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Health Care

Japan's trading houses find a gem in Asia's health care market

Itochu, Mitsui and others sense opportunity in a richer, older population

Japan's Mitsui & Co. became the largest shareholder in Malaysian hospital operator IHH Healthcare to gain exposure to Southeast Asia's health care market. (Photo courtesy of Parkway Pantai)

TOKYO -- Asia is growing older and richer, presenting a golden opportunity for Japanese trading houses to meet the region's expanding demand for advanced health care.

Itochu, Mitsui & Co. and Sumitomo Corp. are stepping up their health care operations in Asia as they seek steady cash flows to offset their volatile energy and resources businesses and a safe haven from the U.S.-China trade war.

An Itochu official in charge of the company's hospital business is bullish on Suntop Healthcare, a Chinese provider of dialysis services. Itochu decided in March to invest in the Shanghai-based company. "The market will quickly expand because the population is so large, and the medical business is not affected by the trade war," the official said.

"Lifestyle diseases" such as obesity, heart disease and diabetes are on the rise in China as more people adopt high-fat Western diets and grow more sedentary. While that is bad news for Chinese who face these chronic health problems, it is a boon to companies like Suntop, which provides dialysis services to about 1,000 hospitals, mostly in Shanghai. Suntop plans to use the cash injection from Itochu to increase its network of specialist dialysis clinics from one at present to 50 by the end of 2022.

Itochu will help Suntop stand apart from its competitors by advising it on how to offer a more complete package of dialysis treatment. In China, treatment is typically limited to hospital care. In Japan, on the other hand, care is handled by a team of specialists who give patients advice on diet, medication, exercise and foot care. The partners hope this more comprehensive approach proves popular.

The number of dialysis patients in China nearly doubled between 2012 and 2017, reaching 450,000. By 2022, the figure is expected to reach 800,000. The market for dialysis-related services is growing 20% a year and is forecast to be worth about $7.5 billion by 2020.

In March, Itochu and Citic, a Chinese state-owned conglomerate, jointly invested in Beijing Century Kounre Hospital, which operates 11 facilities with a total of 7,000 beds. Itochu plans to introduce Suntop's dialysis service in these hospitals.

Mitsui is a pioneer among Japanese trading houses offering health care in Asia. In 2016, it invested 16 billion yen ($147.8 million) in DaVita Care, a Singaporean dialysis clinic operator. In March, it raised its stake in IHH Healthcare, one of Asia's largest private hospital groups, to 33%, investing an additional 8.4 billion ringgit ($2 billion) to become the company's largest shareholder.

"Health-related businesses have little downside risk," according to Tatsuo Yasunaga, Mitsui's president and CEO. "The Asian market, in particular, will continue to grow, driven by population growth and economic development."

Mitsui is focusing its attention on India and China. IHH hopes to spend up to $1.1 billion by the end of the year to take control of Fortis Healthcare, India's No. 2 hospital operator. It also wants to build hospitals in Shanghai and Chengdu, in China.

Mitsui's role will be to put its know-how as a trading company to use by, for example, procuring drugs, improving hospital bed utilization and conducting market research to determine pricing for medical fees. IHH aims to increase its total number of beds to 20,000 by March 2023 and to 25,000 by March 2028 to meet rising demand.

Sumitomo, which operates the Tomod's drugstore chain in Taiwan, entered the health care business in March with the purchase of two Malaysian managed-care service companies.

Publicly funded health care is limited in Malaysia. Typically, Malaysians pay for medical care through private insurance. The type of insurance plan purchased determine which hospitals policyholders can use. Managed care providers suggest and manage insurance plans on behalf of patients.

The two companies purchased by Sumitomo each have a pool of doctors and hospitals -- around 5,000 health care providers in all -- to refer to insurers. The two companies also provide administrative services, including processing of medical bills.

Sumitomo, seeing the key role that managed-care providers play in Malaysia's health care system, plans to offer new services, including online health care developed by a Japanese affiliate.

"If you want to improve hospital profitability, it is important to pursue efficiency," according to Makio Kitazawa, a senior partner and hospital management specialist with Boston Consulting Group. "You may want to have a sufficient number of beds, and at the same time specialize in specific areas of care, for example."

Sumitomo's success in the business depends on whether it can quickly develop services that meet local needs, applying the flexibility that Japanese trading houses are known for to expand their customer base, Kitazawa says.

As Southeast Asia's population continues to grow, the share of people aged 65 or older is also rising quickly. According to United Nations estimates, Indonesia's elderly population will reach about 44 million by 2050, exceeding Japan's. In Vietnam, the number of elderly is expected to quadruple by 2050, versus 2015.

In Vietnam and elsewhere in the region, the growing elderly population has sparked interest in early detection of health problems such as cancer, cardiovascular disease and diabetes. Japan's International University of Health and Welfare opened the Health Evaluation & Promotion Center in Ho Chi Minh City last October. The facility is Vietnam's first to specialize in checkups.

The center, set up under a joint project with Cho Ray Hospital, offers two types of medical screenings. The "gold" checkup is priced at about $830. The more extensive "platinum" checkup goes for around $1,570. The platinum checkups are fully booked through the end of June. Most of the people having the screenings are Vietnamese in their 50s.

The Japanese university will also partner with companies such as Vingroup, a Vietnamese conglomerate focused on real estate, to open a high-end health screening center in Hanoi by the end of March 2020.

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