Korean hospitals continue to enter the Chinese market, but most of them are seeking illegal ways to do so, an expert said.
Lee Yoo-seung, CEO of Asia Dental Partners, said in a report on strategies to enter China, published by the Korea Health Industry Development Institute (KHIDI), that many Korean hospitals struggle in China after failing to localize their Chinese units.
According to Lee’s report, the healthcare service industry in China rapidly grew to 952 trillion won ($851 million) in 2016 from 280 trillion won in 2013. By 2020, the market is predicted to account for 10 percent of China’s gross domestic product (GDP), the report said.
Sensing the growing needs for medical services such as health checkups and healthcare information, Korean medical institutions are increasingly entering China.
As of 2016, Korean hospitals made 155 cases of overseas expansion including 38 (59 percent) in China.
Their moving in China occurred in three ways – opening and running a hospital via foreign direct investment, entrusting operation to an entity and receiving commissions, and providing operation advice to a local entity and receiving royalties or exporting the hospital information system and receiving commissions.
Lee noted that many Korean hospitals were set up in “shop-in-shop” form, where moving-in hospitals use the hosting Chinese hospital’s license, facilities, and workforce to earn revenue and split profits with the hosting hospital.
“Most of the Korean hospitals in China were either established in shop-in-shop form or under the Chinese owner’s name,” Lee said.
He said the shop-in-shop business model is not only illegal, but it makes it impossible for Korean hospitals to use their brand name.
“Korean hospitals cannot receive medical payments directly but split the profits with the Chinese partner. As they will become a subordinate to the Chinese hospitals, the shop-in-shop model is not good for them when entering China,” Lee said.
Lee went on to say that the Korean medical community lacks expertise in China, compared to a long history of entering the Chinese market.
“There are not many experts who have a knack for overseas hospital business. The few of them mostly depend on unreliable information. Medical institution tapping a global business must nurture professionals,” Lee added.
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