Cascade Healthcare Enters the China Eldercare Market

As was pointed out at ChinaDebate today, Seattle based Cascade Healthcare today announced plans to enter the Chinese eldercare market.  I think a couple of points are worth making about this:  in conversations I’ve had for an upcoming column at Asia Times on the topic of Western operators entering the Chinese eldercare market, it’s obvious that a lot of trepidation exists from investors.  Why?  Because no one has proven they have a model that can work.

There are a lot of reasons for this:  sky-high real estate costs in target markets create unrealistic return on investment (ROI) hurdles.  An ambiguous regulatory framework that, consistent with most early promulgated laws in China, is going to vary in implementation widely across cities and provinces.  Uncertainty over whether China’s culture is willing to accept a model which cuts across millennia old expectations of filial piety.  Deciding whether to go it alone or partner with a Chinese company and risk the “brain drain” Western businesses fear from such an arrangement.  And these are just a few of the concerns I’ve heard while researching the piece.

A couple of points are worth drawing out.  First, one piece of consistent feedback is that once a model can be proven to work, foreign direct investment (FDI) is going to flood in.  What makes Cascade’s announcement important is that it is the first tangible step by a Western operator to go beyond the tire-kicking phase and formally set up shop.  Dan Baty, the Emeritus Chairman of the Board, is an industry pioneer.  His decision to make the transition from vetting the opportunity to investing in a business is not a small one, and those seeking to follow his lead but who lack the conviction that the market is ready now are going to be closely watching the results of his investment in Shanghai.

Second, the press release makes note of the fact that “Cascade Healthcare has been authorized to develop a prototype care facility in Shanghai in an existing building that the company is leasing.  Cascade intends to spend nearly $5 million to remodel the building and create a skilled and rehab senior care facility similar to what Emeritus operates in the United States.”  One wonder if such a lease arrangement may provide a degree of risk management in terms of the likely real estate bubble that exists in China’s Tier 1 cities?   That may seem to be a calculable risk, but in my initial research, fears over the escalating price of real estate in the Tier 1 cities where these models have the best chance of taking hold and becoming commercially successful are not to be diminished.  The lease approach could prove to be no small detail as the market in question – Shanghai – remains one of the most frothy real estate spots in the world.

I will leave additional questions and conjecture for a follow-up post related to my column, but in the mean time big congratulations to Emeritus for making this investment in China’s eldercare market!