Japan: Language school chain built on lavish ads, cheap labor

[Harold Schiffman]

Language school chain built on lavish ads, cheap labor
Jun Ishikawa and Shuichi Muto Yomiuri Shimbun Staff Writers

English conversation school chain operator Nova Corp. has filed for
court protection from creditors after running into financial trouble
under its president, Nozomu Sahashi, who has since been sacked by
other board members. This is the second installment of a three-part
series of articles taking an in-depth look at Nova's collapse.
Comparisons have been drawn between the business practices used by
Nova Corp. and the scandal-hit nursing care provider Comsn Inc., as
well as the manner in which both firms fell from grace.

On June 13, the Economy, Trade and Industry Ministry suspended Nova
for six months from signing up students on new contracts of one year
or longer over misdemeanors that included lying to prospective
students by telling them that they could book lessons any time they
wanted. On the same day, Goodwill Group Inc., the parent company of
Comsn, announced the care provider would withdraw from the business
after the Health, Labor and Welfare Ministry had earlier barred the
issuance of care facility licenses to the firm due to fraudulent
applications it had made to acquire such licenses and other
discrepancies.

Ousted Nova founder Nozumu Sahashi reportedly objected to Nova being
compared to Comsn on TV news programs. However, the paths taken by
both companies seem to overlap in an oddly striking manner.
Both were run by extremely autocratic leaders who assigned employees
excessive quotas to fill, and built up a network of either facilities
or schools by investing large sums of money in advertising and
publicity. Nova's rapid growth was supported by its colorful TV
commercials, which gave birth to popular characters such as the Nova
Rabbit, as well its inexpensive lesson fees.

During fiscal 2005, a year in which the company sharply increased new
schools, it racked up 11 billion yen in publicity expenses--about
one-sixth of its turnover in that period. One trick Nova used to
inflate its earnings was to treat a portion of students' prepaid
lesson fees as "enrollment fees." "I paid 320,000 yen in fees for
additional lessons, but my contract said that 30,000 yen was for
enrollment fees and 290,000 yen for lessons," a student who renewed a
contract in March 2005 said. "Every time I asked about this, I wasn't
given a satisfactory explanation."

Accounting rules say enrollment fees can be posted as sale proceeds
that can be used as operating capital. Thus, 30,000 yen was marked off
as operating capital.

The low lesson prices also made Nova stand out from its competitors.
The cost per lesson at other leading chains ranges from 2,300 yen to
5,000 yen, compared with about 1,800 yen a lesson for students who
signed up for the longest contracts with Nova.

Rival chains wondered how Nova could keep prices so low and still stay
in business. What made this possible was Nova's doing everything in
its power to cut labor costs.

About 80 percent of the nearly 1,000 new Japanese employees taken on
each year were female. Despite having to meet each school's strict
contract quota and often having to work until late at night, the
monthly take-home pay for a person in their fifth year at the company
would be only about 180,000 yen.

"It's our basic policy to have people quit while their wages are low,"
a former executive and close associate of Sahashi said. "It's better
to have young women soliciting prospective students."

With the average length of time an employee spends at the company
being three years and seven months, Nova would have a fresh intake of
new employees four times a year.

A Nova advertising sign states that "All instructors are native speakers."

The 5,000 foreign instructors working at more than 900 schools also
have been hit hard by recent events.

"I just got married, and things would be really hard now without my
wife's income," said Bob Tench, a 49-year-old British teacher who has
been with the company for 13 years. Since September, when wages
started to be paid late, many instructors have faced financial
hardships and are being forced to return to their home countries.
Australian Foreign Minister Alexander Downer, seeing the plight of
many Australian teachers who work for Nova, announced state support
for them on the radio on Oct. 12.

Both the Australian and British embassies in Tokyo have been
displaying information on legal and employment consultations on their
Web sites since Saturday. With this leading firm found to have
violated the law and collapsed all too easily, the image of Japan's
English-language schools overseas has been dealt a severe blow.

(Oct. 31, 2007)
http://www.yomiuri.co.jp/dy/national/20071031TDY01301.htm

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