Global Times – March 3rd, 2010
Last December the employees and students of the Kai En chain of English training centers in Shanghai arrived to their schools to a very rude surprise: After 13 years of operation, one of the oldest and best known English training companies in Shanghai had suddenly gone out of business.
The directors had fled the country, leaving the employees of the five branches owed months of back-wages and customers without refunds for their expensive pre-paid courses.
When looking at this in the context of Chinese and international trends, it could be a preview of things to come for China’s English language industry.
Most indicators seem to show that China’s English industry is booming. According to the Social Survey Institute of China (SSIC), it’s a 15 billion yuan ($2.2 billion) per year industry and a survey of eight large cities showed that 55.4 percent of the Chinese respondents had received English training, with another 21.2 percent saying that they planned to.
However, the survey also showed that there are over 50,000 private English teaching institutions throughout China, with more opening constantly. So while the English pie may still be expanding, the pieces are becoming smaller and more numerous.
English centers with business models similar to Kai En’s are the most vulnerable. These centers rely on big facilities, highly paid but often unqualified foreign teachers and high tuition fees from students. They are facing growing competition from cheaper and often more effective resources.
In recent years China has expanded public school English education to begin as early as first grade, where it had previously begun in fifth grade or later in much of the country. This has cut off a significant chunk of the children’s English market.
Other sources of English learning are also becoming increasingly available and affordable, such as Skype-lessons with overseas teachers, podcasts, private foreign and Chinese tutors, and even a barrage of fly-by-night schools promising to take students from no English ability to exam-ready in 30 days.
While some of these options aren’t always legitimate, they’re grabbing market share nonethe-less. The ever-increasing foreign population in China also means English learners will need less and less to rely on expensive training centers to meet and practice English with native speakers.
Of course, as long as there’s strong demand in the industry, those centers that offer a quality education at a reasonable price will stay afloat so long as they can adapt their business model to the increasing supply of other English learning mediums.
However, by looking at past international cases, an impending decline in the demand side of the equation leading to mass closures of these centers seems very likely.
During the economic boom of the 1980s, Japan also went through an English learning boom similar to that of present-day China. Across the country English training centers sprouted up and the industry thrived. It seemed a guaranteed way to make money in Japan – for about a decade.
In 1996 the first major English company collapsed. The American Club English School, much like Kai En, had been delaying employee payments for months and eventually the owner fled the country, leaving the employees and students hung out to dry.
In the late 1990s, Japan’s English schools marketed and competed aggressively with one-another over share in an industry that was sinking fast. Many managed to stay afloat – for about another decade. In 2006, the 10th largest English company in Japan, Nippon NCB Co., collapsed under circumstances almost identical to Kai En and the American Club.
Then in 2007, Nova, the largest English school in Japan, with 900 schools and 15,000 employees throughout the country, went belly-up. Upon the collapse, many of the teachers (who had lost months of withheld wages) flooded to the remaining English schools. In one case, 400 foreign teachers applied for one job opening at another company.
While there are differences between Japan’s and China’s markets, the similarities are hard to ignore. Much like in present-day China, Japanese businessmen of the 1980s and 1990s thought English was a “can’t-lose” industry and foreign teachers enjoyed plentiful, secure and high-paying jobs, often with no real qualifications.
Though China’s English industry still appears to be thriving, the collapse of Kai En and the ever-growing competition in the market could be the warning signs that China is following the Japanese trend. Many economists have already observed that the industry is forming a bubble. It’s just a matter of how soon that bubble will burst.