The silver industry is now at its early age and will enter into its “golden age” of rapid growth in the next five years. Poly Real Estate is accelerating its business development in the silver industry with a “5P” strategic layout for the early stage and “3-in-1” business model for the complete industry chain. How does Poly seize the advantages over other competitors in the fierce competition?

In January 2016, Huaxia Life Insurance moved in its new office at Poly Clover in the Zhujiang New Town in Guangzhou. It was reported that both parties would work together to have strategic attempts and arrangements in the silver industry and network innovation. It was another alliance made by Poly Group with a financial institution for the silver industry, subsequent to the strategic partnership agreement entered into between Poly Real Estate and Taiping Life Insurance in November 2015.

Already achieving the milestone of 100-billion sales in 2012, Poly is not in a rush to meet the 200-billion sales target, but focuses on development of emerging industries for new profitable points while expanding and strengthening its main business operations in the real estate industry.

One of these emerging industries that Poly is eyeing on is the silver industry. Analysts opine that “the silver industry is the one where Poly grows most quickly with the most detailed layout at present” after announcing its 5P strategy last year.

Hu Zaixin, Vice General Manager of Poly Real Estate, however, frankly said that Poly is not in haste for making profits in the silver industry as it is still in the low-profit times under the current environment, and considers it most important to figure out the service contents and the business model.

Hu Zaixin also said that there will surely have a huge demand for elderly care and the scale of the silver industry must be very big by then, and the market will become more and more mature in the next five years after the right positioning and appropriate business models are found during its growth with ups and downs. Poly expects to invest 5 billion to 6 billion RMB as the fixed assets and operating funds for the silver industry in the coming 5 years.

3-in-1 business model for the complete industry chain

“At present, people still focus on the institution-based elderly care as the key point to accelerate their business”, said Song Guangju, President of Poly Real Estate. She opined that, considering the actual situation, the need of the Chinese elderly people for care and emotional bonding from a traditional family should not be ignored in the development of the senior care industry in China.

For this reason, home-based elderly care and community-based elderly care will be the areas where Poly wants to dig out its next gold nugget under its “9073” elderly care service system. Song Guangju said, “We think that the professional service system for institution-based elderly care may be extended to community-based elderly care in the future, for good interaction between the professional service provider and the customers.”

Poly Real Estate began to prepare for its first elderly care establishment “Hexihui” in 2012, and officially announced the start of its business operations and national strategic layout in the community-based and home-based elderly care area. “Hexi Healthy Life House” has been set up in the community, which also serves as a station for home-based senior care. The O2O operation pattern is adopted and an online cloud platform for health and elderly care is developed for management of the big data of all customer resources.

“We can use these big data resources in the future for our own elderly care establishments, and even for partnering with other external institutions”, explained by Song Guangju.

By 2015, Poly has completed its strategic layout in the complete silver industry chain, including putting the “3-in-1” business model for home-based, community-based and institution-based elderly care into practice and implementing its strategy for both vertical and horizontal development.

Hu Zaixin said, “Poly’s elderly care business is based on the projects in Poly system. Meanwhile, we also choose those projects of operational values from the market. For our business expansion in diversified ways, we are open to discuss about different models for business cooperation, whether it is for joint operation under partnership or for brand management and output. Yet, regardless of the mode of cooperative operation, Hexihui’s services will not be changed.”

As for selection of project locations, first priority is given to tier-1 cities, and the second options are tier-2 cities where ageing level is high; and the core area in a core city should be the most preferred location, followed by the adjacent locations with convenient traffic and abundant resources.

At the SIC in November 2015, as the first on-duty host, Poly Real Estate invited many companies from the US, Japan and other Southeast Asian Countries to come for exchanges. Hu Zaixin told the reporters that Poly was going to set up an overseas research center. “We have had contacts and discussions of different levels with some industry leaders in the world and are now considering establishing partnership with them for promoting the development of both the local and foreign markets at the same time. Poly expects to invest 5 billion to 6 billion RMB as the fixed assets and operating funds for the silver industry in the coming 5 years.”

Upscaling business by leveraging financial capital

At present, the elderly care industry is a low-profit industry in China.

“Generally speaking, the silver industry is like a sesame-picking industry. Only when one picks up many different operations could one possibly make a profit in this business.”

Poly Real Estate once made an estimation of its investment in the elderly care business. If RMB 200,000 was the estimated cost of one single bed for elderly care use, the investor of 100 elderly care establishments for 20,000 beds would have to input RMB 4 billion as the upfront investment. The total amount of funds to be injected for the upfront investment and subsequent investment in an elderly care project might be no smaller than that of a real estate project, but the payback period is much longer.

To attract financial capital to promote scale development of the elderly care business becomes a matter of urgency.

“Industry investment funds are particularly needed at the current investment and development stage,” said Song Guangju at the meeting where Poly Real Estate and Taiping Life Insurance entered into strategic partnership in November 2015.

Recently, Huaxia Life Insurance moved in its new office at Poly Clover in the Zhujiang New Town in Guangzhou. It was reported that both parties would work together to have strategic attempts and arrangements in the silver industry and network innovation.

“The funds from life insurance are well coupled in nature with the community-based elderly care business,” said Hu Zaixin, “our strategy is to separate light assets from heavy assets and separate investments from services. A special company is set up exclusively for handling investments in the elderly care business, while Hexihui serves as the business operator.” In the future, Poly Innovation Industry Investment Co., Ltd. will also search for valuable investment targets in the elderly care industry.

Poly Real Estate plans to break even and step into the stage of steady operation in about 5 years, and to make its business as profitable as that in the developed countries and become listed through financial channels in about 10 years.

“Most of the paid items where our income can actually be gained in this industry are those service items where labor cost and product cost exist, but now our most important task is to explore and find out the needs for service, contents of service and the business model.” As summarized by Hu Zaixin, the profits of an elderly care business are mainly from the charges for professional services (such as nursing, rehabilitation and medical services).

Silver industry at its early age

Poly Real Estate claims that the silver industry is now at its early age and also in the time of fierce competition, but the difference in the business models will determine if an enterprise can continue to survive in the silver industry within the next 5 years.

“The silver industry will surely go into its golden age of rapid growth in the next 5 years,” Song Guangju said, “and more resources and favorable policies will certainly be supplied and worked out by governments of different levels for the silver industry that is closely related to protection and improvement of people’s livelihood in these 5 years.”

Coincidentally, at the end of the month of the SIC, the General Office of the State Council transmitted its notice to nine ministries and commissions with regard to formulating regulations and making plans for talent development for promoting the combination of medical service and senior care, encouraging social forces to set up relevant establishments, etc.

However, the silver industry now is still facing many obstacles due to lack of policy support.

The missing of a long-term caring system and legislation on elderly care insurance in China is the ultimate reason. “Our coworkers once went to Japan for study, and they found that local elderly care industry was well developed and the elderly care insurance was arranged as an important part to support the whole industry under its system.”

Moreover, there are few subsidies and policy supports for promoting the elderly care industry in China. As the upfront investment in an elderly care project is huge and the payback period is long, the project operator has to face the difficulty of suffering from deficits at the early stage of the project. Also, the land available to the elderly care industry is mainly the land for commercial and residential use, for which the cost and rent is at the high side, which is also a burden for the project operator.

Although elderly care establishments cannot completely take place of hospital, they have gradually undertaken some of the roles of the hospital. Therefore, clearing the way for applying medical insurance to relevant qualified elderly care establishments can also help to reduce the burden on the elderly.

In the long run, Poly Real Estate estimates that the market size of the silver industry will reach 10 trillion RMB in 10 years and will account for a higher percentage in GDP by 2030. At present, the big health industry including elderly care industry in the US represents more than 17% of its GDP, while the same percentage in China is less than 6%, so the future growth is promising.