Building on my recent post, I had the good fortune to spend time speaking with , the Managing Director of Direct Supply’s Asia Pacific division. For those unfamiliar with Direct Supply, they provide equipment and furnishings for American (and now Chinese) senior care operators, along with a suite of additional value-added solutions such as their Aptura renovation and building design services, project management for complex new technologies being installed in senior care environments, procurement automation, as well as senior care facility management and maintenance services.
Direct Supply’s initial foray into China was in 2007, when they opened an office in Shenzhen focused on contract manufacturing, creating Direct Supply brand products designed specifically for USA Senior Care. This model grew four years ago, when at China Senior Care reached out to Direct Supply hoping to secure a source for the international quality senior care equipment his facility in Hangzhou needed. Since then, Direct Supply has provided all of the skilled nursing equipment for Cascade’s Shanghai project, and is in active discussion to supply equipment to several other local projects.
Direct Supply’s business model takes a great degree of ownership for delivering high quality products to their Chinese clients. Even though many of their Chinese vendors manufacturing Senior Care designs for export markets could conceptually sell to Chinese senior care developers (in other words, there are no regulatory reasons they cannot do this), their lack of familiarity with domestic sales – especially given the market’s infant status – makes it unlikely (at least thus far). Tom pointed out, “For Chinese manufacturers of senior care equipment, it can take as much sales and marketing effort to sell into one local China senior care facility as it would take them to sell several containers of product for export.” Add to that an up to 17% VAT if products made in China are sold within China (Tom reminded me this is one of the reasons an iPhone is much more expensive in China than in the US or HK), and the need to have a special SFDA registration for each individual product from local authorities to sell many Healthcare Products in mainland China, and you can see why many of Direct Supply’s vendors are quite content to focus on their export markets – and – perhaps more importantly, why a company like Direct Supply is so important as operators outfit their China facilities. Direct Supply has cemented a position of leadership by going through what Tom called “the lengthy process of forming a WFOE, obtaining “Ordinary Taxpayer Status” for VAT offset, earning the necessary SFDA approvals, and adapting international products for the local China market.” Direct Supply’s ability to buy in volume for export makes their business more attractive to local equipment factories and puts them in better position to negotiate business terms than individual senior care facilities.
Like what Tel-Tron has experienced, as a supplier of products and enabling technologies for the exploding Chinese senior care industry, Tom has a unique point of view on what is happening across the country. Tom commented on the fact that this remains a very “segmented market. You have everything from 1,200 RMB/month state-run facilities to the top 1% the foreign operators are focused on.” Even at the high end market segment Direct Supply is focused on in China, Tom finds “the product selection process is very different. In the USA we typically talk in terms of an operator’s care plan for the residents, and what products and services we offer that align with these objectives.” Because in China these sorts of care plans are often not a part of the conversation when selecting equipment, it is difficult for a company like Direct Supply to properly tailor the equipment and services around the unique needs of their clientele.
Even with North American operators like Cascade, Direct Supply is finding that the expansion into China has presented both a seasoned operator and a long-term supplier with some unique challenges. One good example of these challenges is the choice of mattresses Cascade selected and Direct Supply provided. Both companies know from a physiological point of view, foam pressure-redistributing mattresses typically play an important role in an overall care plan to prevent and treat decubitus ulcers (bed sores). However, it is not yet clear whether elderly Chinese– who have slept their entire lives on hard Chinese bedding – will find them acceptable. Tom noted it is possible the difficulty elderly Chinese will experience sleeping on international style pressure redistributing foam mattresses could offset the good these mattresses might do (essentially trading one problem for a new one). These are the sorts of unknowns that early innovators like Cascade and Direct Supply will learn.
Upon reflection on what Tom shared, it struck me how much of what he said reinforces the need for the senior care industry in China to get the intangibles like a coordinated care plan up to speed with the more tangible features like architecture, building features and installed equipment. The latter are all important, but absent trained staff that knows how to utilize these, and alignment between these resources and a tailored plan for a Chinese senior, they become another example of misallocated capital. Conversely, Tom’s comments point us all back to the value North American and European operators have to offer their Chinese partners when it comes time to develop and implement the intangibles.
Benjamin A. Shobert
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