Chinese Nursing Home Industry

1. Chinese Nursing Home Industry By Adrian Szonyi

2. Contents • Aging Population • IncomeGrowth • Pension and Savings • IndustryAnalysis • Competition • Challenges • Opportunities • Entry Strategy • Why Franchise? • RegulationRequirements • Setting up a Franchise • Future Growth • Conclusion • Referencing

3. AgeingPopulation • Lowfertility rate and increasing life expectancy • UN estimates total number of elderly to increasefrom 110 mil. in 2011 to 332 mil. in 2050 • Currentelderlydependency ratio; 16:100 predicted 64:100 by 2050 • Pace of population ageingisfaster in rural than in urban areas • China willgetoldbeforeitgetsrich

4. 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%

5. 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

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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

13. Regulation Requirements • Franchisors must provide information so that the State Council can deem their system credible prior to market entry • Franchisors must be: • 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

14. 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

15. 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

16. 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

17. References • 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-savings-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