Tom Barnett, a global strategist who has written several New York Times bestsellers has stated “no country in the history of humanity will get as old, or as rich, as fast as China will.” While our conversation today obviously takes place in Hong Kong, where many of us have our eyes primarily cast towards the opportunity in China, the social need and the business opportunity aging drives is a truly global phenomenon.
Right now, the same forces creating the need and opportunity in China are occurring elsewhere around the world, and not only the frequently mentioned demographic forces of aging, but also the emergence of a vibrant middle class in countries like India. We are fortunate today to have a number of experts on India’s nascent senior living industry as participants, as well as regional case studies later today from the Philippines and Thailand. We will end today with an exciting panel of experts from China, Australia and the UK, each of which will emphasize the operational side to senior living.
What brings us all together today is the desire to learn from one another’s experiences and gain insights in the pursuit of profitable, sustainable and scalable business models that will embrace the opportunity of what Bloomberg called “the aging tsunami” and what Ted Fishman called the world’s “Shock of Gray.” You can see in these two graphs, both from the IMF, which make the point better than words can: developed economies already have more citizens aged 60+ than 12-24. Emerging economies have not yet had the same experience, although if trends hold, they too will see a similar convergence of the 60+ and 12-24 age groups in little more than 30 years down the road.
Cumulatively, the world’s aging trends and the emergence of a global middle class that can afford to pay for care that would previously have been out of reach economically, and unaccepted culturally, means senior care product companies, developers, operators and investors have more opportunities than perhaps ever before. This is a once in a generation opportunity, which means we all need to choose wisely which markets to focus on, what models to pursue, and what infrastructure needs best ensure the industry’s success as a whole. These are not choices business will make in a vacuum. They will reflect decisions, policies and practices taken by the host countries where we aspire to build businesses and make investments.
In each of the countries where the combination of an emerging middle class and accelerating aging trends comes together, the need to clearly coordinate what government is able to do with what industry most needs may be the most important policy framework that remains to still be established. For governments like those of China and India, the need to offer incentives to providers of healthcare oriented solutions for the elderly is likely to be more of a priority than incentives for providers of lifestyle only solutions.
The tension between healthcare and lifestyle solutions can be easy to overlook and even harder to explain, and yet in emerging economies like China and India where the middle class still pays out of pocket for a large portion of a families’ healthcare expenditures, successful business models will need to embrace the highly rationalized nature of how a newly minted middle class spends money. Yes, many of the same phenomenon that successfully drove western senior living business models are likely present themselves here; yet, as we think about crafting market access strategies for China and India in particular, it is essential to remember the more selective approach those new to the middle class have when it comes time to spending money on healthcare. It may be, after all, no different than how many of America’s own generation from the Great Depression viewed their own healthcare and lifestyle choices as they aged.
This is not to say that senior housing will not be extremely successful, rather that savvy investors, developers and operators will find ways to frame their business models around ideas that align with what their host governments are most concerned with: cost effectively taking care of high acuity senior care patients. Developers that know how to differentiate their facilities on the basis of improved long-term care are likely to find eager partners in government. We will need to marry what we know works – our own approach and brand for senior housing – with what our host government’s health bureau is concerned with, and we have the recipe for success.
One of the best pieces of advice I ever received from someone well placed in China’s healthcare industry was that, “to be successful in China, you need to adopt the point of view of China’s Ministry of Health. See the needs they see, as they seem them, and bring them solutions that marry your business objectives to their societal needs.” Simply extrapolating what worked in our home markets into the dynamic and unique economies of China and India is not a recipe for success. Really thinking about the problem of aging and what our host governments feel they most need help with is.
The preference for healthcare oriented solutions is easy to lose sight of in a country like China, where land sales play such a central role as a source of revenue for municipalities and, when successfully commercialized, have been such enormous engines of wealth for developers as well. In a country like India, which compared to China, already hosts a vibrant and growing for-profit private hospital industry, the ability to emphasize healthcare oriented solutions for the elderly may not only be easier, but also more lucrative. Yet, as an industry we can already point towards early developments in China that certainly seemed to have had a dedicated healthcare component as part of their go-to-market strategy. Can we say anything, this early on into our industry’s evolution in China in particular, that will help us craft better market entry strategies? And if we can, what factors are within our control, and what are within the control of government?
As I have previously alluded to, one of the most important factors within our control as an industry is how we combine senior housing with higher acuity senior care. The latter more easily aligns with what China’s government is concerned with; housing on the other hand is viewed as interesting, but less essential. Again, this in no way suggests senior housing is not an exciting and lucrative investment opportunity; rather, that obtaining the best land, being guided to the best partners, and establishing the most accommodating relationship with government will occur when the healthcare component is incorporated within, and obviously elevated by, your proposed development. Similarly, being able to illustrate as an operator what insights you have to bring to the table relative to how best to care for seniors as they age will go a long way towards convincing potential developer and government partners that you understand the continuum of care required.
The second factor that will drive the industry’s success is how quickly and efficiently a solution set emerges for the middle class. While early entrants into China especially have understandably emphasized the wealthy, the most compelling market opportunity is a cost effective product line for China and India’s middle class, both solutions for the middle class’ elderly parents today, as well as products that will be attractive to their adult children as they age.
However, much of what remains to be done in China is not wholly within the control of industry. The government in Beijing needs to address four issues that will ensure the successful development of a senior care industry. First, the Ministry of Health needs to clarify the regulatory protocols and necessary approvals that will allow both a senior housing facility, as well as a senior care hospital, to open and stay compliant. Clarifying the necessary approvals will expedite foreign investment, and establishing oversight regulations will ensure foreign run senior care facilities have the proper legal protections from lawsuits. The deep pockets of foreign senior care companies need to be accessed to build additional infrastructure, not to defend themselves against lawsuits made easier because of inadequate regulations.
Second, the Central Government needs to clamp down on issuing land rights for developments that are justified on the basis of senior housing without having adequate operating partners and ensuring the long-term financial viability of the newly built senior housing. I would imagine many of us in this room have toured a development in China that is touted as specific to senior care only to see the bulk of its physical infrastructure, not to mention its operating capabilities, essentially that of a traditional residential development. As America’s own struggles with building out a sustainable senior housing industry in the early 80s illustrate, nothing will set this market back further in China than a spate of senior housing developments that leave Chinese families poorly taken care of, or developments that are financially under-capitalized. Given the speed with which China’s aging problem is going to present itself, it is in the government’s best interests to make sure developers who access land for senior housing understand the need for a solid operating model that incorporates the long term financial obligations inherent in running a senior care facility.
Third, the senior care industry desperately needs trained personnel. There may be no greater bottleneck governing the ability of the senior care industry in China to achieve its potential other than human resource limitations. While savvy entrepreneurs from the west are early into thinking through how they might build businesses that will provide trained staff, the need for medical and vocational senior care workers is much too acute to be satisfied purely by free market actors. China’s academic institutions should seek out additional partnerships with their western counterparts similar to those Peking Union Medical College and Johns Hopkins Medicine have created to further advance the field of geriatric medicine, both for doctors and nurses. Among the magnificent abilities China’s Central Government has proven to have is how effective it can be when it chooses to get behind a particular need and push. While not as high profile as clean-tech or next generation electric vehicles, setting China’s national priorities around how to get more trained clinicians and vocational staff for the senior living industry would go a long way towards ensuring private investment into senior care and senior housing accelerates across China.
Fourth, opening China’s financial services and insurance markets to foreign companies would allow for great strides in the development of long term care insurance, a set of products that will be extremely important and act as another bulwark against the undercapitalization of China’s senior care industry. China has been reluctant to allow foreign companies into its financial services sector, yet accelerating access for companies that know how to build long term care insurance vehicles is an essential step for the senior living market in China to expand. The same will undoubtedly be true for India.
These four issues (clarifying the necessary regulatory approvals, clamping down on how land rights for senior housing is issued, building a training infrastructure, and encouraging foreign entrants into long term care insurance) are essential to the successful development of a senior care industry in China and India. The factors within our control (getting the right balance between housing and healthcare, expanding from the luxury market to providing middle income solutions) are no less difficult; however, if both government and business stay connected during these early days when the industry is still evolving, we will undoubtedly see one of the most exciting business and investment opportunities of our day come to pass.
By: Benjamin Shobert, ,
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