Wu Danxing Outlines Four Key Principles for Light-Asset Elder Care Entrepreneurship

Apr 28, 2016 21:02 CST Updated 21:02

On Thursday, April 28, 2016, the Asset-Light Elderly Care Venture Capital and Investment Trends Forum, hosted by VCBeat, was held on the third floor of Yinfeng Building, Suzhou Street, Zhongguancun, Haidian District, Beijing. This closed-door salon centered on discussions of venture capital and investment in asset-light elderly care models, revolving around the “Global Trends Report on Asset-Light Entrepreneurship and Investment in Elderly Care (2016 Edition)” released by VCBeat Research Institute. The primary objective was to help startups in the asset-light elderly care sector better understand the latest domestic and international trends in venture capital and investment, thereby facilitating more effective alignment and collaboration among entrepreneurial enterprises and between these enterprises and the capital market.

Wu Danxing, an expert in China’s elderly care industry; Wang Bin, Executive Director of Peking University Medical Rehabilitation Hospital; Dr. Qin Xinyan, Chief Medical Officer of Beijing United Family Healthcare Satellite Clinics and Home Healthcare; Zhao Junchao, Venture Partner at Tongdu Capital; Qiao Jiying, Investment Director at BlueRun Ventures; and Du Wei, Vice President of NATAL China, all attended the event and delivered keynote speeches.

VCBeat will summarize the event content and present below the highlights from Wu Danxing, an expert in China’s elderly care industry:

Wu Danxing

Member of the Elderly Care Service Professional Committee, Ministry of Civil Affairs

Dean, School of Health Industry, Beijing Geely University

Key Point 1, "failing to distinguish between primary and secondary priorities" will lead the entire elderly care industry's business model astray

Market orientation, scalability, competitiveness, and profitability are common characteristics of general industries. In contrast, the elderly care industry is unique in that it spans the primary, secondary, tertiary, and quaternary sectors, comprising a series of industrial dimensions developed around specific demographic groups. Key features such as group-oriented demand, low profit margins, slow growth, and public welfare orientation define the sector, determining that it cannot experience the rapid, disruptive emergence seen in industries like IT or automotive.

As stated in the report by VCBeat Research Institute, the elderly care industry can be segmented into sub-sectors such as medical services, education, real estate, insurance services, and beauty consulting. These sub-sectors exhibit certain upstream-downstream relationships. Enterprise development must invariably start from the upstream segment, which includes elderly finance, insurance, and investment. Future profitability models must also be addressed from this upstream perspective. In other words, asset-heavy components must be managed through asset-heavy approaches, while asset-light components should operate under asset-light models; one must not burden asset-light operations with asset-heavy liabilities—a lesson learned from past experiences. The lower tier consists of content, the upper tier comprises critical investments, and the middle tier represents physical entities. Within this industrial framework, the current absence of the upper tier equates to a lack of a viable profitability model.The current business model is unclear, or rather, it has fallen into a significant misconception by consistently conflating asset-light and asset-heavy operations.

Key Point 2: “Specialization Matters”: Learning to Build a New Ecosystem for the Elderly Care Industry

The senior living real estate sector features a highly characteristic ecosystem encompassing investment, development, construction, operations, and management, with five distinct models defining their interrelationships. The most optimal approach is to integrate investment and operations, enabling intermediate developers to deliver customized solutions. In other words,There is absolutely no need to handle everything from start to finish on your own.

Elderly care services represent a highly typical labor ecosystem, spanning from talent cultivation and utilization to downstream talent aggregation. This encompasses both degree-based and non-degree education. Currently, the industry has yet to resolve the challenge of talent development.

Healthcare reform constitutes an ecosystem of professional resources, encompassing health management in the pre-disease stage, acute care when issues arise, and post-operative rehabilitation and nursing. The interrelationships among these components are clearly defined. When it comes to investing in healthcare, does this necessarily mean investing in hospitals? How many investors in China can still invest in hospitals? Furthermore, how can private institutions compete with public hospitals in the market? We have significant reservations regarding these questions.

I believeThe healthcare industry should concentrate on one end of the value chain, either the front end or the back end.. Given the high capital investment, elevated costs, long payback period, and stringent talent requirements, it is actually inadvisable to pursue this approach. Rehabilitation nursing can be operated independently, and health management constitutes a critically important segment. Furthermore, it is essential to recognize that the health management and rehabilitation nursing segments must be developed in-house, as physicians and nurses do not have personnel available to assist with these tasks.

Key Point 3: Viewing Elderly Care from Four Perspectives—“Global,” “China,” “Enterprise,” and “Public”

Developing the elderly care industry requires four perspectives: global, Chinese, corporate, and individual.

It is essential to understand the development trajectories of developed nations, as well as the perspectives of China’s macroeconomic environment, enterprises, and citizens. In the process of developing elderly care services, the first stage was government-led, the second stage involved a government-enterprise partnership, and the third stage is enterprise-led. In fact, China is currently in the second stage.

Major Socialized Elderly Care Models AbroadThe primary socialized elderly care models abroad are essentially divided into two major camps. The first is the Nordic welfare model, characterized by government funding and implementation by social organizations. The second is the U.S. market-oriented model, where the government neither provides funding nor direct services, but merely maintains order. In this system, any capable entity can participate across various industries and sectors, with the market supply and demand spontaneously driving the construction of the industrial chain.

China’s future development model, given its unique characteristics such as its large population, cannot be replicated by applying any single existing global model.We recommend adopting the U.S. model for commercial operations, the German model for long-term care insurance, the Japanese model for smart assistive devices, the Taiwanese model for care systems, and the Australian model for professional talent development. Integrating these approaches would yield a framework better aligned with China’s realities.

Key Point 4: Clarifying the relationships between government departments, between the government and the market, between public and private sectors, and between for-profit and non-profit entities, as well as addressing talent development, are all critical issues that must be clearly understood for the development of the elderly care industry.

First, Government Relations. Regarding the integration of medical care and elderly care, it is a challenging task to bring these two sectors together and clearly delineate their respective interests, rights, responsibilities, and funding.

The Relationship Between Government and Market“Basic coverage, mass-market orientation, employer-sponsored elderly care, and family-based elderly care constituted the past market landscape. The current market structure features government oversight of 10%, with the remaining 90% delegated to the market. Whether the market can absorb this responsibility is now a critical issue. As we transition from aging-related public welfare initiatives to an aging industry, shifting from comprehensive government provision to market-based solutions, the key question remains: Can the market take it on?”

The Relationship Between For-Profit and Non-Profit EntitiesPreviously, basic welfare provisions were curtailed from above, and now further cuts are being made at the industrial level below, leaving only the non-profit sector in between. The tripartite division into welfare-oriented, non-profit, and for-profit models is a historical legacy. How to define, incentivize, evaluate, and regulate these categories poses significant challenges for the government. We believe that such distinctions should be abolished in the future, with social welfare services benchmarked against optimal cost-effectiveness, societal well-being, and equitable access to services. Enterprises engaged in this mission are termed “social enterprises.” The key distinction between social enterprises and conventional businesses is that while the latter prioritize profit maximization, the former do not.

Issues in Talent DevelopmentThe core of corporate strategy lies in the stabilization of labor costs and the sharing of internal horizontal resources, which is paramount. Whether elderly care can become a recognized profession poses a significant challenge; if it does, the elderly care industry will hold promise. Our direction is to continuously expand the involvement of social workers, domestic helpers, and younger seniors in the long-term care system. Therefore, the state has proposed a new model of community governance. The coordinated linkage among communities, socialist organizations, and social workers—known as the “Three-Society Linkage”—will be a key issue to address in the future.

Next 20The year presents an excellent opportunity for the elderly care industry.

The next 20 years present a significant opportunity for China’s elderly care industry. During the 12th Five-Year Plan period, the focus was on rapid expansion and large-scale infrastructure development; the 13th Five-Year Plan emphasized talent cultivation; dark horses emerged during the 14th Five-Year Plan; and the 15th Five-Year Plan will see steady and orderly growth. The development trajectory will undoubtedly proceed from urban to rural areas, prioritize quantity over quality initially, be led by the government before involving private sectors, and begin with incentives before transitioning to regulatory restrictions.

“There was no path in the world; it became a path only after many people had walked it. Yet the road ahead remains long and distant, requiring the concerted efforts of society as a whole.”

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