Transcript Chinese Nursing Home Industry

By
Adrian Szonyi
Contents
 Aging Population
 Income Growth
 Pension and Savings
 Industry Analysis
 Competition
 Challenges
 Opportunities
 Entry Strategy
 Why Franchise?
 Regulation Requirements
 Setting up a Franchise
 Future Growth
 Conclusion
 Referencing

Ageing Population

 Low fertility rate and increasing life expectancy
 UN estimates total number of elderly to increase from 110
mil. in 2011 to 332 mil. in 2050
 Current elderly dependency ratio; 16:100 predicted 64:100
by 2050
 Pace of population ageing is faster in rural than in urban
areas
 China will get old before it gets rich
Income Growth

 Economy shifting from low cost labour to higher
household consumption for GDP growth
 Disposable income of urban residents increased by
9.6% in 2012
 Wages for urban residents increased by 12.5% wages
for rural residents rose by 16.3%
Pensions and Savings

 Less than 30% of adults had pension cover in 2009.
Over 55% of adults have cover in 2012
 In 2012 China had the world’s highest personal
saving rate at more than 50%
 Talk of increasing retirement age from 60 to 65 for
men and 50 to 55 for women, meaning more income
for retirement
 High saving culture

Industry Analysis

 Nursing home industry still in its infancy
 At 2010 end 3.19 million beds but demand for 12
million
 Three fifths of 1208 nursing homes in seven cities are
privately owned
 Most nursing homes located in cities
 Total number of beds only accounts for 2% of elderly
people, lower than the 5-7% in developed countries
Opportunities

 Recent increase in pension coverage, saving rates, income
growth and retirement age
 Continual internal and external migration of young
workers leaving “empty nests”
 Government encouraging foreign investment in nursing
home industry
 Current low quality standards of care in private sector,
potential for high quality service differentiation
 Industry focus on building more beds first and worry
about quality later
 Popularity of foreign brands as a status symbol
Competition

 Culture: Filial piety, children are expected to take
care of their parents themselves
 In May 2013 38% of elderly lived with their children
 Government funded Community Health Service
centres and stations
 Eldergarten; similar to day-care for children, elderly
are dropped off and picked up throughout the day
 Low cost, low quality current private owned nursing
homes
Challenges

 Lack of established management standards or eldercare
training courses
 High staff turnover
 Poor working conditions
 Low salary
 Lack of training programs
 Hospitals are the first choice for graduating nurses, skills
gap
 Cultural stigma of sending parents to a home, failure of
familial duty
 Patients in privately owned nursing homes tend to be
sicker than in government-owned homes
Entry Strategy

 Establish a foreign franchise in the Chinese nursing home
industry
 Franchise private owned nursing homes in the city
 Invest in improving living conditions of current nursing homes
 Establish standardised training programs for franchisee
employees
 Increase salary due to increased skills requirement
 Consistent management practices across all franchisees
 Focus on patient satisfaction as initial brand success will be
contingent on word of mouth
 Creating a trusted well known brand associated with a high
quality of patient care
Why Franchise?

 Need for brand awareness and differentiation from low
quality services of current private sector providers
 Branding and advertising are necessary to reduce cultural
stigma of institutionalising parents
 Gain understanding of the domestic industry through
franchisees experience
 Avoid expensive and time consuming set up costs of
building new nursing homes
 Use of an established foreign business model proven to
provide quality services
 Bringing developed country standard of care to
established developing country services
Regulation
Requirements

 Franchisors must provide information so that the State
Council can deem their system credible prior to market
entry
 Franchisors must be:
1.
2.
3.
4.
5.
6.
A registered trading company
Have a mature business model
Be able to provide franchisees with ongoing support
Have directly operated at least two stores for more than one
year
Own or be licensed to use registered trade mark and other
intellectual property
Have a sufficient management system to support franchisees
Setting up a Franchise

 Shanghai could be a suitable entry point as it already
offers numerous numerous incentives for foreign
investment and a n increasingly westernised population
 Franchising in China is a challenging business structure
as there is limited protection for intellectual property such
as training courses
 Legal services to enforce contractual requirements
 Standardisation of services and quality of care across
franchisees to reinforce consistent brand recognition
 Establishing domestic headquarters to support
franchisees and conduct ongoing quality checks and
employee training reviews
Future Growth

 Partnership with franchisees to expand eldercare
services to rural areas
 Benefits of rural area investment:




Cheaper land cost
Improved air quality
Rural population aging faster than urban
Less competition
 Establish rural retirement communities
 Potential for partnerships with pharmaceutical
companies or traditional medicine providers
Conclusion

 China’s ageing population will present huge
opportunities for growth of the eldercare industry
 Increases in income, savings and pensions will make
institutionalised care more affordable
 Current private nursing home industry regarded
negatively due to low quality of care
 Using a foreign brand as a symbol of increased
quality similar to the fashion industry, could be used
as a status symbol
References

Ageing Population





Income Growth




http://www.agedcareguide.com.au/news.asp?newsid=5829
http://www.nursingconsult.com.ezproxy1.library.usyd.edu.au/nursing/journals/00296554/fulltext?issn=00296554&full_text=html&article_id=1090308&spid=25426497&iphub_return=http%3A%2F%2Flinkinghub.els
evier.com%2Fretrieve%2Fpii%2FS0029655412000413%3Fshowall%3Dtrue
http://news.brown.edu/pressreleases/2011/03/eldercare
Regulation Requirements


http://search.proquest.com.ezproxy1.library.usyd.edu.au//docview/858337301
http://www.prweb.com/releases/china-nursing-home-market/2013-development-trends/prweb11293979.htm
Challenges


http://www.economist.com/node/21560259
http://english.people.com.cn/90778/8040481.html
http://www.china.org.cn/china/2012-07/02/content_25785258.htm
http://www.macrobusiness.com.au/2011/06/charting-china%E2%80%99s-five-year-plan/china-household-savingsrate/
Opportunities


http://www.clb.org.hk/en/content/wages-and-disposable-income-china-increase-about-ten-percent-2012
http://money.cnn.com/2012/06/26/news/economy/china-middle-class/
Industry Analysis




Pensions and Savings





http://search.proquest.com.ezproxy1.library.usyd.edu.au/docview/898962342
http://gerontologist.oxfordjournals.org.ezproxy1.library.usyd.edu.au/content/52/5/589.full.pdf+html
http://search.proquest.com.ezproxy1.library.usyd.edu.au/docview/1415620965
http://www.cnbc.com/id/101101030
http://www.mondaq.com/australia/x/85096/Franchising/Franchising+In+China+Update+Australian+Franchisors+
Moving+Into+China
Setting up a Franchise

http://www.businessinsider.com.au/the-ins-and-outs-of-franchising-in-china-2011-4