Designing the Ideal Chinese Elder Care Facility

My first post, “Elder Care in China”, explored at a strategic level both the market opportunity as well as areas of potential missteps for Western elder care companies as they attempt to open up operations in China.

Since that first post, the China Daily published an article, “China Lacks Enough Elderly Care Facilities,” that reinforced the point.  In the article they write, “the number of available nursing home beds can accommodate only 1.8 percent of China’s elderly population, while the availability of beds in developed countries can serve five to seven percent of the elderly population.”

The report went on to state: “3.4 million beds will have to be added in five years” but added an interesting comment:  “there is an inadequate number of privately-run nursing homes, as the private sector is reluctant to invest in this area due to low returns.”

My interpretation of the latter comment is that while the biggest need is in the rural low-income segment, private elder care operators do not see a way to service this group profitably.  This leaves government as the stop-gap provider, which begs the question of where in Beijing’s hierarchy of priorities elder care fits given the other pressing issues of inequality they are facing.

As anyone with experience in China’s social security system knows, the biggest question in China isn’t whether the need is real or not (the magnitude of the numbers makes that point self-evident), but rather how to address the increasing inequality of available services and the quality of those services between the more prosperous areas of the country with the more rural and impoverished parts.  China contrarians have long pointed at two issues as reason they believe the country is destined to implode, one of which is the pervasive problem of inequality, the other being China’s uneven political reforms.

The numbers cited in the China Daily article are certainly impressive; their very magnitude goes a long way towards explaining why many Western private equity companies view elder care as an important business opportunity.  But in parsing the article, I wonder if perhaps the more interesting business opportunity is highlighted in this statement:

“…It is estimated that China requires approximately 10 million caregivers to meet the needs of its aging population. However, there are only 300,000 people currently working in the field, less than 100,000 of whom are professionally qualified.”

What if Western elder care companies are taking the wrong approach?  Maybe instead of trying to transplant their models into China, they should focus instead on simply teaching their methodologies?  To pursue this, they would need to package their Western practices into a sort of accredited teaching system that would translate Western best practices into Chinese standards of care.  As part of this, they could partner with equipment providers who would likely jump at the chance to provide equipment for training medical staff on in the hopes they would build preferences for their equipment.

Additionally, Beijing would likely welcome this sort of concerted training program as an important steps towards domestic self-sufficiency and would be an amenable partner in getting programs like this off the ground.  Admittedly, this would be a smaller revenue play; however, it might present an incremental means of entering the market and educating themselves on the nuances of elder care in China absent the large uses of capital inherent in opening facilities.

Realizing profitability from China’s enormous elder care market might happen faster for companies that avoid the expense of building and equipping facilities, of modifying their practices to take into account the cultural norms of Chinese families, or of trying to perfect a marketing strategy that hits all the right triggers for Chinese upper middle income couples making an investment in their parents’ care.  And it might even come to pass that for companies who take a slower, more incremental approach like the one I am suggesting, can ultimately be the ones who migrate into full-service facilities.

China is very much a land of opportunity.  But it is an incredibly complex country with an opaque system of government and cultural norms that can change at one moment blindingly fast, and at another take generations to change.  As such, companies that want to be successful in China need to steel themselves:  go slow.  Give yourself time to learn, but be quick to adapt.  And never take your eyes off the long game.