Delivering Services for China's Ageing Population, May 2010

Global Young Leaders Programme

China Project – June 2010

Business Plan

Elderly Healthcare in China

Hetong Senior Citizen Welfare Association

1

Table of Contents

• Executive Summary 3

• Objectives 6

• Background to Elderly Chinese Market 8

• Hetong Introduction 13

• Business Model 24

• Social Impact 57

• Sales and Marketing 62

• Implementation 70

• Risks 80

• Recommendation 82

• Appendix 84

2

EXECUTIVE SUMMARY

3

Executive Summary

4

• This document contains recommendations for Hetong Group in order that they may

achieve their objectives and mission, “To provide high-quality service to all elderly

people irrespective of health condition and financial position”, as well as promoting

elderly welfare throughout China

• The results of long term developments in China‟s age distribution driven by the 4-2-1

dilemma are being magnified by increased urbanization and by limitations of the

national retirement system. This creates a urgent need for high quality elderly care

facilities and caregivers

• Hetong‟s 15 year history of achievements in the area of elderly care are well

recognized by the public and the Chinese Government. They have set the standard in

the elderly health care industry

• In order to further increase the standards in the elderly health care industry in China

and strengthen the long term future growth for the Hetong Group, the group will

benefit from new commercial operations

Executive Summary

5

• The new commercial company, Hetong China Holdings (HCH), will leverage on

Hetong‟s brand and reputation to establish a national leader with footprints in elderly

care services, elderly care retail products as well as caregiver training

• We recommend HCH to start with a showcase elderly care facility in Shenzhen

• Furthermore, the training and elderly products businesses should be transferred into

HCH to maximize their commercial potential

• Current Hetong operations will benefit from royalties from HCH and used to enhanced

current facilities and further growth. This will go hand in hand with increased support

from the large network of Hetong volunteers

• Thus ensuring sustainability for both Hetong Group and HCH

OBJECTIVES

6

Objectives

• To strengthen Hetong‟s leadership in the elderly care

industry in China for the next decade

• To propose a commercial viable business model that will

generate attractive returns

• To identify potential opportunities to serve the fast growing

elderly population in China in relation to Hetong‟s core

competence

• To ensure Hetong‟s long term sustainability

7

BACKGROUND TO ELDERLY

CHINESE MARKET

8

Background to Elderly Chinese Market

• Estimated Chinese population by 2050:

1.4bn of which:

– above age 60 : 440 mn

– above age 80 : 32 mn

• Traditional Chinese views on the elderly

– The elderly will be looked after by their

children and remain in the family home

• Challenges for China

– Lack of healthcare services for elderly,

especially in small cities and villages

– Lack of elderly healthcare professionals

– Due to urbanization, young adults are

moving towards the cities for work -

elderly left behind

– With the 1 child policy, 1 child looks after 2

parents and 4 grandparents, with all

associated time and financial constraints (4-

2-1 dilemma)

9

The Chinese Elderly Population

Source: United Nations Populations Division

(Age)


• Pension System

– Aim to provide universal coverage by 2020

– Urban Pension Scheme

• Mandatory: Personal and government/social unified account

• Voluntary: Enterprise complementary annuity and persona

– Rural Pension Scheme

• Newly proposed in 2009 in 10% of China‟s counties

• Addressing the 4-2-1 Problem

– Strengthen formal care systems: invest in elderly homes,

reinforce social security systems

– Encourage filial piety: care for parents at home

– Relax the one-child policy in some places

• Other Laws– Additional 3 million beds planned under China‟s 11th 5-year

Plan (2006-2010)

– Guarantee of basic needs, medical insurance and funerals for

rural elderly who has no relatives, no income and no ability to

work

10

Government‟s Response to Aging Population

Challenges:

Local governments struggle

with

• Low revenue

• Limited resources

• Little capability to execute


The elderly care market is still in its infancy:

• Care homes:

• Caregivers:

– Few caregivers in China as profession seen as

unprofessional and lowly paid

– Non-regulated industry where caregivers are often

poorly trained

• Products for elderly:

– No national leader in the market

– One of the largest untapped markets in China,

predicted to reach RMB 2 trillion by 2020

11

Current Market and Competitive Landscape

Source: From interviews with elderly home

directors, Hebei News, 25 Feb 2009

Ownership Target MarketAv. cost per

bed/month

Private Rich elderly 2,000 ~ 7,000RMB

Government All elderly 900 ~ 1,500RMB

Others Low-income elderly 500 ~ 1,000RMB


• The elderly population is growing rapidly

across the world compared to the

working age population. By 2050:

– China‟s elderly population (23% of

total) will be supported by only 51%

who are of working age

– Comparatively, in other less developed

regions only 18% will be supported by

54% of the working age population

• The Chinese government has

acknowledged the need for more elderly

care homes, trained caregivers, products

and services

– But the government alone cannot meet

the nations‟ needs

12

Future Market

China

Less Developed Regions excl. China

World

Source: United Nations Populations Division

% of Total Population

<15 16-64 >65

Great potential for growth and

opportunities in the Chinese elderly

care market

INTRODUCTION TO HETONG

13

“To provide high-quality service to all elderly

people irrespective of health condition and

financial position”

Introduction to Hetong

14

Hetong Mission

• Four firsts

– First German model in China

– First training school for elderly care

– First to initiate community of alliance for elderly center

– First diversified range of products for the elderly

• Government recognition

– Central Government bestowed on Mr. Fang and senior members with advanced

party membership titles

• Standards for elderly care training established and set by Hetong for whole

of China

• Appointed by Red Cross China to lead in reconstruction efforts for elderly

for in the Sichuan earthquake


15

Recognition for Hetong - Awards

Incredible recognition in China

Unrivalled experience in China


• 15 years of experience

– Founded in Tianjin on April 20th, 1995 by Mr. Fang Jiake

• Comprehensive experience in elderly care value chain:

– 8 Elderly Care Homes (4 in Tianjin, 2 in Beijing, 2 in Sichuan)

– 1 Hospital

– 1 Elderly Care Catering Service

– 1 Elderly Cleaning Service

– 1 Laundry Service

– 1 Training School

– 1 Certiifcation Centre

– 1 Retail Operation

• Experienced Executive Committee

– Old Party Leaders, Scholars, Experts, Entrepreneurs, Workers and Public

Leaders

16

Hetong Background and Experience

Tianjin Yan‟an Hospital

Intoduction to Hetong

• Hetong Foundation

– Established in 2007

– Donations from individuals &

companies

– Scholarships / bonuses to

caregivers

– Alliance of >1000 elderly homes

across China

– Donors include:

• Chinese Red Cross Foundation

• Jet Li One Foundation Project

• China Foundation for Poverty

Alleviation

• Narada Foundation

• Tianjin Golden Bridge Welding

Materials Group Co., Ltd

17

Current Hetong Group Network


• Networks with universities / schools

– Hetong provides training and internships to:

• Tianjin University of Traditional Chinese Medicine

• Tianjin Medical College

• Tianjin Hongxing Vocational Secondary School

• Tianjin Tourism School Bureau of Labor

• Nankai University

• Tianjin University of Technology

• Other Networks

– Hetong shares expertise, experience and training with other organizations:

• China Charity

• China Social Welfare Association

• National Union of Long-term Care

18

Current Hetong Group Network

Hetong has a strong, established

network

19

• Hetong‟s current revenues‟ breakdown are as follows: 55% from elderly homes, 18%

from hospital, 10% from catering, 11% from laundry, 4% from elderly products, and

3% from training

• Over the past five years, Hetong‟s total revenues grew at an average CAGR of 16%

while total costs grew at an average CAGR of 18%

• The growth rates for variable costs and fixed costs were 15% and 44% respectively

Introduction to HetongRevenues and Costs

0

5

10

15

20

25

30

35

2005 2006 2007 2008 2009

RM

B m Revenues

Total Costs

55%

18%

10% 11%

4% 3%

52%

18%

8%11%

9%

2%

Elderly Homes

Hospital Catering Cleaning Management

& Laundry

Elderly Products

Training

Avg Rev Avg Total Costs

20

• Elderly Homes, Catering,

and Training have lower

cost as percentage of

total with respective to

their revenue percentage

• Elderly Products business

has a cost two times of

the revenue. It needs to

address the revenue and

cost relationship

Introduction to HetongSegment Revenues and Costs

21

Introduction to HetongBreakdown of Costs

42%

15%

8%

5%3%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Salary (工资) Rental (房租) Cleaning &

Management (清管

洗费)

Utilities (水电气费) Staff Accomodation (

员工)


22

SWOT Analysis

• Has set the national standard for elderly care

training

• 16 years in the management of elderly care

facilities

• Local knowledge in several cities

• Hetong‟s brand influence in the elderly care

work

• Strong network of social associations

• Close relationship with local government

• Increasing focus of elderly care by the

government

• Exponential growth for patients

• Increasing need for well trained caregivers

• Leverage on the Hetong brand for marketing

• Leverage on network of elderly home directors

• Better ways of selling products/ services to the

elderly

• Ready pool of investors willing to invest/ try the

market

• Challenging industry to work in

• High staff turnover

• Lack of middle management/ succession plan

• Unclear business expansion plan

• Lack of business oriented expertise/ focus

• Management stretched by many non-core

businesses

Strengths Opportunities

Weaknesses Threats

• Lack of standardized laws for elderly care

• China market being very attractive to foreign

competitors

• Allowing social work to distract business focus

• Escalating costs of operations/ land


• The company currently faces

challenges including:

– Difficulties in recruiting sufficient

high-quality staff to meet the

facilities demands

– A client base that is extremely

price sensitive, leaving little room

for price increases

– Limited capital to take advantage

of opportunities and meet needs

– A small management structure

with a large number of projects

and segments to manage

23

Current Challenges

Elderly Homes

Hetong Group

Elderly Homes

Hospital

Training & Certification

Catering

Laundry

Cleaning

Elderly Products

BUSINESS MODEL

24

Business Model

25

Considered Proposals

Strategic

Pillar

Priority Market Opportunity Description

1 2 3

X Located in

Urban Main

Cities close to

Hong Kong

A formation of Hetong Group and Hetong China Holdings with:

Hetong Group: Managing some of the existing businesses including elderly homes,

hospital and laundry

Hetong China Holdings: Managing the new Showcase elderly home named Pearl River

Retirement Village, Training Academy, elderly products, catering and publications

X Located in

China

A formation of Hetong Group and Hetong China Holdings with:

Hetong Group: Managing the elderly homes and other existing businesses including

hospitals, laundry, catering, elderly products and publications

Hetong China Holdings: Providing Consulting services and training

X Located in

China

Maintain Hetong Group‟s current operating model and update the facilities to maximize

the operation

• The following business opportunities were considered for Hetong Group before deciding to go

forward with opportunity #1: a formation of the Hetong Group and Hetong China Holdings (HCH)

• We decided not to proceed with the other two scenarios, given that they did not maximize Hetong

Group‟s potential nor promote a sustainable business model

Business Model

Hetong Group

Operations Include:

1) Existing Elderly Homes

2) Existing Hospital

3) Laundry Services

26

The Proposed Business Structure

• We propose forming two companies: Hetong Group and Hetong China Holdings (HCH). HCH will

be owned by a group of investment partners and make royalty payments to Hetong Group

• Hetong China Holdings will provide a social benefit while leveraging off Hetong Group‟s strong

brand and high-quality services to generate a profitable return in a sustainable business model

Investment Partners

Hetong China Holdings (HCH)

1) New Investment (Phase 1):

a) Pearl River Retirement Village

b) Training Academy

c) Elderly Products

2) Current Businesses: Publications & Catering

Business Model

• Hetong Group provides the newly formed Hetong China Holdings with 15

years of experience, a strong brand name, government recognition and high

quality services

• HCH will make 8% royalty payments to the Hetong Group. These payments

will be used to strengthen and expand the current social operations

27

Rationale and Benefits

Hetong China

Holdings

Experience, Brand, Government Recognition and High-Quality Services

Royalty Payments

Hetong Group

Business Model

28

Hetong Group

• Hetong Group‟s remaining operations include:

Existing Elderly Care

Homes

Existing

Hospital

Laundry

Services

Business Model

29

Hetong Group – Proposed Changes

Training

• Training and Certification: A new Training Academy will be formed under Hetong China Holdings. This Academy will be the headquarters for all training and certification

Catering & Elderly Products

• Catering & Elderly Products: The catering and elderly products businesses will be transferred to Hetong China Holdings, where they will be re-established and expanded

Update Facilities

• Update Facilities: The existing elderly homes need to be updated in order to maximize efficiency. This includes re-decorating and re-branding of the facilities

Property Mgmt

• Property Management: Phasing out of property management because its not a core business unit and has weak financials. Hetong Group should only focus on core businesses

• Staff: Reassign staff to other business units including elderly care and laundry. Training will be provided where necessary

Business Model

• Mission: To provide international standard high-quality

services to the middle and lower upper income group to ensure

a profitable and sustainable business over the long term

• Hetong China Holdings structure:

30

Hetong China Holdings

Hetong China

Holdings

New Investment (Phase 1):

1) Pearl River Retirement Village - Showcase Elderly

Home

2) Training Academy

3) Elderly Products

Current Businesses:

1) Publications

2) Catering

• Premium

Facilities

• Premium

Excursion

• Premium

Care

• Premium

Meals

Business ModelPhase 1: The Pearl River Retirement Village

31

• Chosen Location: Shenzhen

• Detail Information about ShenzhenCurrent Situation

– Elderly homes in Shenzhen are fully occupied with a waiting list

– Hong Kong elderly would be a potential market for Shenzhen elderly due to competitive

rates (average room rate is RMB 2,500 per bed per month) when compared with HK‟s

elderly home rate of at least RMB 4,500 per bed per month

– Hong Kong elderly population was 1,23 Million in 2009 which is 17.5% of the total population

– Shenzhen government is providing incentives to HK elderly home service providers for them

to setup business in Shenzhen

– In 2004, the Hong Kong and Guangdong government agreed that the medical insurance and

retirement pension fund are transferrable

32

No. of population 8,277,500

No. of elderly 520,000 (6.2%)

Total no. of elderly home (No.) 29 (25 gov run ,4 private run)

Total no. of bed 2,733

Business ModelPhase 1: The Pearl River Retirement Village

Futian District Social

Welfare Centre Elderly

Home

Option 1 - Build

The Pearl River

Retirement Village

Option 2 – Rent

The Pearl River

Retirement Village

Private/ Government Government Private

No. of Bed 200 400 200

Room Size m2 20 21 21

Occupancy 100% with waiting list Expected 90% Expected 90%

Positioning Mid to High End Mid to High End

Target Customer Independent Semi-dependent, Hong Kong and Shenzhen people

Doctors and Nurses Yes Yes

caregiver‟s qualification TBC Trained by Hetong and Hetong certificated

Facilities Recovery activities, gym,

recreational rooms, library,

catering, laundry

Catering, cleaning, laundry, recreational rooms, library,

German made high tech bathtub, German design bed,

recovery room

No. of Elderly per room 2-3 1

caregiver: Elderly Ratio 1:6 – 1:7 1：3

Business ModelPhase 1: Showcase Analysis

33

Futian District Social Welfare

Centre Elderly Home

The Pearl River

Retirement village

Independent Elderly

Rental (RMB per bed per mth)

Care Fee (RMB per elderly per mth)

Total

1,049

450

1,499

3,000

1,800

4,800

Semi-Independent Elderly



Total

1,077

770

1,847

3,000

2,500

5,500

Fully-Dependent Elderly



Total

1,189

1,260

2,449

3,000

3,500

6,500

Business ModelPhase 1: Showcase Analysis

34

35

(„000 RMB) Rent BuildNPV (@10%) 21,905 81,967

ROI 24.2% (5y) 11.5% (10y)

Initial Investment 16,000 77,280

Rooms 200 400

Roomsize 21m2

Care Givers 60 119

Average Care Ratio 1:3

Ramp up 60%-90% 6 months 50%-90% 12 months

Average Caregiver Fee 2240 RMB / month

Average Room Rate 3000 RMB / month

Rent m2 per month 30 RMB

Land 14,490

Building 62,790

Refurbishment Every 36 months

- No Inflation or property appreciation / depreciation included,

- Including Revenue Tax (5%) and Corporate Profit Tax (25%)

Simple model with market conform assumptions

Business ModelCare Centre : Model Assumptions

35

36

Pessimistic Base Optimistic

Utilization 40%-80% 60%-90% 80%-100%

Rent m2/month +50% 30 RMB -50%

Business ModelCare Centre “Rent” Sensitivity

0

2

4

6

8

10

Profit (RMB m)

Base Optimistic Pessimistic

11%

24%

34%


IRR (5 years)

37


Utilization 40%-80% 50%-90% 60%-100%

Refurb m2 +10% 6,500 RMB -10%

Business ModelCare Centre “Build” Sensitivity

0

5

10

15

20

25

Profit (RMB m)

Base Optimistic Pessimistic

6%

12%

18%


IRR (10 years)

Business Model

• Facts: Majority of China's private nursing homes are understaffed. There is a need for about 10

million nurses and specialists to look after those who cannot care for themselves, and 220,000 staff

are needed in elderly homes

• Relationship with Government:

– Hetong has been recognized for its pioneering

role in China

– Hetong has been invited to speak and participate

in leading government conferences and forums

• Considerations:

The following areas require support from the government:

– The regulation or policy of required certification in caregiver industry

– Authorization of certification

– Authorization of the design of national curriculum and text books

– Authorization to conduct training for government elderly homes

38

Phase 1: Training Academy

Business Model

• Elderly Care

Training School Location: TBD

Rental area: 1000 square meters, 8 class

rooms, 4 skill training rooms, 1 meeting room,

2 offices, etc. 2054 training students per year,

21 total sessions per year, 16 teachers

– Level-1: Basic Nursing

– Level-2: Medium Nursing

– Level-3: Advanced Nursing

– Level-4: Super Nursing ( to serve customers

with special requirements )

39

Phase 1: Training Academy

caregiver

Training

No. of Students per

Class

No. of Classes per

Sessions

No. of Sessions per

year

No. of Teachers

Level-1 41 3 12 6

Level-2 37 2 6 4

Level-3 25 2 2 4

Level-4 25 1 1 2

Elderly care training is the main source of revenue for the training academy

Business Model

• Conference and forums

Conference and forums have the potential to

be very profitable and are a good resource in the

future if planning is optimal and coordinated

with government and other organizations in

this field

– International conference on global elderly services

– National conference on elderly services

– Local forums about China elderly services

40

Training Academy

41

1.52.5

Accumulated profitability shows potential growth

RMB m

Business ModelTraining Academy Financial Analysis

7%

12%

14%15%

17%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1.5

1.6

1.7

1.8

1.9

2.0

2.1

2.2

2.3

2.4

year 1 year 2 year 3 year 4 year 5

Total RevenuesTotal CostsNet Profit Margin

Business Model

42

Phase 1: Elderly Products

Market Potential

• Year 2020 – 500 million consumers in China are aged over 50 years old

• Year 2025 – projected RMB 2 trillion (US$293 Billion) for elderly products market

Product Mix

• High quality imported European products

• Locally manufactured quality products

Price Position

• Improved profit margin based on better market knowledge

• Locally manufactured Chinese products, influenced by the high quality European model presents future opportunity for price reduction, increased quality and/or increase of profit margin

Source: Huffington Post, January 31 2010

Business Model

43

Phase 1: Elderly Products

Target Market

• Consumers within the Hetong Elderly Homes – on site retail store

• Via health care distributors

• Direct to hospitals, elderly care homes and retail chains

Distribution

• Third party warehousing of stock

• Third party distribution model

Sales & Marketing Tools & Strategy

• Display/retail store at joint venture site

• Point of sales material

• Magazine/newspaper advertisement – health care/retail catalogues etc.

• Trade shows, seminars

44

Average profit margin 14%

RMB

100,000

Business ModelElderly Products Financial Analysis

30

38

47

59

73

25

30

38

47

59

3 5 7 911

0

10

20

30

40

50

60

70

80


Total Revenues

Total Costs

Net Profit

Revenue

CAGR

School 2%

Elder Home 2%

Retail 20%

Total

Revenues 6%

45

Business ModelFinancial Analysis – Gross Revenue (Rental Case)

0

5

10

15

20

25


RM

B m School facility

retail Total Revenues

Revenue

CAGR

School 3%

Elder Home 3%

Retail 17%

Total

Revenues 6%

46

Business ModelFinancial Analysis – Gross Revenue (Build Case)

0

5

10

15

20

25

30

35

40

45

50

year 1 year 2 year 3 year 4 year 5 year 6 year 7 year 8 year 9 year 10

RM

B m School facility

retail Total Revenues

Rental Case shows an average 32% net profit margin and an average 43% profit

before tax margin over a five year horizon

RMB m

47

Business ModelFinancial Summary (Rental Case)

37%

41%

30% 30%

27%

20%

25%

30%

35%

40%

45%

0

5

10

15

20

25


Total Revenues Total Costs Net Profit margin

Build Case shows an average 40% net profit margin and an average 54% profit before tax

margin over a ten year horizon due to zero rental charges

RMB m

48

Business ModelFinancial Summary (Build Case)

51%

57%

45%

41%40%

31%

38%37%

30%

35%

20%

25%

30%

35%

40%

45%

50%

55%

60%

0

5

10

15

20

25

30

35

40

45

50


Total RevenuesTotal CostsNet Profit margin

20

2627

2829

3031

3234

35

14

1516

1718

0

5

10

15

20

25

30

35

40


Projected Royalty Payment (Build Case)

Projected Royalty Payment (Rental Case)

6% CAGR

49

Business ModelRoyalty Payment to Hetong

100,000

RMB

• Rent: IRR over 5 years: 24%

• Build: IRR over 10 years: 11,5%

• Royalty Payment of 8% Rev

• Use Cash from Operations No Additional Cash Call

• Investment: Rent 16MM or Build 77MM RMB

Unique Opportunity Exceptional Reward

50

Business ModelKey Financial Highlights

World Class Management

Relevant Skills

Past Performance of Team

Competitive edge

Expansion opportunity

Extracting wealth

Synergies

15 years of experience

Health Care industry related

“Best health care in China”

Brand and Experience

Scalable in Tier 1 and 2 cities

Secondary Sale, Dividends

Elderly Care and Retail

51

Business ModelWhy Should You Invest?

Business Model

52

Corporate Governance

• To provide structure to manage/ monitor/ guide/ review the business to ensure that it is

running/ being managed in a sustainable professional manner

• The below are highlighted to be crucial for Hetong to address

7 key areas to focus

General business

principles – Hetong GroupManagement monitoring

Legal complianceHetong China Holdings –

Hetong GroupOmbudsman

Systems and Processes Audit function

• Objective

− To ensure transparency and objectiveness in decision making and the use of

funds

− With 2 separate management teams and 2 sets of accounts independent of

each other

• Management of companies

− Management of Hetong Group will remain with Mr. Fang

− Management of Hetong China Holdings will be with a newly hired CEO reporting

directly to the Board of Directors

Hetong China Holdings

Business ModelCorporate Governance

Hetong Group

53

Finance

Manager

AccountantsCare givers Executives

Hetong China Holdings Organization Chart

HR, IT, Admin

Manager

Quality Control

Manager

Director -

Elderly Home

Executives

Executive Committee

Cleaning & Laundry

Retail Director

Sales/ Marketing

Director -

Training Academy

Media/ publications

Catering

Executives

Admin Admin

Trainers

Services

outsourced to

CEO

Business Model

Hetong

China Holdings

Hetong Group

54

Business Model

55

Role of Volunteers

• Organize activities / services

– Exercise for the elderly

– Conversations with the elderly

– Haircutting and photography services

– Entertainment for the elderly

• Elderly Care

– Psychological care

– Massages

– Simple daily care e.g. serving water

• Help to create awareness on elderly care

– Raise funds for care homes

– Website design and publications

– Health awareness talks

Leveraging on

student

volunteers /

educators

Business Model

Dedicated volunteer

management team

Build network and design

programme for volunteers

Improve the use of volunteers and

their skills

Volunteers further assist staff

More focused staff at Hetong

Volunteers raise funds for Hetong

Group

Volunteers raise awareness of Hetong and

elderly in China

Increase brand recognition

Increased use of Hetong products

and services

Better funded Hetong

56

Leveraging Volunteers – Key to success

SOCIAL AND

ENVIRONMENTAL IMPACT

57

Social and Environmental Impact

58

Elderly

• Access to quality care and facilities

• Maintain dignity in old age

• Enjoy life to the full

Family

• Lessen family burdens of taking care of aging parents

• Relieve time burden to concentrate on career and next generation

• Reassurance of quality care for their parents

Community Benefits


59

Community Benefits

Volunteer

• Change culture and views on the elderly caretaking industry

• Raise awareness of elderly care

• Cultivate a „sense of charity‟ towards others

• Transfer of traditional culture from elderly to the young

Caregiver

• Employment opportunities in local community

• Vocational training of elderly care


60

Leveraging Government Support for the Elderly

• Promotion for the elderly caregiving

industry

• Standardize regulations/ policies for

the elderly caregiving industry

• Special subsidies for the elderly

• License to operate

• Land rights

• Preference on land for social

enterprises

• Policies to encourage volunteers

program for the elderly


61

Green Building

• Elderly homes and training centres will be designed

to be green buildings in order to reduce the negative

impact on the natural environment by:

• Efficient use of energy, water and other resources

• Reducing waste, pollution and environmental

degradation

• Protecting occupant health and improving employee

productivity

Example: LEED Certified buildings

• Building design and energy systems are optimized

for minimum energy consumption

• Expected payback of additional construction costs in 5

years due to electricity savings over and above 50%

energy saving targeted

SALES AND MARKETING

62

Sales & Marketing

63

Corporate Branding Profiles

Pioneer

15 years in health care

Industry leader

Recognition

Endorsed by Ministry of Civil Affair – National

Accredited Training Program

First organization called by Red

Cross for helping elderly in Sichuan

earth quake

Experience

Operating in 3 different Provinces

Cross section of health care

services

Setting the benchmark in QUALITY elderly services

Sales & Marketing

64

Corporate Profiles - HETONG CHINA HOLDINGS

• The logos represent the progression through life, from young to old

• Emphasizing that whilst we move forward we have support and confidence from those

close to us

• In Chinese culture red signifies health, happiness, harmony, peace and prosperity;

reflected its heavy use in the logos

Sales & Marketing

65

The Pearl River Retirement Village Profile

Disclaimer: These are the suggestion only and should be reviewed by a PR firm & branded in Chinese

Sales & Marketing

66

The Pearl River Retirement Village Profile

宝珠乐龄村

Disclaimer: These are the suggestion only and should be reviewed by a PR firm

Sales & Marketing

1) Multimedia – corporate video incorporating social awareness

• Raising social awareness while increasing commercial viability

• Inclusive of live testimonial from the existing customers (many good examples)

• Corporate video will be on display in the center‟s lobby, in high end retail stores,

at trade shows, at exhibitions and at seminars

67

Sales & Marketing Tools


Sales & Marketing

2) Online – website with content management system, ecommerce

68


Comprehensive website

including e-

commerce, health

information and

donation opportunities


Sales & Marketing

3) Print collateral – poster, signage, brochure, corporate ID

69


A strong brand

identity adds

tremendous value to

a business

Representing

standards and

values


Sales & Marketing

70

Sales & Marketing Strategy & Budget Per Year

Advertising

RMB 54,0009%

Direct Marketing

RMB 35,6706%

Events

RMB 500,00085%

Total Budget Per YearRMB 589,670

Pearl River

•Advertising

•Events

Retail

•Advertising

•Direct Marketing

Training

•Advertising

•Direct Marketing

•Events

Marketing Strategy


IMPLEMENTATION

71

Key A

cti

vit

ies

Corporate

Establishment

Facility, HR,

Products Delivery

• Construction and hiring

commences

• Align with business on the

targeting/channel

approach for Hetong China

Holdings

• Agree on overall project

plan including

marketing/communication

plan

• Design pilot marketing and

community campaign plan

framework

• Commence on Hetong

improvement plan

Launch

• Launch showcase facility in

Shenzhen or other urban city

option

• Implement customer service

training

• Launch corporate academy

• Enhance IT, operations and

risks to meet conversion plan

requirements

• Track results and analyze data

Month 4-6 Year 2

Note: MCA resource allocation front loaded

Month 1-3

Ph

ases

• Business plan presentation

• Investment decision

• Company registration with

new name

• Training, resourcing

• Agree on launch site and

needed resources

• Finalize new marketing and

sales plans to address

customer experience &

service requirements

• Staffing procurement

Implementation Phase 1: Hetong China Holdings

72

Implementation

73

Hetong Group

Update and Renovate

Expand

Programs

• Hire Head of Volunteer

Management Program

• Expand laundry service

with the new property

management staff

• Coordinate with new media

sister company

• Design volunteer programs

/ briefing / database

Month 4-6Month 1-3

• Renovate and update

facilities with internal

and external vendors

• Maintain ongoing

elderly

care, laundry, and

hospital operations

• Re-assignment / Re-

train existing property

management staff for

other functions / roles

with laundry and

cleaning

Launch Volunteer Management Program

Month 7-12

• Advertise programme / get

volunteers

• Assign tasks to volunteers

• Expand community reach

and communication and

media messages

Key A

cti

vit

ies

Ph

ases

Implementation

1) Advertising (30 seconds block)

2) Direct Marketing (Based on iContact & China Unicom – 100,000)

3) Events (Quotation Received)

74

Sales & Marketing

Type Duration Frequency

TV Commercial 14 Days Every Quarter

Radio Ads 28 Days Every Quarter


Email Marketing Constantly Year Round

SMS Marketing Constantly Year Round


Road Show 4 Days Every Half Year

PR Firm (Launch) Once -

ImplementationCorporate Governance

General Business

Principles/ Code of Conduct

Business monitoring tools

like balance scorecards

Ombudsman to hear/

address complaints

Internal audit function

Annual review of

Systems & processes

• Existing

• Existing corporate governance structures in Hetong Group are a combination of trusts and

systems and processes

• Implement

• The monitoring tools and general business principles have to be updated

• Need to create an ombudsman, the audit function and the annual review plan of systems and

processes

(within 1st month)

Complete in 2 wks

(by the 2nd month)

Complete in 1 wk

(2 months before yr end)

Complete in 1 mth

To update To set up To set up

75

Start

ImplementationHuman Resources Hiring Plan

• Hetong Group has sufficient staff covering all critical functions and their

systems/ processes are sufficiently clear

• The key would be the identification of the CEO

Recruit CEO and

senior staff

Prepare division

functions/ plans

Hiring

of staff

Week 3 Week 4

76

Start

Week 1 Week 2

77

Expand Network to Shanghai / Guangzhou

etc.Training

& Certification

Academy

New Revenue

Streams: Co-branding and

Alliances

Expand Retail Shops & Website

Selling

• Open up to 3 new facilities in main urban

cities

• Expand the Training Academy into at least

3 new regional main cities

• Expand retail stores and sales channels

• Optimize opportunities via co-branding

and other alliances such as a loyalty

credit card co-brand card

ImplementationPhase 2: Hetong China Holdings, Year 3 to 5

http://www.ge.com/news/olympic_games/index.html

Key A

cti

vit

ies

Corporate

Establishment

Facility, HR,

Products Delivery

• Construction and hiring

commences

• Align with business on the

targeting/channel

approach for Hetong China

Holdings

• Agree on overall project

plan including

marketing/communication

plan

• Commence vendor

selection in new site

Launch

• Launch new facility in

Shanghai/ Guangzhou etc.

• Enhance IT, operations and

risks to meet conversion plan

requirements to fit expanded

New Corp offerings

• Track results, analyze and

analyze new products to suit

new location

Month 4-6 Year 2

Note: MCA resource allocation front loaded

Month 1-3

Ph

ases

• Business plan presentation

• Sites selection and

procurement

• Help finalize project budget

including

capex, A&P, collaterals, trai

ning, resourcing

• Agree on launch sites.

• Review resource availability

and procure senior

management staff to be

suited to new site

Implementation Phase 2: Hetong China Holdings, Expansion

78

79

ImplementationProjected 10 Year HCH Accumulated Net Profit

Our 2025 vision:

To be the premier elderly health

provider in China with a

balanced, end-to-end set of

elderly care services delivering

diversified revenues and

offering new products and

services which include elderly Year 1

Launch of

First

Location

15.6

RMB m

Year 5

Accumulated

Net Revenue

6 HCH Loc

8 Hetong Loc

Retail Products

YEAR 10

Accumulated

Net Revenue

Sales

Wins, Product

Gains, and

Projected Organic

Growth

223.5

RMB m

Homes

Hospitals

Catering

Laundry

Social Services

105.3

RMB m

Building

Option

Must include

Upfront

Equity

Investment

Rental

Option6.4

RMB m

65.5

RMB m

29.5

RMB m

80

Projected Location Growth

0

1

2

3

4

5

6

7

8

9

Year 1 Year 5 Year 10 Year 15

Implementation

深圳Shenzhen

上海Shanghai

北京Beijing

Disclaimer: These are only suggestion only and not set target cities

http://en.wikipedia.org/wiki/File:Shanghai_Park.jpg

http://en.wikipedia.org/wiki/File:Pudong_Skyline,_Shanghai,_PRC.jpg

http://en.wikipedia.org/wiki/File:TempleHeaven1.jpg

RISKS

81

Risks

82

Risks Mitigation

• High staff turnover/ low retention rate/ difficult

to attract new talent as the industry is new in

China/ the work is demanding

• Improve staff welfare, give heavier weight to

staff with passion for the elderly‟ during the

interview process

• Financial management as there would be

larger sums of money spread over many

locations and many transactions involving

many new people

• Stronger corporate governance model,

transparency in systems/ processes/ decision

making and clear roles and responsibilities for

all staff

• Local government support not forthcoming • Hetong Group to build and maintain new

relationships with local government officials

• Competitors gaining ground and Hetong

losing influence/ ground

• Marketing to constantly feedback competitor

activities for management to plan/ reflect

• Not anticipating changing regulatory

framework / making poor strategic decisions

• Review existing insurance coverage to check

the adequacy of cover, create an ombudsman

and implement check and balance systems/

processes

RECOMMENDATION

83

Recommendations

84

Point

• The YLP has recommended two financially viable business models to capitalise on the potential of the growing elderly market. Both options offer a sound return on investment for

any potential investor

To

• The rental option offers a higher and faster return on investment on a smaller

investment, which is clearly detailed in the document

Be

• The building option offers a solid, but more conservative return on investment with the security of a major asset. The financial projections for this business model do not take into

account the substantial appreciation of the capital asset

Considered

• There is no reason why both business models cannot be undertaken concurrently to achieve the best result for any potential investor. The cash flow generation from the rental model can assist in the financing of the building model within a 5-year period. Both models

present an 8% dividend payment on the initial investment

APPENDICES

85

Current Hetong Situation

8686


• 3 Elderly Home Locations: Tianjin, Beijing and Mianzhu

– Tianjin

• Serves as headquarters with 30 full-time staff

• 4 elderly homes with 401 beds, 343 elderly, 123 caregivers

• Rent land and building, privately run under its branding

• Strong reputation and relationship with local Government

• Semi-dependent and fully dependent are core target clients

• More developed than the other 2 locations

- Beijing

• 2 elderly homes with 176 beds,159 elderly and 50

caregivers

• Partnership with local government , profits sharing model

- Mianzhu

• 2 elderly homes with 180 beds, 38 elderly, 7 caregivers

• Partnership with local government to assist earthquake

survivors

87

Elderly Care Homes

Best network in China


- Nearly all business obtained by word of mouth

- Occasional newspaper advertisement for recruitment of staff

- Virtually no marketing strategy due to high occupancy rates

- Publications distributed to members/elderly

- Web site promoting elderly home

88

Elderly Care Home Marketing

89

Salary (工资) 45%

Rental (房租) 20%

Cleaning & Management (清管洗费) 15%

Utilities (水电气费) 7%

Elderly Products 7%

Staff Accomodation (员工) 5%

2009 BedsNumber of

Elderly

# of

caretakers

Total

RevenuesTR PPPM Total Costs TC PPPM

Nanlu （南路） 142 106 22 1,428,000 1,123 1,358,804 1,068Fengtai (丰台） 126 109 41 1,048,716 802 676,496 517Huayuan (华苑） 106 103 37 1,040,751 842 846,876 685Chuanfu（川府） 91 82 10 772,264 785 666,000 677Xuefu （学府） 62 52 23 461,602 740 359,434 576Elderly Homes 527 452 133 4,751,333 876 3,907,609 720Including Rental Expenses 86% 2/7 4,867,609 897

Elderly Homes total revenues per

person per month (PPPM) is slightly

below total cost PPPM (including

rental expenses)

Current Hetong SituationElderly Care Home

• Laundry and Catering services

- In house services to service Hetong centers in Beijing and Tianjin

- Employs laid off older workers

- Potential to expand business to public

- Catering services address unique nutritional needs of elderly

90

Current Hetong SituationLaundry and Catering Services

91

Revenue Composition

External Cleaning and

Management 41%

Internal Facilities Cleaning and

Management 31%

Washing 30%

Others (其它) 27%

Internal Cleaning and

Management 12%

Salary (工资) 56%

Insurance 19%

Others (其它) 17%

Stationary (文具/物料) 3%

Staff (员工) 3%


Laundry 2005 2006 2007 2008 2009 Average

Revenues 445,052 427,766 632,310 1,192,855 1,526,702 844,937

Total Costs 445,440 464,838 683,149 1,185,296 1,529,384 861,621

Variable Costs 391,440 398,538 555,949 1,011,306 1,273,776 726,202

Fixed Costs 54,000 57,300 106,200 131,990 243,608 118,620

Profit Margin 0% -9% -8% 1% 0% -2%

Laundry should be outsourced given its consistent negative profit margin

Current Hetong SituationLaundry Services

92

Salary (工资) 50%

Fuel (油/煤) 17%


Stationary (文具/物料) 9%


Rental (房租) 4%

Catering 2005 2006 2007 2008 2009 Average

Gross Revenues 1,456,068 1,212,744 1,677,389 1,619,371 2,344,960 1,662,106

COGS 873,641 666,262 952,214 875,304 1,149,897 903,464

Net Revenues 582,427 546,482 725,176 744,067 1,195,063 758,643

Total Costs 582,124 506,262 719,868 646,735 820,810 655,160

Variable Costs 267,692 381,462 542,868 520,735 612,850 465,121

Fixed Costs 99,232 64,800 129,000 102,000 183,960 115,798

Profit Margin 0% 7% 1% 13% 31% 14%

Catering has the highest

profit margin in all segments

Current Hetong SituationCatering Services


• Hospital: Tianjin

– This is a rented facility, serving as the first

private hospital for Hetong in China

– Serves as a home to semi or fully

dependent elderly

– Facilities are designed to accommodate

unique needs of the elderly

– Specially designed Hetong beds, German-

imported bathtubs, special handrails for

bathrooms and amenities are included

– Medium standard of cleanliness

– Received approval from the government to

allow its patients to use their medical

insurance

• Marketing

– Local community networking

93

Hospital

94

Salary (工资)34%

Rental (房租)30%

Others (其它)15%

Heating Costs (取暖费)7%

Cleaning & Management

(清管洗费) 7%

Hospital 2005 2006 2007 2008 2009 Average

Gross Revenues 3,674,504 3,103,128 2,420,806 2,809,306 3,553,602 3,112,269

COGS 2,305,360 1,383,355 1,539,455 1,459,140 1,980,811 1,733,624

Net Revenues 1,369,144 1,719,772 881,351 1,350,166 1,572,791 1,378,645

Total Costs 1,325,896 1,757,799 1,325,914 1,122,353 1,505,295 1,407,451

Variable Costs 784,040 841,799 809,914 567,354 774,831 755,587

Fixed Costs 121,856 436,000 246,000 192,500 355,464 270,364

Inventory 0 92,020 120,322 550,355 0 152,539

Profit Margin 3% -2% -50% 17% 4% -2%

Inventory Management, especially medicine (93% of total inventory) is key to

Hospital‟s profitability

Revenue Composition Per Person Per Month

In-Patient with Insurance (医保住院) 58% Gross Revenues 2,834

In-Patient without Insurance (非医保住院) 11% Cost of Goods Sold 1,572

Out-Patient (门诊) 18% Net Revenues 1,262

Seasonal Charge (床/暖/暑) 10% Total Costs 983

Others (其它) 3%

Current Hetong SituationHospital


• Locations

– 9 training centers across China (3 centers

in Hebei, 1 in Gansu, 1 in Shaanxi, 1 in

Qingdao, 1 in Anhui, 1 in Fujian and most

recently-opened center in Chengdu

– 15 professional trainers and there are 5

levels of training for caregivers (Beginner

nursery, Medium nursery, Advance

nursery, Beginner and Medium)

– National standard certification

• Marketing

– Training marketing by word of mouth

– Web site promotion of training

– Training publication

– Collaborate with local universities and

hospitals

95

Training

96

Salary (工资) 52%

Government Exp (劳动局费用) 13%

Rental (房租) 12%

Marketing (宣传费) 8%

Operating Exp (教材教学支出) 6%

School 2005 2006 2007 2008 2009 Average

Revenues 187,920 207,405 223,898 89,140 275,997 196,872

Total Costs 183,408 155,860 188,262 172,861 199,442 179,967

Variable Costs 114,568 80,960 110,262 71,861 113,802 98,291

Fixed Costs 40,840 46,400 60,000 83,000 67,640 59,576

Profit Margin 2% 25% 16% -94% 28% 9%

School is a steady operation with an attractive profit margin

Current Hetong SituationTraining


• Elderly Products

− A rented small pilot retail shop in Tianjin

− Products include wheelchairs, beds and

portable toilets, canes, strollers and

paper diapers with different price ranges

to cater the needs and affordability of

different consumers

− Limited profit margin due to lack of retail

locations and marketing

• Marketing

− One retail site open in Tianjin

− Products sold in retail stores in Beijing

homes

− Web site product list with pricing and

descriptions – no ecommerce

− Discounted pricing on occasions

97

Elderly Products

98

Salary (工资) 29%

Rental (房租) 24%

Interest Expenses (还占压资金利息) 8%

Marketing (宣传费) 8%


Retail 2005 2006 2007 2008 2009 Average

Gross Revenues 1,565,400 461,943 651,975 768,974 752,020 840,062

COGS 1,020,000 307,327 431,473 480,701 428,180 533,536

Net Revenues 545,400 154,616 220,502 288,274 323,839 306,526

Total Costs 545,070 1,076,251 737,986 985,768 208,599 710,735

Variable Costs 110,050 34,800 60,000 93,000 63,648 72,300

Fixed Costs 40,840 46,400 60,000 83,000 67,640 59,576

Inventory 240,000 992,736 571,502 808,810 0 522,610

Profit Margin 0% -596% -235% -242% 36% -132%

Revenue Composition

Internal59%

External 40%

Inventory management is key to elderly

products‟ profitability

2009 was a very good year for retail

Current Hetong SituationElderly Products

Location Analysis

9999

Shanghai Beijing Shenzhen Guangzhou

Total Population 14,007,000

(Household

population)

16,447,000

(Resident

population)

8,277,500

(Household +

Resident population)

7,800,000

Elderly population 3,157,000 2,500,000 520,000 1,075,000

(% of total population) 22.5% 15.2% 6.3% 13.8%

No. of Elderly Home 615 339 29 163

No. of Bed 89,859 >40,000 2,733 22,817

No. of Hospital for Elderly 71 - - -

No. of Home Base Elderly - - 17,754 -

Monthly subsidy from gov for

home base elderly

- - 253 -

Total no. of elderly on the

waiting list for elderly home

- 30% of the beds

are empty

1,500 -

GDP per capita 80,198 72,663 93,000 >68,000

Annual Disposable Income

(RMB)

21,871 26,738 21,196 14,512

Shenzhen exhibits growing demand and limited supply

100

Location AnalysisPhase 1: Showcase

Shanghai Beijing Shenzhen Guangzhou

Opportunities - The elderly

population is

substantial in Shanghai

-The elderly population is

substantial in Beijing

-Hong Kong elderly

population will be a

substantial source for

elderly homes in

Shenzhen provided

the high rental of

elderly home

-Various government

policies are in place

to encourage HK

elderly to choose

elderly homes in

China

- Government

provides RMB 1,000

per bed per year for

the elderly living in the

elderly homes for a

max of 5 yrs. Gov

gives RMB 60 – 100

per mth to those who

are semi- or fully –

dependent.

Risk -Competition is high in

Shanghai

- Chain elderly homes

have established their

business and network

in Shanghai

-The high-end elderly

homes are not well

received by the market

with a low occupancy

rate

-The government is

promoting home based

elderly care

- The elderly

population in

Shenzhen is relatively

lower than Shanghai

and Beijing

- The consumption

power is weak in

Guangzhou

Shenzhen has been chosen as the showcase location

101

Location AnalysisPhase 1: Showcase

Hetong China Holdings:

Catering Business

102102

• Proposed catering business operation and pricing

103

Catering

In elderly homes Meals on wheels

High-endHigh-end Low-end Low-end

Set meals: ￥8-12

Single-point: ￥10-15

nutrition meal : ￥12-18

Set meals: ￥4-8



Set meals: ￥5-10



Set meals: ￥10-15



Hetong China Holdings: Catering

Business

Additional Financial

Information

104104

105

Hetong current operation showed an average profit margin of -2%

Additional Financial InformationHetong Profit Margins

1%

-18%

-9%

4%

6%

-20%

-15%

-10%

-5%

0%

5%

10%

2005 2006 2007 2008 2009

106

Cleaning and Laundry Service is a money losing proposition

Inventory management is key to Hospitals and Elderly Products

Avg Profit

Margin

Avg Adj Profit

Margin

Major Inventory

Influence

Total -2% 9%

Care Homes 5% 5%

Hospitals -2% 12% YES

Catering 14% 16%

Cleaning & Laundry Services -2% -2%

Elderly Products -132% 81% YES

School 9% 9%

Additional Financial InformationHetong Profit Margins

Sales and Marketing

107107

Sales & Marketing

1) Hetong has 16 years as a pioneer of the health care business

• Specialises in incapacitated elderly care

• Quality trained experienced staff

• Extensive volunteer network

2) Founder Mr. Fang Jiake

• Chinese Doctor with extensive experience

• Pioneer of the industry

• Passion for health care based on personal

experience

• Set up an NPO to help the elderly of the

community

108

Corporate Branding Profiles

Sales & Marketing

3) Established Government recognition• Mr. Fang & senior staff are bestowed with

Advanced Party Memberships

• Endorsed by Ministry of Civil Affairs

• Nationally Accredited Standard of Health Care

• Registered NPO

4) The benefit of experience in a changing and expanding industry

5) Operating in multiple locations• Tianjin

• Beijing

• Sichuan

6) Operating in a cross section of services• Elderly health care

• Training

• Products based on successful European model

109

Corporate Branding Profiles Continued

Sales & Marketing

7) Nationally Accredited Training• Nationally Accredited Training program (internal and external)

• Quality trained staff

• Specialists in incapacitated care

• Specialists in meeting all health care needs

8) First company the Red Cross contacted to assist after the Sichuan earthquake

9) Passion, quality of consistent care recognised by the community

10) Extremely high occupancy (e.g: 90%+) purely through word of mouth only!

110

Corporate Branding Profiles Continued

Sales & Marketing

111

Hetong China Holdings Logo Samples

Sales & Marketing

1) Advertising (Health Care / National Newspaper)

2) Direct Marketing (Based on iContact & China Unicom – 100,000)

3) Events (Based on Quotation)

112

Sales & Marketing Strategy & Budget Per Year

Type Duration Cost

Magazine Ads 4 times per year RMB24,000

Newspaper Ads 5 days x 12 months RMB30,000

Type Duration Cost

Email Marketing Bi-Annual RMB25,670

SMS Marketing Quarterly RMB10,000

Type Duration Cost

Road Show Once A Year RMB150,000

PR Firm (Launch) Once RMB350,000


Sales & Marketing

1) Show Case

2) Retail

3) Training Academy

113

Sales & Marketing Strategy – Advertising

Type Duration Cost

Magazine Ads Quarterly RMB8,000


Type Duration Cost



Type Duration Cost




Sales & Marketing

1) Show Case

2) Retail

3) Training Academy

114

Sales & Marketing Strategy – Direct Marketing

Type Duration Cost

Email Marketing - -

SMS Marketing - -

Type Duration Cost

Email Marketing Bi-Annual RMB25,670

SMS Marketing 2 Quarters RMB5,000

Type Duration Cost

Email Marketing - -

SMS Marketing 2 Quarters RMB5,000


Sales & Marketing

1) Show Case

2) Retail

3) Training Academy

115

Sales & Marketing Strategy – Event

Type Duration Cost

Road Show (Gov & Uni) Once Per Year RMB75,000


Type Duration Cost

Road Show (Gov & Uni) - -

PR Firm (Launch) - -

Type Duration Cost

Road Show (Gov & Uni) Once Per Year RMB75,000




116116

Corporate GovernanceIntroduction

• Objective is not to introduce red tape or bureaucracy, but to ensure the security

of your investment and the successful operation of the company

• Ensures actions/ decisions are transparent where/ when it needs to be

• Enables the organization to work at a high level of professionalism both

internally and when viewed from externally

• Provides an opportunity to all staff/ patients/ shareholders/ stakeholders to

voice their concerns

Governance is like a constitution – it provides check & balance to everyone‟s

actions

Stakeholders/ Shareholders gain confidence from a strong governance model

Provides a strong organization infrastructure

117

General Business Principles


1) Hetong Group

-General principles – to behave ethically & responsibly

-No child/ force labor

-Product safety

-Privacy of information/ records

-Environmental protection

-Commitment towards shareholders

-Commitment towards customers

-Commitment towards suppliers and business partners

-Commitment towards employees

-health & safety

-equal and fair treatment

-right to fair wages

-Business integrity

-no bribery/ blackmail

-full records of transactions

-no 3rd party interests

-no political payments

2) Hetong

- Hetong China Holdings General Business

Principles

+Full transparency of accounts

-All profits to be returned to Hetong social co

-All donations will be for the benefit of Hetong

social co

-Land donated to Hetong can only be used for

the elderly homes and can never be used for

any other purpose

State the reasons on how the organization chooses to be a responsible corporate citizen

Sets out the guiding principles on integrity and ethics in business conduct

They govern all decisions and actions and applies to all employees

Not all encompassing but formulate a minimum requirement of behavior 118

Systems & Processes + Management & Monitoring


3) Systems & Processes

-Stable systems/ processes that are

transparent and clear to all staff

-To have systems/ processes in place in

the reporting/ management of the below

9 elements which covers the entire

breadth of the organization

4) Management & Monitoring

•Management tools to create transparency in information and actions

•Tools for the organization to better monitor/ manage their business during the weekly

management meetings

E.g.: Balance

Scorecard

•Weekly alignment meetings

•Monthly management meetings

•Quarterly review

•Annual Operating Plan

•Annual report

•Employee Satisfaction Survey

E.g.:

119

5) Ombudsman• Independent/ neutral person to receive complaints from internal/ external sources that

cannot be resolved satisfactorily through existing channels

• To demonstrate that Hetong is objective and impartial

• To foster a more open, effective and productive relationships with our stakeholders/

shareholders

• Create helpline and clear reporting line to Chairman/ Founder

• Unlimited powers to investigate

• Concerns will be handled promptly with care, respect and sensitivity

Ombudsman & Audit Function


6) Audit function• To create internal and external (3rd party) audit function

• Role created to review actions/ results of the company and to propose improvement

opportunities

• Ensure all staff with key responsibilities and roles are transparent/ objective in their

decision making

• Ensure decisions are objective

• Provide additional confidence to shareholders/ stakeholders

120

7) Legal Compliance

•Compliance with all:

• Labour laws

• National laws

• Local government laws

Legal Compliance


121

Human Resource (HR)

122122

Human Resource (HR)Introduction

• HR is one of the most important elements of Hetong

• Hetong is predominantly in the people business• Requires large numbers of passionate staff

• Services rendered are to the old that require a lot of attention

• We find that the existing HR processes are insufficient to bring Hetong to the

next level. It requires more focus on Strategic HR issues

• In the following pages we have submitted our suggestions for how Hetong can

move into Strategic HR and, some other areas that Hetong needs to address

HR function should be treated as a service provider and cannot be bloated/

operating in a void. As such, there needs to be a Service Level Agreement (SLA) that

has be established and communicated to all the HR „customers‟

123

Corporate Culture

HR

Next Steps

Corporate culture of both Social and Hetong China Holdings will be based upon the

beliefs of Mr. Fang‟ beliefs on the service to the elderly

-Provide safe environment for all elderly in China

-We treat the elderly as our parents

-Enable the elderly who are lying down to sit up

-and those that are sitting to stand

-and those that are standing to walk

-We always improve ourselves

-We always improve our services

-We always set the standard for elderly services

-Teamwork is key to everything we do

This is a collection of values and behaviour that are shared by all staff in the

organization which control the way they interact with each other and with

stakeholders

Findings

•We find the existing Hetong culture solid and propose that Hetong puts it in

writing with a few additions

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Employee Satisfaction Survey (ESS)

HR

This provides an opportunity to all staff to voice out their concerns/ likes/ dislikes/ inner

feelings in a confidential manner with the objective of being heard by the management

Hetong‟s success is strongly dependent upon its people. As such, there needs to be

strong avenue for them to be heard

Findings

• There is no ESS currently

Next Steps

• Appoint a 3rd party HR company to propose the survey

• Conducted annually

• 100% confidential (management does not know the input of the staff)

125

Next steps

• Staff to celebrate birthdays with elderly

• Preferential rates to the parents of staff buying

Hetong‟s services

• Staff counseling service

• Health checks

HR

126

Staff Welfare

Staff Welfare has the following objectives:

• To provide better life and health to the workers

• To make the workers happy and satisfied

• To relieve workers from industrial fatigue and to improve

intellectual, cultural and material conditions of living of the workers. Happy Employee

Findings

•Existing staff welfare provisions are sufficient and we propose additions to it

Immunization

Dietary advise

Intranet/ notice board that lists all the services/

benefits for staff

Sustainability committee

Community committee

HR

• Target

To increase the job satisfaction and morale

To built the professional career development

To provide a competent, motivated and diverse workforce

• Scope

All staff in Hetong & Hetong Group

• Content

Level 1 - Entrance Staff Training

Level 2 - Professional Skills Development

Level 3 – Management Capability Building

• Review

To collect the group-wide feedback quarterly (HR dept.)

127

Training Plan

HR

128

Training Plan Development

Name Content Description Intented Audience

Potential Resources for Training Delivery

Level 1 Employee Orientation

Corporate mission, vission and Culture

All StaffFounder of Hetong

Employee OrientationOverview of corporate organization

All Staff Leaders of different Depts

Level 2 Computer SkillsBasic skills of Microsoft Office

Supervisor IT Dept.

Customer Service Oral Communication Supervisor Customer Serivice Dept.

Customer Service Etiquetee Supervisor Customer Serivice Dept.

Career Exploration Supervisor HR Dept.

Health ServiceBasic Knowledge of Health building

Supervisor Traing Academy

Social Responsibility Ethics Supervisor HR Dept.

Level 3 Leadership DevelopmentDiversity - Cultural Competency

Manager HR Dept.

Leadership Development Time Management Manager HR Dept.

People SkillsConfiict Resolution Hostile Situations

Manager HR Dept.

Team Building Field Activity Manager Outsourcing Training Agency

Training – Leadership development

HR

Next steps

•Identify individual weaknesses of each leader

•Identify formal programs

•Identify mentors (within/ outside the organization)

•Hetong wants to be in the forefront of elderly care

•Leadership skills will be crucial to ensure the growth and sustainability of Hetong

•There needs to be activities that enhance the leadership abilities of key staff

Findings

•No clear leadership development program

•Hetong is not ready for a full scale leadership development program as the

organization systems/ processes are not stable

Medium to long term initiative Cannot be a „one-off‟ affair. More like learning how

to play a musical instrument than reading a book

129

Succession Planning

HR

Next steps

• Identifying key roles for succession;

• Developing a clear understanding of the capabilities required to undertake those roles;

• Identifying employees who could potentially fill and perform highly in such roles; and

• Preparing employees to be ready for advancement into each identified role

• Each Management staff must have a minimum of 1 to 2 successors

• Each leader/ key staff to have a KPI to develop a successor

• Job rotation among functions/ Social co/ Hetong China Holdings

• Crucial for sustainability of the organization

• All key areas of the organization/ key staff of the organization must have a

successor

Findings

• Current Hetong does not have a clear succession plan for key staff.

• It is growing tremendously and therefore room for advancement for all staff

• There should not be a fear of being replaced

130

HR Structure

131

Capacity Building – A learning organisation

• Clear Career Path for Specialists

– 4 certifications (Skill-based)

– Team Leader, Shift Leader, HOD, Asst Dir, Dir (Function-based)

– Functional roles to be assumed only with at least Intermediate certificate

– Exposure to HQ functions: Parallel transfer to admin staff functions for 2 year periods

• Exposure for Administrators:

– Managers: Functional Skills (Skills-based)

– Short 2 – 4 weeks attachment to elderly home, training academy and retail businesses

• Skills and Personal Development:

– 100 training hours allowed for all staff, given 1000 RMB as training funds

– See training Plan

HR Structure

132

Resignation and Termination

• Resignation

– 1 month notice (Non-managerial level)

– 3 month notice (Managerial level)

– Hand over of duties to team

– Exit interview by Supervisors 2 level up

• Termination

– 1 month payment in lieu upon confirmation

– 3 days during probation

http://www.mayerbrown.com/publications/article.asp?id=8798&nid=6

Thank you

If you are interested in this investment opportunity, please contact Chandran Nair at GIFT at (852) 3571 8103 or [email protected].

mailto:[email protected]



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