Slump from ad scandal triggers rent defaults, radical restructuring
Nova Corp., reeling from a false advertising scandal, is planning to close at least 200 of its 900 or so schools later this month to turn around its struggling operations, sources said Thursday.
The nation’s largest language school chain is mainly targeting money-losing branches, but some of the 200 branches are being closed for failure to pay rent, according to the sources.
Nova said in a statement that it has not officially made any decision on the closures and will disclose information when necessary.
Nova, headquartered in Osaka Prefecture, was ordered by the Ministry of Economy, Trade and Industry in mid-June to suspend part of its business for six months for lying to consumers about its services when soliciting students. It then went into a slump as the ruling crippled its ability to enroll new students.
The scandal prompted many students to end their enrollment, and contract cancellations will likely rise, the sources said.
At its peak in June, Nova had some 480,000 students enrolled. But Nova itself admitted in August that total enrollment will likely plunge 19.2 percent year on year by September.
The schools slated to be shuttered are located mainly in Tokyo and major cities in Osaka, Aichi and Hyogo prefectures, where rents are high. The company has already picked about 50 branches, including Nova Kids schools, for the shutdown.
The total number of closures will likely be far in excess of 200 because some landlords are threatening to evict over defaults on rent payments, and Nova itself is offering to vacate some of the properties, some of the sources say.
The 200 include branches that were shut down both in late August and this month, as well as those slated to close by the end of next month, the sources added.
Meanwhile, Nova is believed to be running short of funds because it is falling behind in employee salary payments, the sources said.
Later in the day, the General Union [Tokyo Nambu’s sister union in Osaka], which represents Nova staff, including foreign language teachers, urged the company in a written statement to proceed with caution to minimize any adverse effects on Nova’s students and employees.
Nova mulls closing at least 200 school branches: sources
Nova Corp., reeling from a fraudulent-advertising scandal, is considering shutting down at least 200 out of its about 900 school branches around late September to turn around its operations, sources close to the matter said Thursday.
The nation’s largest English-language school operator plans to close mainly money-losing school branches, but the company is being compelled to close some of the 200 because it has failed to pay their rents, the sources said.
http://home.kyodo.co.jp/modules/fstStory/index.php?storyid=338019
NOVA looks to shut down schools amid financial crisis
Major English language teaching chain NOVA is considering shutting down a large number of schools, it emerged on Thursday.
NOVA’s income from lesson fees has decreased since the Ministry of Economy, Trade and Industry issued the language school a partial business suspension order over its practices. Because of this, the school is apparently pushing for a turnaround, hoping to cut costs by trimming and merging unprofitable schools.
NOVA currently operates more than 900 schools, but problems with efficiency have emerged.
Officials close to the group said NOVA has already been trimming and merging schools, focusing on unprofitable schools with low student numbers, but in the future the chain will also apply the move to major schools in cities where rents are high and there is more than one school in the same area. As many as 100 schools could be affected.
The language school will reportedly make considerations for students, allowing them to take lessons at other nearby schools.
http://mdn.mainichi-msn.co.jp/national/news/20070920p2a00m0na029000c.html
Teachers unpaid as company falters
HUNDREDS of foreign teachers of English in Japan were anxiously awaiting overdue wages from the Nova language school yesterday, amid speculation that the corporate giant was close to collapse.
The country’s foreign workers’ union said it could “only hedge a guess that up to 3000” English teachers, many of them young Australians, went without pay last Friday and were left waiting nervously over Japan’s long weekend for the money.
“But at the very least there are hundreds of them. My phone hasn’t stopped,” said Louis Carlet, from the National Union of General Workers.
Some teachers said they were owed thousands of dollars, while others posted messages to say they were quitting in disgust. “I’ve never felt so defeated in my whole life,” said a 24-year-old American teacher, Jerry Johnston, who was considering leaving Japan after just two months but could not afford the air ticket.
It is the second time in two months that Nova has paid staff late. A recent slide in the company’s stock price followed news of a delay in payments to some of its 2000 Japanese staff last month.
The company employs about 7000 foreigners – more than any other Japanese company. Australians make up the backbone of its 5000-strong teaching staff. The company has more than 400,000 students, accounting for the biggest share of Japan’s multibillion-dollar private English teaching industry.
But it has been plunged into financial crisis this year, partly due to overexpansion, but also because the Ministry of Economy, Trade and Industry banned the company, based in Osaka, from signing new students on long-term contracts for six months.
The order was given after a court ruled that Nova lied about its services and cancellation policy when soliciting students.
The chief executive officer of Nova, Nozomu Sahashi, issued a statement to staff at some branches last Friday to say it had “not been possible to complete all the necessary operations to deposit instructor salaries”.
The statement assured that salaries would be deposited by today. But Mr Carlet told the Herald: “I’m getting reports that they have been cut off by their stationery suppliers, and delivery services, because they’re not able to pay them. They could be on the verge of going under at any moment. It’s very serious.”
Nova posted a 2.5 billion yen ($25 million) loss in operating profits for Japan’s last financial year, which ended in March. An article in the business magazine Toyo Keizai last month said the company was behind in payments to business partners and banks.
Although some teachers said their wages had arrived yesterday, others were still waiting late in the afternoon.
The manager of Nova’s Tokyo branch, Robert Vaughan, could not comment on the matter, and a number provided for media queries at the Osaka headquarters went unanswered yesterday.
A 28-year-old Australian, who works as a teacher at a Nova school outside Tokyo, said: “My pay didn’t come in on time and it was the same for a lot of people here.”
The teacher, who asked to remain anonymous, said: “No one seems to know what’s happening – we’re being kept in the dark.”
http://www.smh.com.au/news/world/teachers-unpaid-as-company-falters/2007/09/18/1189881511712.html
Nova sees sales plunge for quarter
Nova Corp., the nation’s largest language school chain, said Friday its sales for the April-June period plunged 31.9 percent to ¥9.3 billion, reflecting the difficulty the troubled firm is experiencing in luring new students.
Nova’s image took a beating in June when the Ministry of Economy, Trade and Industry ordered the Osaka-based company to partially suspend business for lying about its services and cancellation policy when soliciting prospective students.
Speculation ran rife that Nova was strapped for cash when it failed to make salary payments at the end of last month. Nova said wages were paid on Aug. 1 and apologized for the trouble caused to its investors and others concerned.
Nova posted an operating loss of ¥4.6 billion and a group net loss of ¥2.4 billion. The figures cannot be compared with last year’s because they were not disclosed.
But in the full year to March, Nova posted a net loss of ¥2.5 billion.
“We are taking (METI’s suspension order) very seriously and have set up an outside panel to study ways to reform our business,” the company said in a statement.
Initially scheduled for Aug. 10, the release of Nova’s financial report for the three months to June was postponed to Friday because more time was needed to calculate how much had to be set aside to pay refunds, the company said.
In the financial statement, the company said it set aside ¥1.6 billion.
The language school chain misleadingly informed prospective students they could book lessons “any time” and at any of its 900 branches nationwide.
Blame it on the boss of NOVA
The NOVA chain of conversation schools — whose slogan is “ekimae ryugaku” (study abroad in front of the train station) — operates roughly half the English conversation schools in Japan. Earlier this year, in response to a stream of bitter customer complaints, the Ministry of Trade, Economy and Industry and the Tokyo Metropolitan Government investigated the company and confirmed that some of NOVA’s 800 schools had indeed engaged in a number of dubious practices, such as refusing to refund tuition fees to students canceling lessons.
As a result, on June 13 the chain was ordered to partially suspend business for six months — a draconian penalty by Japanese standards, and one that threatens the company’s very existence.
Writing in Sapio (7/25), a biweekly self-described “international intelligence magazine,” business pundit Ken’ichi Ohmae asks why these problems occurred. And more to the point, he ponders, with so many Japanese enrolled in conversation schools, why does the nation’s level of spoken English remain so poor?
For a time NOVA grew, and founder and CEO Nozomu Saruhashi was praised as a dynamic and charismatic businessman. But like so many success stories these days, Ohmae notes, it was an illusion, analogous to the tale of the emperor’s new clothes. NOVA began running out of steam and has finished in the red for the last two fiscal years.
How did this mess come about? The first problem, Ohmae points out, is inherent in the English-teaching trade itself. For the past decade, while demand for English has been booming in other countries, from South Korea and China to Germany and France, the Japanese have been spinning their wheels. Japan’s average TOEIC (Test of English for International Communication) score results are the lowest among all advanced economies, around the level of North Korea.
This situation, Ohmae writes, has fostered a “loser mentality,” where learners feel that there is no benefit to continuing their studies. Of course the conversation schools are not entirely to blame: It’s students’ lack of persistence, which leads to their piecemeal, on-again, off-again approach, that stands in the way of language mastery.
A second problem relates to NOVA’s management. In recent years, the media has loved to lavish attention on flamboyant, high-profile entrepreneurs. These so-called “shogun-sama” businessmen typically set unreasonably high objectives for their companies, and while achieving initial rapid growth, they often begin to overlook the key source of their success — which, in the case of English schools, are the students who constitute the source of revenues.
NOVA’s high growth trajectory was achieved on the basis of aggressive marketing, such as its management’s boast that it would “open 1,000 schools,” — when what it should really have been doing was vowing to raise the level of its students’ English ability.
Of course, Ohmae points out, problems are by no means confined to conversation schools, but are rampant throughout the Japanese business world.
A common factor in recent scandals involving the Goodwill Group (C0MSN nursing homes), Katoyoshi (frozen foods), Reins International (food retailing) and others, says Ohmae, is the presence of charismatic and energetic founders who, at some point in their companies’ meteoric growth lost sight of their customer base and forged ahead with their eyes focused only on the bottom line. Because of the personalized, do-it-alone style of top-down management, such companies typically fail to benefit from frank advice offered by directors or advisors from outside the organization. And if the regular directors fail to speak out at policy meetings, then no devil’s advocate is in a position to restrain the cocky leader’s impulses.
Ultimately, the main cause of NOVA’s problems can be attributed to slumping demand at English conversation schools. To some degree, the media has reported that English-related business has become saturated and that schools have become overly aggressive in soliciting students, but this doesn’t reflect the actual situation. The prolonged decline of conversation schools can be laid at the door of their failure to show concrete results: I.e. the ability of their students to speak the language hasn’t improved.
Despite the expanding status of English as the de facto standard for international business communications — as evidenced by the learning boom it enjoys in many other countries at present — it strikes Ohmae as exceedingly strange for demand to be on the decline only in Japan.
“I get the impression that over the past 10 years or so, Japanese have become resigned that their English won’t get any better, and that their desire to master the language is presently on the decline. If that’s the case, then it’s natural that a company like NOVA, which is going against the prevailing trends by attempting to expand, would become so bent out of shape.
“That said,” Ohmae concludes in Sapio, “The apparent decline in the desire for self improvement may spell even bigger problems for Japanese.”
http://mdn.mainichi-msn.co.jp/waiwai/news/20070721p2g00m0dm002000c.html
Wronged employees seek redress through mediation
…in this era of short term contracts, temporary jobs, and political shifts to the right, workers, foreign or otherwise, should remember they have rights and their employer has responsibilities. Unions, which only exist due to the support of their members, can point workers the way to “assen” mediation, a special labor disputes court, and, if those time and money saving options fail, can provide a union lawyer and sue the most unscrupulous of employers.
Diplomat rues Tokyo’s ‘lack of humanity’ to asylum-seekers
What are the prospects for Japan accepting more refugees?
Prolonged recession has undermined the context for reception of foreigners, and Japan has a poor record on integrating foreign workers properly. It is hard for the public, media and government to differentiate between the mixture of refugees, economic migrants and criminals seeking entry. And very often there are those who blame crime on illegal foreign people. There are plenty of Japanese committing crimes but foreigners are easy targets. And we have more than 300,000 Brazilians of Japanese origin and their situation has not been very good. The problem is that Japan has had an open approach to receiving many foreigners, for example “entertainers,” rather than refugees . . . but keeping people out doesn’t always assure your security.
H.I.S. may come to Nova’s aid
Major travel agency H.I.S. Co. is considering extending assistance to the scandal-tainted Nova Corp. language school chain in the form of a business tieup or financial assistance, sources said Monday.
H.I.S. Chairman Hideo Sawada met with Nova President Nozomu Sahashi late last month in Tokyo to ask about Nova’s financial conditions, according to the sources.
Assistance from H.I.S. would prove a godsend for Nova, which is in desperate need of funds to shore up its sagging operations after the government ordered it to suspend part of its operations as a penalty for fraudulent business practices, the sources said.
Sahashi said in mid-June that Nova will study a capital and business tieup with a partner in another line of business “if necessary,” when he said the company might issue new shares to bolster the firm’s capital base and dispel investor fears.
Meanwhile, an H.I.S. representative said, “The talks (between Sawada and Sahashi) did take place, but no specific deal is in the making.”
An alliance with Nova would probably be appealing to H.I.S. because customers studying foreign languages at Nova could bring in new business for the travel agency, according to industry observers.
Osaka-based Nova, Japan’s biggest English-language school chain, has about 480,000 students. It has been deep in the red for the last two years. Amid its financial plight, allegations surfaced that the company lied to customers in soliciting students and then reneged on the terms of enrollment contracts.
The Ministry of Economy, Trade and Industry issued an order June 13 for Nova to suspended part of its business for six months.
http://search.japantimes.co.jp/cgi-bin/nb20070703a2.html
A tie-up between Nova Corp. and H.I.S. Co. would be interesting, as Nova and H.I.S. have much in common, both being no strangers to disregarding the laws of Japan:
The nation’s largest discount travel agency, HIS, which also runs foreigner-friendly No.1 Travel, has based the price of some air tickets from Japan on the nationality of the traveler, possibly in breach of Japanese law, The Japan Times has learned.
Foreigners trying to buy discount tickets through the company were quoted higher prices than Japanese customers purchasing discount seats on the same flight.
The policy came to light when the company offered a discount ticket to Los Angeles over the telephone to a Japanese caller, but said it was no longer available at the quoted price after finding out a Canadian was the intended traveler.
It then informed the caller that the price for the ticket would be higher for a non-Japanese customer.
However, Japanese Air Law, Article 105, Paragraph 2, clearly states that “no specific passenger or consigner will be unfairly discriminated against.”