NURSING HOME SECTOR

1. Introduction
Health and social care of elders vary across countries and regions, largely
influenced by economic and social conditions as well as the policies in place.
Per, a underdeveloped country is now close to be considered a developed
country because in the last ten years it has had an economical boom related
with several factors: first, the mining industry and the high world demand of its
resources; second, adequate and stable fiscal policies implemented by the
government succeeded in reducing inflation; and its lowest country risk of Latin
America attracted foreign investments (Carlos Slim, 2013). Nowadays, Per has
an emerging economy with large working offer, a gross domestic product
growing, and as consequence purchasing power of people has increased.

The infant mortality rate has been decreasing along these years due to the
higher investment in health, and this is the main cause why the life expectancy
has grown, currently the 9% of the population are elders, equivalent to three
millions. The National Institute of Statistic of Per indicates that each year
elders are growing in 3.3% while the total population is growing in 1.1%.

Moreover, there is a global trend to work more and more; men and women are
ambitious regarding their professional career that means less time to share with
family, and even less with elders. In Per, the 60% of the sick elderly have
psychiatric diseases mostly related to depression because it is a dramatic
change that must be faced with the help of professionals.

The economic development of Per, plus the estimated growth of the elderly
people and the current lifestyle constitute a magnificent opportunity to invest in
the business sector of nursing homes. Below I will present the analysis of the
external environment using two tools: PESTEL analysis and Porters five forces;
after, the internal environment analysis through SWOT and finally, I will suggest
the most adequate strategy to carry out in this sector.

2. External Analysis of Environment

2.1. PESTEL

Political factors:
-

Per is a democratic republic with a stable government, in which laws

are approved by the Congress of 130 members and then, promulgated
by the President.

Investments made by foreigners enjoy the same treatment as

investments made by Peruvians, which means that foreign investors and
Peruvian investors have the same rights and obligations.

Per has and respects stability agreements with foreign investors, where
guarantees specific terms as percentage of income taxes, free exchange
of foreign currency and the remittance of capital and profits, hiring of
workers, and export promotion measures.

Economic factors:
-

Rate of gross domestic product growth of 5.8% annually since the year
2012 with the expectative of maintain this rate to the year 2022.

In the last 10 years, five millions of Peruvians achieved adequate job

positions. The employment rate increased in 20%, the underemployment
and unemployment decreased in 23.3% and 11.8%, respectively.

Economically active population average income raised in 15.8%.

Social factors:
-

The life expectancy has grown to 83 years old to women and 80 years
old to men from 70 years old to both gender ten years ago.

Currently, elders are 9% of the population and to the 2021 they will
represent 12% of the total population.

The elderly rate rising is 3.3% annually.

In Peru is not widespread the concept of nursing homes and the term
usually causes some aversion in people.

Technological factors:
-

Peru does not have technological industry however due to the

globalisation every device required to protection, monitoring and caring
of elders are imported from abroad.

In Latin America, countries as Chile, Argentina, Mxico and Colombia

already provide nursing homes with latest technology, including
equipment and professional knowledge, facilitating the possibility of
replicate that model.

Environment factors:
-

The elderly are a constant social concern; companies oriented to help

elders are seen as positive.

The main disease in elders is depression and providing the proper

support is contributing to the wellness of the country in general.

Legal factors:
-

Law No. 009-2010 MINDES contemplates the requirements for nursing

homes. Included the design of the centres (only one floor or must be
implemented with lifts or ramps), the staff quality (a graduated director
with geriatric knowledge and a professional and experienced team
available 24 hours), and audits to which it is subjected.

Nursing homes must provide specific services stipulated by law: lodging,

food according each kind of disease, social services, medical exams and
psychological exams annual, laundry services, and cognitive activities.

Nursing homes for tax effect are considered business organisations and
are subject to the income tax of 30% yearly.

2.2. Five Forces of Porter

Threat of entry: It is an attractive sector in Per because there are higher

barriers of entry to start the business. First, the major investment
required in infrastructure and equipment, by law there are specifications
regard the design of nursing homes and to providing permanent medical
services is necessary the equipment; second, the hiring of specialised
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professionals with vocation of service and experience, this point is very

relevant because elders needs special cares, friendly treatment and a lot
of patience; finally, the strong regulation at it is subjected because
organisations assigned by government permanently visit the nursing
homes to evaluate the place conditions,

the status of food and

medicaments, the cleaning in general, and the mood state of the elderly,
on this last issue depends if the government renews or not the operating
permits.

Threat of substitutes: The unique substitute for nursing homes is have

the elder at home and hire a professional nurse to care him, therefore the
threat is low. This option is not better because it is more expensive,
neither so secure as have professionals staff all the time to attend any
emergency, and deprives the elderly to share with other elderly and in
this way assimilate in a best manner the old age.

Power of buyers: It is not likely high due to the market of nursing homes
in Per is not developed, that means, there are not numerous.
Otherwise, if the nursing home has large demand, because exists a
relevant and increasingly percentage of elderly population, the power is
in the side of the company.

Power of suppliers: I mentioned before that through to the globalisation

phenomenon now is possible acquiring equipment and specialised
furniture indispensable to this kind of service. Nonetheless, the
dependence in foreign suppliers is high and risky because is not easy
obtain replacement parts; another risk is currency fluctuation which
affects directly the cost; and one more, shifts in importation laws, if the
government applies restrictions, increases taxes or requests more
documentation, all these have impact on the operation of the company.
Also, regarding to the staff, is not easy find adequate personnel to attend
elderly, nowadays precisely by the projection of this sector, professionals
with experience are more valuable.

Rivalry between competitors: Currently there are not a big market of

nursing homes, nonetheless I will consider the five factors presented in
2014 by Johnson, Whittington, Schoels, Angwin and Regnr:

a) Competitor balance; In Per there are public nursing homes, but the
quality of the services provided and the conditions of these centres
are not sufficient, therefore they not represent competition against
private nursing homes, and the people knows this reality.

b) Industry growth rate; the Peruvian market for nursing homes is

growing, then companies have the possibility to grow with the market
and increase their clients without compete directly between them.

c) High fixed costs, there are important fixed costs to comply with the
law requirements and this condition rise the competition in the
market, all the companies desire protect their investment and
generate profit so they can start using promotional prices to attract
customers or hire massive advertising to publicize their services.

d) High exit barriers, the higher exit barrier is the investment made in the
property and to adequate it according to the law regulations, although
at the same time, this is a market in expansion, so find other
company interested in buy the asset and penetrate in this market not
has to be difficult.

e) Low differentiation; in this class of business, the fidelity of customers

through the quality of the service is predominant. Thus, if the nursing
home achieves prestige in the market has a great advantage over
competitors.

2. Internal Analysis of Environment

SWOT

Strengths:

The fidelity of the Peruvians when a service meets their expectations

is durable; it is a culture that tends to develop easily friendly ties in
business consolidating strong and favourable relationships.

It is a largely untapped market where there are no major competitors

who have established conditions for competition; this gives freedom
to the companies entering the business of creating their own rules,
achieving service differentiation.

Weaknesses

Idea that nursing homes are depressing places where one takes his
family to forget them, instead of thinking that there will be better
served and be able to visit as they please as if the elderly still live at
home.

High cost of supplements as furniture and equipment, and labour

costs because they are specialised and with an increasing demand.

Dependence of abroad suppliers even more to provide comfort and

safety, and in this way to get a competitive advantage.

Opportunities

Rise in elderly population in a relevant percentage and the existent

projection of maintain this trend along the next years due to the
improvement of medical conditions in developing countries.

Higher purchasing power of people due to the sustained economic

growth and the increase of work positions.

Currently the real state market in Per is booming, invest in property

is highly profitable so the acquisition of a house represent also an
opportunity of profit in a future sale.

Threats

Improvement of the services provided by public nursing homes,

becoming real competitors.

The economic development of Per is sustained by the trading of

mineral resources and the foreign investment made in mining industry
currently installed in the country, nonetheless is risky to depend on
international trade due to international crisis impact, the operation of
foreign companies in the country is destabilizes, the labour supply is
reduced and finally the economy has been contracted.

3. Strategies available

According to Porter there are three generic strategies: cost leadership,

differentiation and focus. The first consist in be the leader in the market
based in offer lowest prices; this strategy is reached through obtain low
costs of products or services, have experience in the business to be more
efficient, incorporate economies of scale to spread fixed costs, and working
on the design of productive process; this strategy demands be all the time
working on it. Differentiation is oriented to highlight in the market with a
product or service distinct than competitors, so that is achieved the customer
loyalty because the product or service provided by a specific company is
perceived as unique, this strategy contemplates the long term and if it is
developed generates the highest returns to the company. The last, focus,
involves select or determine a particular sector and is dedicated to satisfy
the demand for that sector excluding to others; this strategy can be
executed with two variants: cost focus and differentiation focus, both
variants are aimed obtain competitive advantages, dominating the selected
segment.
Regarding to nursing home sector in Per, the most fruitful strategy is focus
differentiation due to this sector is relatively new, there is not a major
competence and the company has the option to specialise in offering
efficiently and with added value the services required by sector. To this kind
of business associated with providing a service is vital the quality,
emphasizing safety conditions, the concern about the welfare of each elder,
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the close contact between the company and the elder's family, communicate
issues of interest such as the elder's care, medical results, and also design
a catalogue of activities (physical and intellectual) to fulfil the preferences of
the elders.
Establish relations between the nurses and the patients family, knows the
favourite dish of the patient, promote of leisure activities to share with the
family or groups of friends are simple measures than can signify customer
loyalty for a long time.

4. Strategy suggested

The strategy suggested is penetrate the Peruvian market with the business
of private nursing homes with the latest technology, regarding comfort and
safety; with a location outside the city in the nature, Per has places full of
nature only 20 minutes away from the city as Pachacamac, Cieneguilla, with
fresh air and sunny weather. The design of the centre has to consider
bedrooms with private bathroom, a large dinning room with exterior view,
and a common room multi purposes to practice painting, drawing, reading
and exercises like yoga. Also consider security equipment to monitoring
common areas of the property, and medical equipment to first aids and
emergencies. In the exterior, it will have gardening zone to the elders take
care of their plants, and barbecue zone to organise event with family or
friends.
In relation with the staff, legally is requirement to have a geriatric
professional as director, and capable experienced nurses. Respect to the
nurses would be productive bring some of them from Argentina, Chile or
Colombia because in these country this business sector has been
developed and professionals have the experience required; hire some
foreign nurses to spread their knowledge and expertise between the rest of
the team.
As marketing campaign more than massive advertising, I recommend select
a geriatric professional recognized in his field to count with his contacts and
gain positioning with his backed. Besides emphasize the modernity, comfort

and technology of the centre with visits in family groups to spend the day off
enjoying the nursing home facilities.

To evaluate the strategy of focus differentiation to nursing home sector in

Per, I will use the criteria of suitability, acceptability and feasibility.
Regarding

to

suitability,

the

strategy

proposed

contemplates

the

opportunities and threats of the environment; for example, this business is

perfect to the increasing population of the elderly, people can afford the kind
of service offered because there is economical development, and a special
and specialised service always will be above public nursing homes.
Regarding to acceptability, every business has risk, I think in this business in
particular the risk is controlled because there are clients, there are capable
professionals, there are infrastructure conditions, and an economic stability
conducive to invest. Moreover, this kind of business that contributes with
causes as the care of elders generates also satisfaction and recognition in
the owners.
Regarding to feasibility, is highly likely to put this business in practice
because all the components required exists, for example, the places outside
the city are still available to invest, the financial system in Per is promoting
loans to working capital, there are experienced professional in neighbouring
countries.

5. Bibliography

Government of Per. (2010). Law N 009-2010-MIMDES: Minimum

requirements for the operation of private nursing homes. Retrieved from
http://www.gacetajuridica.com.pe/servicios/normaspdf_2010/Octubre/0210-2010.pdf.

Johnson, G., Whittington, R., Scholes, K., Angwing, D., Regnr, P.

(2014). Exploring Strategy. (10th ed.). Edinburgh, United Kingdom:
Pearson.

Marshall, S. (2014). Marketing. (7th ed.). Edinburgh, United Kingdom:

Pearson.

National Institute of Statistic of Per. (2014). Per in figures. Retrieved

from http://www.inei.gob.pe.

Porter, M. (1985). Competitive advantage: Creating and sustaining

superior performance. New York, United States: Free Press

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