Steve Tainton

Talking business

Does Eikaiwa make any cents

With the massive implosion of Nova at the end of last year and the seeming inability of its acquirer G-Communications to pick up the pieces, one could be forgiven for questioning whether the business of eikaiwa is indeed a business at all. Newsweek Japan recently ran a cover story indicting the whole industry as ineffective and full of false promises. Nonetheless, there are still eikaiwa schools operating from less than prime real-estate at most major train stations in Japan. So what gives? Is an eikaiwa school a serious business enterprise or a way for a would be proprietor to make a small fortune from a large one?

A quick look under the hood/bonnet is forthcoming, but first things first - what is eikaiwa? Eikaiwa is a Japanese word constructed of three kanji characters that mean English conversation. The eikaiwa concept may be somewhat unique to Japan. It typically consists of small group lessons (no more than 5 students) lasting an hour or less in which oral communication is the focus. Unlike the private English school that I taught at in Thailand, eikaiwa schools often work from a very loose curriculum and fixed courses are the exception, not the rule. In Thailand I often taught groups of up to 10, standing in front of them writing on the whiteboard, some written work was the norm. In eikaiwa, the teachers is usually seated in a circle with the students, reading may be a component, but worksheets are seldom used. Having never experienced the Korean hagwon, I won't attempt a comparison. At first glance, eikaiwa appears easy to teach, but the Japanese are some of the most recalcitrant conversationalist in the world so good luck to all those willing to give it a go.

During Nova's heyday, eikaiwa schools could be found at nearly any sizable station in Japan. Eikaiwa easily outranked any traditional Japanese art form (calligraphy, flower arrangement, martial arts) in terms of popularity. Many housewives dropped by the eikaiwa school after the morning clean, before the afternoon shopping. Students came late afternoon and businessmen in the evening. The weekends were the busy times. Now, to a certain extent I should be writing in the present tense, but realize that in the course of several months well over 500 such schools closed their doors nationwide. The existing market has been unable to absorb all the students left out in the cold. I have witnessed this first hand at my second job, a small eikaiwa school that has been turning away former Nova students due to lack of capacity.

I wrote about the death of Nova previously. The rest of the industry is not more than an ailing patient, perhaps destined for a Novaesque demise. Nova's glitz and glamour was all surface show founded by its ponzi-scheme approach to moneymaking. The more responsible operations usually inhabit dingy, dark office spaces within walking distance of major stations. Their locations are necessary, but the interiors speak to real state of affairs. As I write this G-Communications is actively looking for smaller spaces for many of its major schools. They can't handle the rent overhead of the locations they took over from Nova. The heart of the matter is profit-margins. The small eikaiwa I work for is a great microcosm of the entire industry. After paying staff overhead most lessons only gross 1000yen per hour. That is about how much a convenience store employee in Japan makes. I haven't accounted for other overhead yet so net profit is almost non-existent. Still we have a great location, lovely interior and constantly updated lesson material. The secret... the owner is wealthy and runs the business as more of a hobby than anything else. Great for me, bad news in general.

Even more businesslike operations find it hard to balance operating hours, teacher numbers and lesson pricing in order to make money. The problem is that the consumer will only pay in the neighborhood of 2000 yen per lesson for a group lesson. The average teacher makes about that per lesson. Considering operating costs, in order to break even most schools need at least three students in a lesson. Easy on the weekends, impossible on weekday afternoons, a gamble on weekday evenings and remember if you don't offer enough lessons or long enough hours students won't be pleased. The transience of teachers is such that maintaining the ideal teacher numbers is all but impossible and at any given time a school is usually understaffed and losing students or overstaffed and losing money. Sounds too bleak? Consider this. The latest, greatest thing in Japan is a chain of schools called Gaba. The Gaba concept is horrifyingly sensible. All lessons are private. Students pay over 5000 yen per lesson. Teachers are paid a maximum of 2000 yen. The teacher is not considered an employee as much as a sub-contractor. If there is no student reserved for a class time, the teacher doesn't get paid. This makes great business sense and seems to be the only real way to make money from eikaiwa with one major flaw... the conditions are so bad for the teacher that Gaba is only thriving on displaced Novaites and with the Nova recruiting machine gone will have great trouble expanding or even maintaining operations into the distant future.

If it still seems as if I may be extrapolating too much from one example, I leave the reader with this thought. The small school I mentioned above has been open for five years. It has employed a dozen or so teachers in that time. All but a couple came to Japan on a Nova sponsored visa. If Nova had not existed the school would not have opened as the founding teachers were both former Nova employees. Currently over thirty hours of instruction is delivered weekly by teachers who entered Japan on Nova visas. Nova brought several thousand teachers to Japan every year. No other outfit comes close to those numbers. Japan is far too expensive for teachers just to show up, get a job and do a visa run a la Thailand. Gaba doesn't recruit overseas, my small school doesn't recruit overseas, most eikaiwas don't recruit overseas. Teachers average a year in Japan. Who is replacing them? Nobody.

Is eikaiwa dead? Not yet, but it's on life support.


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