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Chinese Nursing Home Industry

Chinese Nursing Home Industry. By Adrian Szonyi. Contents. Aging Population Income Growth Pension and Savings Industry Analysis Competition Challenges Opportunities Entry Strategy Why Franchise? Regulation Requirements Setting up a Franchise Future Growth Conclusion

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Chinese Nursing Home Industry

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  1. Chinese Nursing Home Industry By Adrian Szonyi

  2. Contents • Aging Population • IncomeGrowth • Pension and Savings • IndustryAnalysis • Competition • Challenges • Opportunities • Entry Strategy • Why Franchise? • RegulationRequirements • Setting up a Franchise • Future Growth • Conclusion • Referencing

  3. AgeingPopulation • Lowfertility rate and increasing life expectancy • UN estimates total number of elderly to increasefrom 110 mil. in 2011 to 332 mil. in 2050 • Currentelderlydependency ratio; 16:100 predicted 64:100 by 2050 • Pace of population ageingisfaster in rural than in urban areas • China willgetoldbeforeitgetsrich

  4. Income Growth • Economy shifting from low cost labour to higher household consumption for GDP growth • Disposable income of urban residents increased by 9.6% in 2012 • Wages for urban residents increased by 12.5% wages for rural residents rose by 16.3%

  5. Pensions and Savings • Less than 30% of adults had pension cover in 2009. Over 55% of adults have cover in 2012 • In 2012 China had the world’s highest personal saving rate at more than 50% • Talk of increasing retirement age from 60 to 65 for men and 50 to 55 for women, meaning more income for retirement • High saving culture

  6. Industry Analysis • Nursing home industry still in its infancy • At 2010 end 3.19 million beds but demand for 12 million • Three fifths of 1208 nursing homes in seven cities are privately owned • Most nursing homes located in cities • Total number of beds only accounts for 2% of elderly people, lower than the 5-7% in developed countries

  7. Opportunities • Recent increase in pension coverage, saving rates, income growth and retirement age • Continual internal and external migration of young workers leaving “empty nests” • Government encouraging foreign investment in nursing home industry • Current low quality standards of care in private sector, potential for high quality service differentiation • Industry focus on building more beds first and worry about quality later • Popularity of foreign brands as a status symbol

  8. Competition • Culture: Filial piety, children are expected to take care of their parents themselves • In May 2013 38% of elderly lived with their children • Government funded Community Health Service centres and stations • Eldergarten; similar to day-care for children, elderly are dropped off and picked up throughout the day • Low cost, low quality current private owned nursing homes

  9. Challenges • Lack of established management standards or eldercare training courses • High staff turnover • Poor working conditions • Low salary • Lack of training programs • Hospitals are the first choice for graduating nurses, skills gap • Cultural stigma of sending parents to a home, failure of familial duty • Patients in privately owned nursing homes tend to be sicker than in government-owned homes

  10. Entry Strategy • Establish a foreign franchise in the Chinese nursing home industry • Franchise private owned nursing homes in the city • Invest in improving living conditions of current nursing homes • Establish standardised training programs for franchisee employees • Increase salary due to increased skills requirement • Consistent management practices across all franchisees • Focus on patient satisfaction as initial brand success will be contingent on word of mouth • Creating a trusted well known brand associated with a high quality of patient care

  11. Why Franchise? • Need for brand awareness and differentiation from low quality services of current private sector providers • Branding and advertising are necessary to reduce cultural stigma of institutionalising parents • Gain understanding of the domestic industry through franchisees experience • Avoid expensive and time consuming set up costs of building new nursing homes • Use of an established foreign business model proven to provide quality services • Bringing developed country standard of care to established developing country services

  12. Regulation Requirements • Franchisors must provide information so that the State Council can deem their system credible prior to market entry • Franchisors must be: • A registered trading company • Have a mature business model • Be able to provide franchisees with ongoing support • Have directly operated at least two stores for more than one year • Own or be licensed to use registered trade mark and other intellectual property • Have a sufficient management system to support franchisees

  13. Setting up a Franchise • Shanghai could be a suitable entry point as it already offers numerous numerous incentives for foreign investment and a n increasingly westernised population • Franchising in China is a challenging business structure as there is limited protection for intellectual property such as training courses • Legal services to enforce contractual requirements • Standardisation of services and quality of care across franchisees to reinforce consistent brand recognition • Establishing domestic headquarters to support franchisees and conduct ongoing quality checks and employee training reviews

  14. Future Growth • Partnership with franchisees to expand eldercare services to rural areas • Benefits of rural area investment: • Cheaper land cost • Improved air quality • Rural population aging faster than urban • Less competition • Establish rural retirement communities • Potential for partnerships with pharmaceutical companies or traditional medicine providers

  15. Conclusion • China’s ageing population will present huge opportunities for growth of the eldercare industry • Increases in income, savings and pensions will make institutionalised care more affordable • Current private nursing home industry regarded negatively due to low quality of care • Using a foreign brand as a symbol of increased quality similar to the fashion industry, could be used as a status symbol

  16. References • Ageing Population • http://search.proquest.com.ezproxy1.library.usyd.edu.au/docview/898962342 • http://gerontologist.oxfordjournals.org.ezproxy1.library.usyd.edu.au/content/52/5/589.full.pdf+html • http://search.proquest.com.ezproxy1.library.usyd.edu.au/docview/1415620965 • http://www.cnbc.com/id/101101030 • Income Growth • http://www.clb.org.hk/en/content/wages-and-disposable-income-china-increase-about-ten-percent-2012 • http://money.cnn.com/2012/06/26/news/economy/china-middle-class/ • Pensions and Savings • http://www.economist.com/node/21560259 • http://english.people.com.cn/90778/8040481.html • http://www.china.org.cn/china/2012-07/02/content_25785258.htm • http://www.macrobusiness.com.au/2011/06/charting-china%E2%80%99s-five-year-plan/china-household-savings-rate/ • Industry Analysis • http://search.proquest.com.ezproxy1.library.usyd.edu.au//docview/858337301 • http://www.prweb.com/releases/china-nursing-home-market/2013-development-trends/prweb11293979.htm • Opportunities • http://www.agedcareguide.com.au/news.asp?newsid=5829 • Challenges • http://www.nursingconsult.com.ezproxy1.library.usyd.edu.au/nursing/journals/00296554/full-text?issn=00296554&full_text=html&article_id=1090308&spid=25426497&iphub_return=http%3A%2F%2Flinkinghub.elsevier.com%2Fretrieve%2Fpii%2FS0029655412000413%3Fshowall%3Dtrue • http://news.brown.edu/pressreleases/2011/03/eldercare • Regulation Requirements • http://www.mondaq.com/australia/x/85096/Franchising/Franchising+In+China+Update+Australian+Franchisors+Moving+Into+China • Setting up a Franchise • http://www.businessinsider.com.au/the-ins-and-outs-of-franchising-in-china-2011-4

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