Chinese Nursing Home Industry

ByAdrian Szonyi

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

Contents

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

Ageing Population

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%

Income Growth

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

Pensions and Savings

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

Industry Analysis

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

Opportunities

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

Competition

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

Challenges

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

Entry Strategy

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

Why Franchise?

Franchisors must provide information so that the State

Council can deem their system credible prior to market entry

Franchisors must be: 1. A registered trading company2. Have a mature business model3. Be able to provide franchisees with ongoing support4. Have directly operated at least two stores for more than one

year5. Own or be licensed to use registered trade mark and other

intellectual property6. Have a sufficient management system to support franchisees

Regulation Requirements

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

Setting up a Franchise

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

Future Growth

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

Conclusion

Ageing Population

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

Income Growth 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/

Pensions and Savings 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-s

avings-rate/

Industry Analysis 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 Opportunities

http://www.agedcareguide.com.au/news.asp?newsid=5829 Challenges

http://www.nursingconsult.com.ezproxy1.library.usyd.edu.au/nursing/journals/00296554/full-text?issn=00296554&full_text=html&article_id=1090308&spid=25426497&iphub_return=http%3A%2F%2Flinkinghub.elsevier.com%2Fretrieve%2Fpii%2FS0029655412000413%3Fshowall%3Dtrue

http://news.brown.edu/pressreleases/2011/03/eldercare Regulation Requirements

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

References