Last week I had the pleasure to sit down with Cole Wright of Merrill Gardens. Cole is heading up the project at Merrill Gardens to develop their first eldercare facility in China. Perhaps the most interesting dimension to our conversation was Cole’s emphasis on the challenge of actually implementing an eldercare operation in China. It is one thing to sit back and ask strategic questions about how to best design a successful eldercare facility from the relative safety of the United States; it is quite another to meet with someone who is actually in the midst of executing on the idea.
Readers of ChinaLawBlog will appreciate many of the challenges Cole discussed on both the legal and operational fronts, several of which long-time China hands will recognize as the sort of typical challenges business in general faces when setting up operations in China. Such a simple point, but one that bears repeating: many entrepreneurs and investors in China believe that because their particular field is of some strategic importance to the Chinese government (or, as we discussed with of Technomic Asia last week, a field that is consistent with China’s 12th Five Year Plan), then many of the challenges other businesses face in China will simply go away. This is a particularly common oversight for healthcare businesses in China who believe that they will somehow have a “different” experience in China than others who might be in more traditional industries.
As just one example, Cole referenced the challenges around contract law in China. As he put it, the Chinese view of contracts as a “memorial of what is already true” instead of a living and governing contract which is more the view of American and European business. For more on that topic, head over to ChinaLawBlog and check out their many posts on the challenges inherent in contract law within China. During our conversation, I was struck at the ongoing emphasis successful Western operators must place on intangible due diligence when operating in China. Risks in this area, as Cole made mention of, are “risks with the relationship” between the partners. The point has been made countless times and needs to be made countless times more: China is a relationally driven culture, and companies that overlook reputational due diligence in advance of investing in key relationships are asking for trouble. As Cole stated, counterparty risk in China is a much different animal than here in the United States. He put it well when he said that in China, a partner you have executed an agreement with can “cause pain in China in ways you couldn’t do in the US.”
Merrill’s presence in China clearly signals their belief that many of the cultural challenges we have discussed here at AsiaHealthcareBlog like filial piety are already in flux and that as a consequence of this, the country is ready for a Western eldercare model. On the topic of filial piety, Cole pointed out that countries with the strongest traditions of filial piety are often times also those that are economically under-developed. His point I think is that China’s traditional emphasis on filial piety is going to have to be secondary to the country’s overall need to continue growing its economy.
One of the questions I was most curious to hear Cole’s thoughts on was why the Chinese market is ready today for Western eldercare when, in the late 90s, the market was tested and found to not be quite yet ready. Cole believes that the Chinese economy had not yet developed enough. Specifically, that the ideal spot for a high end eldercare model to be successful with (between the upper middle class and the truly wealthy) had not yet opened up, largely because that was a very new group of people who were not entirely secure enough to be thinking about these sorts of investments for their elderly parents. The timing of this all is an interesting challenge: to be successful eldercare operators believe they need to go in today with a high end model and will need to design their facilities to take care of slightly older, slightly more in need of help elderly Chinese. Ultimately, this model will become the foundation of future possible expansions into other segments of the Chinese market.
The high-end model offers, as Cole stated, the opportunity to refine an acceptable and profitable model before western eldercare operators branch out into more of the Chinese middle class market. But, as Cole knows, before western operators can get into the middle of the market, they need to refine a model that works in the high end. Watching companies like Merrill Gardens figure this out will be one of the most interesting healthcare business challenges of the next several years.
About the Author
