Japanese eikaiwas, like 19th century banks, rely on the trust of the customers

I wanted to take a break from the depressing diplomatic spat about Okinawa to talk a bit more about English teaching in Japan. Eikaiwa (EH-kuy-wa) is the general term an English-learning club as a business format here. It’s a business model that is still out there although it also seems to be quickly losing its credibility, if not its popularity.

I did this in my beginning times here in Japan, which is one of the reasons why I cut way back on blogging. I agreed to work with a judicial scriviner—I believe the term is—who had a struggling Eikaiwa, where it wasn’t really clear what his business strategy was for it. (A bit more on that some other day.)

Eikaiwa, I believe, is a unique phenomenon to Japan, and primarily driven by the need to employ working holiday visa students from countries that have a working-holiday arrangement with Japan. Primarily: England, Canada and Australia.

Although the old government here never quite came out and said, “look, we have these businesses going here because we need a place to set up working holiday students in exchange for these other countries letting our kids stay a year in theirs”, practically, that’s why the business is around and tolerated in areas where it is known to fall short.

If it weren’t for the young Japanese wanting to go abroad for a year, you wouldn’t be seeing very many Eikaiwa businesses in Japan.

A bit of this is the unfortunate (or not) realities of world linguistic geopolitics. English opens doors for non-native speakers throughout the world, but Japanese tends to commit you, well, Japan. So the people who learn English worldwide, and here in Japan, have a different set of motivations and rewards than the reverse.

There are then, naturally, a small but not insignificant number of young people who are ready here at age 20 to speak English in a foreign environment and travel the English-speaking world.

There are relatively few Westerners who have mastered Japanese to the point of working in Japan. And disproportionately, these are individuals where Japanese played a role in their upbringing—usually they had at least one Japanese-born parent.

So you have the awkward situation of a “business model” that really exists to serve a government policy end. But I think few people really stop to look at it this way.

These English conversation schools started out small in the years after Japanese were allowed to, and could, travel abroad freely. I think this would have been about 1966. So in the early 1970’s you see the first of what became the “chain” Eikaiwas appear. The precursor of the somewhat more transparent JET (Japan Exchange Teachers) program, a visiting teacher-aide program for Westerners, also began around that time.

In the Showa-era bubble economy here, the Eikaiwa concept grew, and a firm called Nova–using the same Eikaiwa model–got its start. After several years of apparent success, it began a rapid expansion in the 1990’s and 2000’s. By the time I arrived here in 2005, Nova was probably at its peak.

The Nova model, basically, relied on squeezing each party to to the business relationship in as many ways possible. The teaching staff, again, primarily working-holiday youngsters, were given a strict, assembly-line style working environment where the goal of teaching was confused with the directive to get the “student”/customer to “keep buying lessons”. These were usually bought months in advance, at an implied discount.

As I understand it, there was a certain moral ambiguity thrust into the work, confusing people as to whether the goal was supposed to be:

some didactic end, like a school;

or entertainment, like a hobby;

or simply, to get the customer to keep buying lessons.

I suspect the explanation was to try and make it all three. But if anyone knows anything about education, usually these are at least prioritized somehow. And emphasizing the third one usually raises suspicions. When non-profit, accredited colleges look like they just want money, it gets people looking askance. So why wouldn’t it for a profit-seeking school as a business?

Nova went bankrupt about two years ago—maybe October 2007—and I believe the former president of the company is under indictment here in Japan for some abuse of money or other fiduciary failing with the company’s finances. a judge handed the former president some time (3 1/2 years) for his misdeeds, but it’s not clear if he’s serving any of it yet.

What did Nova in, besides the overexpansion, is some of the more determined Japanese among the customer base started suing to get their money back–just like a bank withdrawal in many ways. No one likes to be taken for a fool, and the reality of Nova was that the customers were being asked to pony up a lot of money in prepayments (effectively, deposits). And then asked to trust that they would get the quality service they expected at some point in the future.

Like how a bank in the days before Federal Deposit Insurance would take a deposit based on the trust that the depositor could get their money back on demand or after a term.

An EFL teacher who blogs had casually mentioned the point about bank runs in a post last month, concerning another Eikaiwa chain that became the subject of internet rumors earlier in October. So I wanted to expand on the point more because I think it’s a great insight.

Prepayments, in the accounting world, are a liability, if you haven’t earned the money yet!

In other places, Nova had been compared by BBS commenters to a Ponzi scheme because the money on prepayments, the cash flow, was being used to fund current expenses (the bills, mostly salary and rent, that were due in the present.) But I disagree. The company’s “business model” didn’t work, and this was effectively hidden in the rapid expansion.

If anyone remembers the original Boston Chicken restaurant chain of the late 1990’s, this was the same idea. Rapid expansion covered for the failure to charge enough for the food wasted in the process of making “home cooked” fast food. Nova undercharged what it would cost to deliver a teaching service and still provide the profit-seeking owners with a return. Alternatively, it charged too much for “teaching” that really wasn’t. It was bad business.

Like banking, education is a trust business. Socrates had that down about 2,500 years ago, right? Socrates didn’t charge, but times were different then. But it made the point that the value has to be in the thing itself. And the whiff of a profit motive in the activity tends to erode trust. Yes, cover costs. But the Eikaiwas have been about profit over education.

Unlike the banks, the government here doesn’t step in to regulate them, because their actual service to the Japanese community, as an unregulated industry holding pen for working-holiday visa holders, is one of these unspokens.

Now it’s interesting that the mere rumor put out, about how solid any one of these chain Eikaiwas is, is enough to get people scurrying.

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4 Replies to “Japanese eikaiwas, like 19th century banks, rely on the trust of the customers”

  1. I think this is a little misinformed… Eikaiwa are basically private language schools, and in no way unique. There are tens of thousands of such schools worldwide, from owner-operated one offs to multinational corporations. Some are great, some extremely shady. But they are ubiquitous.

    I would also question the logic that they are a ‘holding pen’ for working holiday makers… most instructors are probably on a “specialist in humanities and international visa”, and US citizens are not even eligible for working visas.

    The customer base is broader than potential Japanese soujourners abroad, too, including business learners, hobbyists and children (the growing and healthiest market currently).

    I’m not an apologist for the eikaiwa, nor are all your criticisms later in the post inaccurate, but those three points I mention are inaccurate.

    1. I appreciate your comment, but I think I am closer to the mark about Eikaiwa. What you are describing is more like an Eigo Gakkou—an English school.

      An English school has a credible teaching approach. It’s clear what the purpose is, and there is some goal, mastery of the material, at the end. And people that can’t reach the goal, even after a number of tries, are almost always asked to look elsewhere for help.

      In Japanese chain eikaiwas, did any of that really happen?

      I agree that English schools are all over the world. You are right that there are many smaller schools throughout Japan that bill themselves as “eikaiwa”. But practically, the ones that survive are running an Eigo Gakkou somewhere within the organization.

      Alternatively, they are very successful social clubs (parties, trips, etc.) with an emphasis on English. That works as a business model, too.

      I don’t recall saying that I limited the customer base just to people looking to go abroad. I merely pointed out that the Eikaiwa industry got its start around the time that Japanese started to travel abroad more. This is when the working holiday programs expanded, and where the need for the holding pen arose.

      U.S. citizens are of course eligible for working visas, just not visas under a Working Holiday program. The U.S. gives out loads of green cards to young Japanese who want to work and live (even settle!) in America. So, as with much in U.S.-Japan relations, Japan gives up some fractionally much smaller thing in return. Japan’s idea of “more equal”.

      You are right, though, to point out that the Eikaiwas usually are not staffed with Americans.

      “Holding pen” was not meant to denegrade the abilities that the working holiday work force brings with them. It’s simply to say that the Japanese government needs a place to put them, and the eikaiwa industry serves its purpose. At least in the old regime, and the new one is not showing any signs of change.

      From the old regime’s view, they couldn’t make them direct hires of the school system because that would provide them too much legitimacy. If I get to JET as a topic, I’ll put more into that remark.

  2. Your info on Sahashi (president of what used to be NOVA) is a bit dated:

    http://search.japantimes.co.jp/cgi-bin/nn20090827a1.html

    The eikaiwa business has been imploding slowly but surely since the bubble burst many years ago. Learning English was a cool hobby! Meet exciting foreigners! (or at least foreigners.) Travel to Hawaii under the pretense that you will go outside your tour group and “rough it” amongst the natives, many of whom speak Japanese because they are tourism dependent!

    When the bubble burst, money started drying up and expensive “hobbies” started being cut back on. Those who thought they could get ahead in the company by studying English and claiming ability in it realised that, as their company started leaning, just having “English ability” wasn’t going to cut it so that had to be cut down on as well. This trend is likely to continue until the world economy picks up again. Say, in about 10 years?

    1. Chuckers, you’re right. But as I was typing it, I couldn’t remember at what stage the trial was. And something had me (still has me thinking) that the sentence is on appeal.

      I am becoming a bigger and bigger skeptic of judicial systems anywhere anymore, so it’s not clear that Sahashi serves the 3 1/2 even.

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