Retirement Living World China 2012 – Day 1

Today was the first day of the Retirement Living World Conference in Shanghai.  , CEO of Hampton Hoerter China, opened the day’s conference by remarking on what has – and has not – changed in the senior living industry since this conference last came together in Beijing a year ago.  , Founder and CEO of China Senior Care, moderated a panel that built on Bromme’s remarks.

Specifically, Mark wanted his panel to explore how the industry has changed relative to everyone’s expectations of what was most likely to happen since this conference was last held.  With that in mind, of Waterbrook Xian, offered that over the last year what he has seen is that “everyone is in a hurry, but they are not … they [the Chinese developers] tend to slow down once things come into focus.”  He also offered up what I found an interesting insight into one concern he had that has been alleviated over the last year; specifically, his concerns over intellectual property theft in the service realm related to senior care have not proven out.  Kevin shared “my thinking on IP has changed 100% … I now think that the ongoing management expertise is what will create long term value, that is something that can’t be thrown away.”  Western operators have this IP and while some Chinese developers and prospective operators may believe they can easily copy this, Kevin is confident his long term capabilities and know-how are components of his business model that he can continue to leverage and protect.

For those who think that Kevin’s comments on IP make too little of this potential issue, it is worth pointing out that while China does have a well-earned reputation for IP theft, the country’s ability to take IP in what are commonly known as service or highly intangible industries has not been as much of a problem for foreign operators.  The best example of this, and one that is quite relevant to the senior care sector, is of course .  As I was reminded during a meeting Monday, the hospitality industry in China is whose primary point of distinction is a brand that offers foundationally better customer experiences than what their Chinese competitors can offer.

Yes, the hospitality industry in China has had to face its own share of domestic competition; but, it has been successful in part because it has married well built facilities with well run operations.  As seen from the point of view of a senior care operator, the intangible know-how (which is admittedly something that can be transcribed into operating manuals but is much harder to implement) is a much, much higher threshold than anything the hotel industry has had to face.  To the extent foreign operators in the hotel industry have been able to navigate this competitive threat, Kevin’s point is worth taking seriously.  None of this is to say that IP is something you can afford to overlook; rather, it is to suggest that IP remains a manageable risk that has as much to do with how you structure your human resources in China as it does how you approach IP itself.

, formerly with DLA Piper and now with Harvard’s Kennedy School as a Research Fellow on China’s senior housing industry, shared his perspective on how the Chinese government views the industry’s development.  China’s Ministry of Civil Affairs has approached Harvard asking for their help to craft a policy that will balance the competing interests of for-profit operators with the need to make sure China’s elderly are protected.  Constructing this policy framework may be one of the most important cornerstones that is necessary for the senior care industry in China to fully evolve and mature.  It also represents the sort of coordinated action by non-governmental actors, business, and policy-makers within China’s ministries, that will likely prove to be necessary in addressing country-wide problems like access to a viable pipeline of trained senior care workers, a fair and sustainable regulatory framework, and consumer protection.

On this point, Mark brought up what has become a familiar and in my mind much needed reminder of the central role operators and developers need to give finding, training and retaining human resources for their senior care facilities.  Mark mentioned that China’s “3-star” government run senior care facilities already have waiting lists.  The significance of this as Mark sees it is that it validates the idea that the market is ready, but that the human capital required to staff up and meet this demand does not yet exist.  This is an important point that bears reflecting upon because it suggests that cultural barriers related to senior care represent manageable risks.  While matters like filial piety and how to incorporate Confucian hierarchy into how care is elivered remain, these appear to be surmountable.  It is worth also pointing out that research conducted by the USC School of Geratology reinforces this.  They have looked into how Chinese ex-pat communities in Toronto, Vancouver and San Francisco perceive having to go into senior housing.  Their research shows that while this remains not their first preference, it is accepted and understood by both the parents and the children as a necessary vehicle for accommodating their shared needs.

Later on in the day, with M3 Capital Partners shared that M3 and Belmont Village will be building on their successful partnership in the United States with a venture in China.  Given the amount of interest the senior care community has in seeing a successful model evolve in China, I would suggest that this particular partnership will soon find itself in the running with Cascade and CSC as the third project with a US operator-investor relationship that will be closely watched.  Chris noted that they view this as a “marathon, not a sprint”, advice that aligns with one of the core messages that has come from this blog:  patience, discipline and focus will be the hallmarks of successful capital deployed in China.

Wrapping up the day a couple of thoughts struck me as worth considering:  first, how the market opportunity is evolving in China.  Kevin Ryan with Waterbrook was asking questions a year ago that could have easily prevented him from moving forward.  He was able to answer them in a way that encouraged him to take the next stop.  Joe Christian at Harvard is doing the sort of back-office work that can easily be overlooked, but which is essential for an industry to truly emerge.  Mark and Bromme’s questions about how culture and demographics will come together and drive a model may not yet be fully clear, but the sense everyone has is that the industry is asking the right questions.  Perhaps most importantly, to capture Mark’s final comment to the conference attendees, the “needs based versus choice based” tension has come front and center into the conversation.  All of these are hallmarks of an industry evolving. The level of focus between how developers can unlock the value of their land and the sort of facilities that developers want to build needs to be more closely matched by the level of focus on what are the set of profitable and sustainable operating models.  That will certainly mark an important evolution in how the Chinese senior care industry is coming to fruition.