Japan: Crazy For Cramming

Tutoring outfits are thriving -- and new international student rankings may intensify demand

It's no secret that the Japanese have long been obsessed with education. Students flock to shrines to write prayers on wooden tablets asking for good grades. The lure of top schools is so strong that even kindergartners sometimes study for months before entrance exams. And students who fail college entrance tests are known to spend a year or two polishing their skills for another shot. For years that obsession has paid off in global leadership in innovation and design for Japan.

These days, though, the country is losing its edge. In a 2000 survey of 15-year-olds from 41 countries by the Organization for Economic Cooperation & Development, Japan ranked first in math and eighth in reading. According to the latest figures, released in December, Japan has fallen to 6th and 14th, respectively, behind the likes of Korea and Hong Kong. While it held steady at No. 2 in science -- and remained well ahead of the U.S., which could muster just 28th in math, 18th in reading, and 22nd for science -- the figures have been greeted with horror. Japanese education "is in a critical situation," says Masahito Kitayama, president of Eikoh Inc., which runs a chain of schools offering remedial instruction and courses that prepare students for exams. "We used to have common objectives. To get a better life, people knew they had to study hard, get into a good school, and join a good company. That shared awareness is gone."

Many in Japan blame the problems on falling standards in schools and a slow disintegration of adult authority in the classroom and at home. A key concern is a government decision three years ago to ease the workload for elementary and junior high school children by 30%. This "relaxed education" policy was supposed to help schoolchildren become more well-rounded, but so far it seems to have succeeded only in causing a public outcry. One example: Junior high school students are now taught to use "around 3" rather than 3.14 for pi when calculating the diameter of a circle -- a move that has parents fuming. "The lovely-sounding word 'relaxed' has been used to cover up an incoherent situation in which schools, educators, and parents alike have all cut corners and avoided responsibility," thundered the daily Nihon Keizai Shimbun after the latest OECD figures were released. And it doesn't help that key Asian rivals have risen in those international education rankings, emphasizing a sense that Japan's children -- and, ultimately, its economy -- risk being left behind.

Those dark clouds for Japan, though, look like sunny skies to the operators of juku, or "cram schools," such as those run by Eikoh. The country has some 50,000 of these outfits, which offer afternoon and evening classes where students can bone up on everything from chemistry to classics. The juku have been around for years, but demand for the services of the better schools is soaring as national anxiety about educational standards intensifies. Profits in the $8.8 billion industry are soaring. Fifteen of the 21 publicly traded juku estimate that their earnings rose for the year ended in March. Eikoh, Japan's largest listed juku, opened 18 new locations last year and says it served 60,000 students, up 12% from the previous year. The company expects a 40% jump in profits, to $18.9 million, on sales of $345.1 million. At Shizuoka-based Shuei Yobiko Co., sales are expected to jump 8.4%, to $109.4 million, according to Mizuho Securities Co. Shuei will open 16 new schools in Hokkaido in July and expects to have 80,000 students, with sales of $257 million, by 2010.

Because of the looser standards at public schools, parents are more willing to drop some extra cash to give their children an edge. Japan's educational spending per household jumped 8.6% last year, according to Masatoshi Kikuchi, Merrill Lynch & Co.'s chief equity strategist in Japan -- easily outstripping the country's 2.5% growth in gross domestic product. To many parents, the money is well spent considering the low esteem in which Japanese now hold their schools. "Public education lacks a service mindset," says Kikuchi, who lays out about $500 per month on juku for each of his two children.

Changes in Japan's social fabric are helping the juku, too. First, as the gap between rich and poor in Japan widens, there's a growing class of wealthier parents willing to spend lavishly to give their kids -- or, increasingly, their only child -- an advantage in a society where lifetime employment, even for university grads, is fast becoming a memory. This drive for security has spurred a leap in applications to all private schools, from primary grades through college. For two years, 42-year-old Tomoko Yamamoto has been sending her son, Atsuki, to cramming classes at Tokyo's Nichinoken, a juku that prepares students for entrance exams at elite junior high schools. Atsuki, 11, attends extra classes from 5 p.m. to 9 p.m. four days a week and takes tests every Sunday. The tab? Some $9,200 this year. Like many Japanese parents, Yamamoto hopes the smaller class sizes and more intensive instruction than at her son's public school will help Atsuki get into a private junior high and, eventually, a top high school and university. "Ideally, I wouldn't want to spend so much money on education," Yamamoto says. In her day "it was a matter of course to go to public high schools," she says, but today, "at private schools children have more opportunities to deepen their knowledge."


Now the schools are expanding into new areas. Toyama Ikuei Center opened a junior high school in Toyama in April and plans to open a senior high school in 2008, and other juku are following suit. Many other companies are targeting niches. Meiko Network Japan has grown rapidly -- doubling sales in the last five years -- by focusing on low-priced tutorial classes for underperforming students. Nihon Edunet has introduced an Internet videophone service that offers home-study support until midnight. If students get stuck, they can call a tutor for help.

The juku face some potential problems. The biggest is Japan's falling birth rate, which means the juku are chasing a shrinking number of potential clients. And growing competition means the juku must spend a rising chunk of sales on advertising even as it gets harder to hike prices. Takeshi Watanabe, chief executive of Shuei Yobiko, points out that a decade ago it was possible to raise tuition fees every year. "We can't do that anymore," he says. "Many people feel out-of-school education expenses have become a big burden."

Still, even if the government toughens education standards again -- something 78% of Japanese would welcome, according to a recent Asahi Shimbun survey -- it's unlikely such a move would dampen enthusiasm for the juku since so many parents have become disillusioned with public education. "I can teach much better than [public school teachers] do, and I'm sure many parents agree," says Hidekatsu Watanabe, an analyst at Mizuho Securities in Tokyo, who follows juku stocks. Japan's new insecurity over its age-old obsession, it seems, is good for business.

By Ian Rowley and Hiroko Tashiro in Tokyo

    Before it's here, it's on the Bloomberg Terminal.