/ Industry readjusts to declining population, new competition / 11-05-06

Kiminori Kurihara and Hisashi Kiyooka / Yomiuri Shimbun Staff Writers

Waves of mergers and acquisitions are reshaping the cram school industry as newcomers enter the only growing market–cram schools for middle school entrance examinations–while the nation’s declining youth population caps the growth of the industry as a whole.

Existing cram school chains are set to counter the new rivals through scale expansion.

The number of cram and prep schools in the nation is estimated at about 40,000. Many in the industry predict the schools will be absorbed into fewer chains through elimination and realignment.

Fierce battles among the new and old competitors will likely escalate.

Nagase Brothers Inc., based in Musashino, western Tokyo, operates the Toshin High School chain of prep schools for university entrance exams. On Oct. 2, the company purchased the 5.8 billion yen Yotsuya Otsuka Inc. based in Nakano Ward, Tokyo–a chain of 15 cram schools for middle school entrance exams in Tokyo.

Nagase Brothers President Akiyuki Nagase said the aim of the acquisition was to “absorb knowledge on how to teach students to prepare for middle school entrance exams.”

Yotsuya Otsuka is a pioneer in the cram school industry for middle school entrance exams, with high success rates of students passing exams at prestigious private schools.

Since its establishment in 1954, Yotsuya Otsuka has taught more than 200,000 students. The chain’s success was due to its ability to give lectures and produce teaching materials based on abundant past data.

Different skills and techniques are required to teach students how to pass entrance exams for middle schools, high schools and universities. Merging or acquiring is an effective way for a prep school chain focused on university entrance exams to enter the field of middle school entrance exams.

Nagase Brothers has business tie-ups with about 800 prep and cram schools nationwide and distributes live and videotaped class lectures to partners using satellite broadcasting.

The company plans to sell Yotsuya Otsuka’s teaching materials and mock examination service to its partners. Thus, the company will not change the Yotsuya Otsuka brand name after the acquisition.

Another aim of the acquisition was to acquire long-term clients while they are still primary school students. Nagase Brothers expects students who have attended Yotsuya Otsuka classes will continue using the company’s service to prepare for university entrance exams–if it provides careful follow-up attention to former students.

In October, Gakken Co., a publishing firm that produces children’s study books and other materials, purchased Tokyo Gakuen, a major chain of cram schools based in Arakawa Ward, for children taking entrance exams for primary schools.

Hiroaki Miyahara, head of Gakken’s school business division, said: “The final goal is to enter the field of schools for middle school entrance exams. We also plan to purchase famous local cram schools with a 1 billion yen investment within three years.”

Gakken is well known for its educational magazines for children–Kagaku (Science) and Gakushu (Studying)–but the declining youth population has been a drag on the company’s educational publication sales.

As a result, Gakken aims to make the cram school business the new core of its management.

In the Kansai region, Gakken plans to establish a new cram school chain for preschool age children because famous private universities in the region will open affiliated primary schools in and after fiscal 2008. They include Kwansei Gakuin University in Nishinomiya, Hyogo Prefecture, and Kansai University in Suita, Osaka Prefecture.

Meanwhile, existing cram school chains are rushing to set up more schools.

Yokohama-based Nichinoken Corp. opened new schools this year in Tokyo and its vicinity, including Koto Ward, and Kuki, Saitama Prefecture. A company spokesman said it plans to open several more next year.

Eikoh Inc., a Saitama-based operator of the Eikoh Seminar cram school chain, said it aims to attract 100,000 students from primary to high schools by creating a network of schooling facilities in and around Tokyo.

Osaka-based Nozomi Gakuen, a chain of cram schools in the Kansai region, has opened new schools in Tokyo and Yokohama since 2004, eyeing the increase of school-age youths in Tokyo and its vicinity, despite decreases on a nationwide level.

The merger and acquisition trend also is spreading among other fields in the industry.

Benesse Corp., an Okayama-based major publisher, purchased all shares in Ochanomizu Seminar, a chain of prep schools for high schoolers, for about 300 million yen on Tuesday.

Mitsugu Iwasa, president and chairman of Riso Kyoiku, the Toshima Ward, Tokyo-based operator of the Tomas chain of one-to-one style cram schools, said: “In several years, M&As will occur with the major chains. Eventually, only three to five of the stronger groups will survive.”

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Middle school market thrives

According to Yano Research Institute, a private economic think tank, the cram and prep school market likely will shrink from 992 billion yen in 2002 to 950 billion yen in 2006.

University entrance applicants decreased to about 700,000 this year from a peak in 1992 of about 920,000, according to the Education, Science and Technology Ministry.

But the only cram school market still growing is the one serving students preparing for middle school entrance exams. According to Nichinoken, the number of children who took middle school entrance exams in Tokyo and its vicinity this year increased 12.8 percent to 53,000 from the previous year.

Total sales for the top five listed companies operating cram schools for middle school entrance exams in fiscal 2005 reached 110.1 billion yen, up 7.9 percent from the previous year.

The increase in the number of students taking middle school exams is partly because of the introduction of public middle and high schools with integrated curriculums in 1999, which increased opportunities to enter high-profile middle schools.

Private universities, fearing a future decline of applicants, also set up affiliated middle schools, in addition to affiliated high schools, to attract more students. As a result, the number of private middle schools has increased.

Katsuto Matsushima, senior research fellow at Yano Research Institute, said: “While the market is shrinking due to a declining youth population, many companies rushed to enter the only growing field of cram schools, which is for middle school entrance exams.”

“As other companies, such as stationery, toy and video game makers, also struggle as the number of young people shrinks, it’s possible that they also will enter the cram school business,” he added.

(Nov. 5, 2006) The Yomiuri Shimbun (Google source)