodys sold its shares on the condition that Hanshin Shuhan assumed the loan that Foodys used to buy its stake in g.communication.

Zakzak then delves into the histories of the companies involved.

• G.communication started out as a juku and branched off into the restaurant business in 2000. It started growing and acquiring more restaurants around 2005 through a series of mergers and acquisitions.
• In October 2007, it took over Nova.
• However, G.communication's mergers and acquisitions left it short of cash and its president, Masaki Inayoshi, sold his shares in October 2009.
• The shares were sold to Foodys and Venture Link. Both companies are members of the Incubator bank of Japan's network for SMEs.
• Foody's, being the largest shareholder in g.communication with a 50.9% share, jumped on the M&A bandwagon with G.communication only to have its plans go off the rails when the Icubator Bank was shut down.
• Now that Hanshin Shuhan owns G.communication, it says it will continue to operate the eikaiwa business as usual.
• Hanshin Shuhan is a liquor distributor started by its 34-year old president, Higaki Shuusaku, in 2001.
• Hanshin Shuhan was new to the distribution business but quickly made an impact by leaving free refrigerators stuffed with drinks in offices, and then making the rounds collecting money for the drinks that had been consumed. The company raked in the money by taking a page out of the Toyama okigusuri method where medicine kits were distributed to homes and customers paid for what they used. From 2009, Hanshin Shuhan also got on the M&A bandwagon.
• In May 2009, it acquired Gyukaku through a take over of Asrapport Dining. In April of this year, it acquired liquor distributor Daishuhan from the Japan Asia Group. It's latest acquisition is G.communication.

Zakzak asks, "Where is the money for these M&As coming from?" One of Hanshin Shuhan's major shareholders are limited investment partnerships with investment enterprise Orix #10 being mentioned. An executive in a business research firms tells zakzak that Hanshin Shuhan is more an investment company than anything else. If true, izakayas and eikaiwa make for strange bedfellows in the world of mergers and acquisitions.

Comment: When I was a kid I was really into trading hockey cards and playing games like "knock down," farthies" and "scramble." I get the sense that the same thing is being done with GEOS and Nova, except that they aren't particularly valuable--kind of like picking up some 4th-liner pylon in a game of "scramble." They are minor players in larger deals and will eventually find themselves discarded and clothes-pegged in the spokes of some unlucky investor's bicycle.

Nova and GEOS are under new management. The new boss is Kobe-based food and beverage importer and distributor Hanshin Shuhan. According to the Yomiuri shimbun, Foodys, the current parent company of Nova and GEOS, is to hand over its 50.98% share in the eikaiwa schools to Hanshin Shuhan by the end of August.

Foodys was forced to give up its shares in G.communication after running into cash problems when its main bank, the Incubator Bank of Japan, was shut down by the Financial Services Agency on suspicion of obstructing an FSA audit. Hanshin Shuhan has agreed to assume the loan Foodys used to acquire G.communication along with shares in the company. The brief blurb ends with Masaki Inayoshi, the Chairman and President of G-Communication group, resigning effective August 10.

If eikaiwa ever was a McJob, Hanshin Shuhan is helping to reinforce that image by marketing themselves as a "fast food and fast beverage company." What does it say about the state of eikaiwa when it has stronger links to the restaurant business than it does with language learning? Moreover, it's not reassuring that G.communication's masters were connected to a bank engaged in shady business practices, although "eikaiwa" and "shady business practices" do seem to go hand in hand in recent years.

UPDATE 8/19: Many comments have been about what would a food & beverage company find attractive about owning an English conversation school. As noted in the comments, one reason may have to do Hanshin Shuhan wanting part of G.communication's restaurant business. A short article on Searchina says that G.communication restaurants G.taste, G.networks, and Sakai will become "grandchild companies" (indirect subsidiaries) of Hanshin Shuhan. An article in the Kobe Shimbun says that in Hanshin Shuhan hopes to beef up its restaurant biz with the inclusion of G.communication's stores.

As for the English conversation schools, the article simply states that Hanshin Shuhan will continue operating them as usual. It doesn't sound like they have any big plans for Nova and GEOS, does it? It makes me wonder if the schools will get lost in the shuffle as the company focuses on merging its restaurant operations instead.

According to the Mainichi shuimbun, G.communication is to close two schools this month in Nagano. G.communication operates four GEOS schools and two children's schools in the prefecture. The Matsumoto school will close on the 20th and the Saku school on the 31st. A spokesperson called the closures the result of an "overall management decision."

Students were informed late last month about the closures. The Matsumoto school will merge with the NOVA Matsumoto ekimae school, while students at the Saku school have been given the option of going to the NOVA Nagano Ueda ekimae school or taking Ocha no ma ryuugaku lessons via videophone.

A mother with a son who has been taking lessons for the past four years at the children's school in Saku says that going to Ueda isn't an option since it's too far away.　

A brief report in the Chunichi shimbun fleshes out the "overall management decision" comment slightly by adding that the closures had to do with unpaid rent when G.com took over GEOS. (So, G.com didn't want to pay the rent?)

When I wrote previously that the takeover of GEOS went smoothly, I remembered an old article sitting in my stack of stuff to do. It comes from JC-NET and was published on April 24, shortly after the bankruptcy was announced. As the title of this post says, the story suggests that there was a coup d'etat at GEOS that allowed for G.communication to swiftly move in and take over the company.

I don't know anything about JC-NET and certainly can't vouch for the accuracy of the article, but when GEOS went bust on April 21, I wondered if anything was going on behind the scences. The bankruptcy was incredbily smooth. G.communication and GEOS apparently reached a deal four days before the bankruptcy was announced. The president of G.communication initially stated he took over the company to protect the students. In a later interview, he said:

"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."

So just how early did Sugimoto "raise his hand?" The bankruptcy has been so smooth it's virtually a non-event in the news. The JC-NET article, however, suggests that there was a lot of maneuvering behind the scenes and that Kusunoki was essentially stabbed in the back by a nephew. Here's a summary of that article.

Et tu, Tabuchi?

The JC-NET article starts off with the observation that Kusunoki wasn't present at the press conference announcing GEOS' bankruptcy and that this was odd, especially when you consider that he didn't agree to the bankruptcy in the first place. Instead, leading the coup d'etat was a director named Tabuchi.

The bankruptcy was filed with the Tokyo District Court by Hitomi Suhara and two other directors. Sitting beside Suhara at the press conference was Tabuchi.

However, JC-NET notes that Tabuchi may in fact be Kusunoki's nephew, who happens to have been in charge of operations in the Chubu area, G.education's home turf. So here's the plot: Worried about GEOS's stability, Tabuchi approaches G.communication and offers to sell the company to them. We already know that an agreement was signed on April 16th. The offer to sell, however, may have been made much further in advance of the April 16 signing. G.communication may have decided to sign on the 16th after having reviewed information about GEOS' schools and sorting the schools into the ones it would keep and the ones it would close. A source says this is why GEOS' directors (Suhara and Tabuchi) could speak with such clarity about GEOS's schools during the press conference in the wake of the bankruptcy.

JC-NET believes that Tabuchi and other kept Kusunoki out of the loop. Some reports had Kusunoki considering selling GEOS to another large eikaiwa school other that G.communication. At the same time, two directors approached G.communication. JC-NET says that Tabuchi and Suhara took files on each school to G.communication without telling GEOS's board of directors. In a takeover, the articles of incorporation have to be reviewed, but taking documents without the knowledge of the board would appear to be a breach of confidentiality. JC-NET's source says that Tabuchi did this to save his own skin, but this doesn't make much sense. The backroom dealings aside, there's no way G.communication would go public and employ either Tabuchi or Suhara. If this is true, then it appears that Kusunoki may have been stabbed in the back by his nephew.

As is known from press releases, GEOS filed for bankruptcy on March 16 [sic. Mistake in the report? Should be April 16] and signed an agreement with G.education to take over GEOS, its kodomo schools, and e-GEOS businesses. On April 23, G.education reopened 170 GEOS schools and 223 kodomo classrooms while shutting down 100 other schools. Students affected by the closures were given the option of transferring to the nearest GEOS or Nova school, or taking Ocha no ma ryuugaku lessons online at a 75% discount.

G.communication, the parent company of G.education, held a press conference on April 21, but Kusunoki was not in attendance. According to a JNN interview, Kusunoki maintains that he was looking to sell the company to another school when his directors betrayed him. "It's like a coup d'etat," he said.

Comment: As I said at the outset, I don't know what to make of the allegation that Tabuchi is related to Kusunoki or if there's any truth to the story at all. If it's true, the takeover of GEOS is more a fait accompli on G.communication's part than a coup within GEOS.

Yesterday's Have Your Say column in the Japan Times carried a reply to Richard Smart's article on eikaiwa being on the ropes. The author of the letter suggests that the media have not been reporting on the problems with the G.communication takeover of GEOS.

I have to disagree with this. From a strictly business point of view, the bankruptcy and take over of GEOS has been quite smooth, but the media haven't ignored the hard luck stories of teachers and students. When GEOS filed for bankruptcy, these were the first things they reported because it's the low-hanging fruit of the story.

But that's not the other side of the GEOS story the author has in mind. He wants the world to know about how bad G.communication is on the inside:

I had been employed with Geos for more than 10 years when they declared bankruptcy in April. I had given the required four months' notice and was due to leave the company in May, but had offered to extend my employment to help the school as they were having trouble finding teachers.

As I was on a very old-style contract, I was due a leaving allowance of ¥1 million — which I lost — in addition to April's salary. I have also had to fight to be allowed to stay in my apartment until the end of the month, despite the fact I had paid May's rent directly to the landlord.

[...]

In the school where I used to teach, the instructor who replaced me left after only a few days' teaching, and the other teacher is due to work until only the end of May. However, the students are not being told about this when they sign and agree to continue their lessons, losing the right to a refund if they cancel their contracts. Students who do not want to continue under these conditions are being told that they will not be able to obtain a refund.

Giving GEOS more than the 10 best years of your life, losing out on over 1 million yen, and fighting to stay in your apartment is a tough shit sandwich to have to bite into, but I have news for this person: take a number and get in line, pal. Your story isn't new. As has been documented here countless times, this is standard operating procedure for eikaiwa.

Where to begin? Crappy working conditions, low pay, illegal contracts, no benefits, pressure sales tactics, and outright fraud have all been reported in the Japanese and English press for years. I'd say it's a well-known fact. The author of the letter has been in eikaiwa for over 10 years and is worried about G.communication? It's time to clue in. Did he miss the way they handled the collapse of Nova when they offered all teachers a job only to break that promise on Christmas Eve?

Instead of complaining about the shady practices of G.communication, it's time to start practicing risk avoidance. Big changes are happening in eikaiwa right now and teaching English isn't the easy or stable gig it once was. The important lesson here is that the kind of loyalty shown by the author is wasted on eikaiwa. Always look after yourself first. Schools may sell a sweet-smelling line of bullshit about being a cultural ambassador or being a professional at all times, but you'd have to willfully ignore the fact that your school is small and dumpy, cut corners on expenses where ever it can, demands you help sell contracts and teaching materials, and probably lacks a manager for long stretches of time to believe any of it.

All you owe your school is an honest day's work. Signing a dodgy contract just to keep a roof over your head and money in a your wallet is a bad strategy for thriving in a foreign country. Don't fall into this trap. Building up substantial savings on an eikaiwa salary isn't easy, but you need cash on hand if you want to avoid the situation the author finds himself in. I wonder how many teachers are one missed or delayed paycheck away from living in a park?

On the Comment Factory, Jordan Pearson has a summary of the state of eikaiwa following the collapse of Nova and GEOS.

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.

This isn't news to regular readers since the article quotes extensively from LJ. You may remember Jordan Pearson from past posts such as New Nova Diplomat Lessons and The Nova Bankruptcy Revisited. It's all good.

Novawhiz in the forums finds a website called jiosu.com:

ジオス.com A website for GEOS student, GEOS staff and GEOS teacher support.

ジオス.com (jiosu.com) aims to provide information, links and support for GEOS students, staff and teachers by providing an online forum where you can discuss the latest GEOS related information and events.

Another aim of ジオス.com is to help you find your old GEOS friends, students and teachers through the online forum. Once you find them, you can contact them privately via the websites internal messaging system. If you have a mixi, facebook, twitter, openID, Google, yahoo or windows live account, you may use that to log in and use the forum and online messaging system. The forum and messaging service are free of charge.

For those of you who aren’t aware of the situation, GEOS was one of the top 4 private eikaiwa, or English conversation teaching companies, in Japan. Language tuition in French, Spanish, Italian, German, Chinese and Korean was also offered at some schools. GEOS offered many opportunities for students to study abroad through homestay programs at its international branches. After GEOS Australia filed for bankruptcy (leaving many homestay students stranded without accommodation), the Japanese based GEOS also found itself in financial trouble. On the 22nd of April 2010, GEOS Corporation officially filed for bankruptcy leaving thousands of staff without jobs and without paying their salaries. Students weren't much better off, with some students thousands of dollars out of pocket.

Fortunately for many students and teachers in Japan, G.communications will be taking over many of the old GEOS schools (as they did with the old NOVA schools). What that entails we don’t exactly know yet, but we are hopeful that some good will come of it. On that note, we hope that you find ジオス.com useful and that you find the information you were looking for! Good luck!

The forum there is a bit sparse, but maybe that's because it's new. Have a look.

The Japan Times ran a curious post mortem on GEOS. After reading it, I'm left with the sense that everybody is disappointed the company didn't implode like Nova. If you've been following the bankruptcy, the articles doesn't add a lot of new information. It's a fairly long read, so let's look at it.

I agree with Ken Worsely's assessment of the factors in GEOS's end:

"Asymmetry in supply and demand (help explain the bankruptcy)," says Worsley. "The number of new students registering at conversation schools has declined in five of the past six years, and fell by 35.7 percent last year. At the same time, revenue at such schools has fallen by somewhere around 40 percent in the past four years."

"The demand for these services is shrinking due to a number of factors, including economic conditions, public perception of the industry . . . stricter consumer protection laws, the decreasing effectiveness of relying on sales of large contracts as a business model, and others," he adds.

The article then gets into a G.communication memo that shows that it agreed with GEOS to take over its operations four days before the bankruptcy was announced. To that, Adam Richards adds:

"Geos seems to have done relatively well by students and teachers by finding a backer before announcing the bankruptcy," he says. "That said, Nova's messy bankruptcy was such a nightmare Geos can't help but look better by comparison."

G.communication President Hideo Sugimoto pretty much said the same thing--that he took on GEOS to protect the students. I think Adam has it wrong here. GEOS didn't find a backer. Management was divided as to whether it should file for bankruptcy to the point that ex-GEOS president, Tsuneo Kusunoki is contesting the bankruptcy. Rather than finding a backer, G.communication saw an opportunity to take over a failing company.

No sooner does Adam say that things have turned out well for students and teachers, the article contradicts him:

After the bankruptcy, confusion among staff ensued.

"At this point, the GCI has been completely decimated," Junichiro Kase of GCI, Geos' corporate arm, wrote to teachers in an e-mail leaked to The Japan Times. "Our clients are outraged and our teachers left on standby."

In another mail, a member of the Geos human resources team wrote: "All of us in our division were dismissed. . . . At this moment, we don't know who will take over these positions (in HR), but someone in G.education or someone from our division will continue (to manage teachers' schedules)."

The worker also said that in the initial days of administration, no HR employees were allowed to talk to staff or access their offices without special permission.

For teachers, the situation was equally grim: The Kobayashi memo explained that employees' wages for hours already worked were not guaranteed to be paid, and that all staff were dismissed as of April 21. While some of those teachers now work for the reopened company under G.communication, 99 schools — employing 483 people — were closed down by Geos.

"The company said it was proud to have me working there, as an example of just how much students could achieve through study," says Ricardo Paes, a fluent English-speaking Geos teacher from Portugal. "That didn't change the way I was treated during the bankruptcy, though."

And this:

"In the days after the bankruptcy, we have been kept in the dark, we were stalled, and that seems to have been to keep control," he says. Despite this, he opted to sign the new three-month contract with G.communication. Hong did not.

"After the meeting with the new company, I felt the terms G.communication was offering were very vague," Hong says. "It felt like too big a risk to stay with them."

The article also goes on to describe the vague, one-page contract GEOS teachers were given. Combined with the above, it doesn't sound like things have turned out well for teachers.

I thought this was an insightful observation:

"There are two massive problems with eikaiwa policies: tie-ins (which commit students to staying at the same school for long lengths of time) and a complete lack of pricing transparency," says 39-year-old Patrick Sheriff, the founder of Tower English, a conversation school in Abiko, Chiba Prefecture. "It's ironic because they demand long-term commitment from their customers but, as many of our students have told us, they can't keep hold of their native English teachers."

That is eikaiwa in a nutshell--take the money up front and demand long-term commitment from students while treating the teachers as disposable employees.

Japan Economy News' Worsley agrees that the eikaiwa schools need to change to survive.

"The industry itself will continue to shrink as does the population and number of younger people in Japan. In order to avoid disappearing, language school operators are going to have to embrace new technologies, diversify their products and services, and appeal to new market segments," he says.

I have no idea what Ken is talking about here. This is the standard throw away comment you get from the talking heads on cable news. Embrace new technologies, diversify their products and service and appeal to new market segments? Baloney. The large eikaiwas have already been offering lessons over the Internet and appealing to different age groups has always been part of their renewal campaign strategies. Does Ken mean moving to Skype or a virtual classroom such as Moodle? The large eikaiwas have failed because of their greed and unscrupulous business practices. With Nova, it was the unfair refund policy and charging its customers outrageous prices for videophone systems they didn't necessarily want. More recently, with Fortress Japan, it was their pressure sales tactics and outright fraud. If the large eikaiwas are to change anything, they can start by having a more transparent pricing and refund policy, and try being honest with their staff and customers.

This, I don't get:

Despite criticisms leveled at G.communication on popular Web sites such as Let's Japan of disorganization and putting profit before quality and teachers rights, the demand for lessons remains, and the teachers The Japan Times spoke to about current conditions at Nova were generally satisfied.

What do all of the criticisms posted here on Let's Japan have to do with the demand for English lessons and job satisfaction? The answer is nothing, because the author is making a false equivalency. The fact that eikaiwa gets scrutinized here has nothing to do with demand or job satisfaction. When Chris and I created LJ 10 years, we did so to tell others the reality of eikaiwa. Sorry it's not all green tea and onsens. Is it possible, that people might actually enjoy their eikaiwa jobs? Absolutely.

This apparently, is supposed to be an example of job satisfaction:

"The bankruptcy shook off a lot of the frat boys and the people just out of college looking to have fun for a year," said one teacher, who spoke on condition of anonymity, fearing a reprimand. "The teaching at Nova has much improved because the staff that have remained tend to have a longer-term investment in this country.

"My salary is as good as it has ever been. In the days of Nova, there were too many people collecting high salaries but doing very little. It seemed that departments in the company such as HR were very bloated," he added.

I find this passage ironic. It also illustrates why eikaiwia get criticized here. The teacher may be well-paid, but his employer clearly has him under their thumb as he fears being reprimanded for speaking out. Eikaiwas depend on useful idiots like this teacher so they can offer vague contracts and working conditions that benefit the employer, not the employee.

"When Nova came down, it was a huge story, it seemed to be big in Japan and internationally," says Hong. "I remember embassies and other organizations offering help to those that lost their jobs. Geos has been a strange situation; nobody knows where they stand. Some people are in the same situation as the Nova teachers were, but they aren't receiving the same help."

So, in the end, there's this sense of a let-down. The GEOS bankruptcy hasn't been the media spectacle like Nova's collapse. Nobody is teaching for food in a park and the students haven't really lost their tuition fees. Perhaps the author was trying to offer a balanced view by conveying the message that things aren't so bad, but on the other hand, there's loads of information that suggests otherwise. One thing is clear, however: the old model of large schools demanding upfront payments is dead. Maybe that's where the confusion comes from. Nobody is really sure what the next incarnation of eikaiwa will be.

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.

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.