December 2, 2013 4:08 pm

Start-up capitalises on Japan’s ageing population

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Elderly people work out with wooden dumb-bells in the grounds of a temple in Tokyo on September 21, 2009 to celebrate Japan's Respect-for-the-Aged-Day©Getty

Potential: elderly Japanese people take exercise

As an undergraduate in the late 1990s, Shuhei Morofuji was facing the traditional and laborious process of applying for jobs at leading Japanese corporations.

With established companies at the time beginning to merge, lay off staff and even go bankrupt, however, he concluded that life as a white-collar salaryman was no longer a stable option.

“I thought that it would be better to take charge of my career and form a company at my own risk,” says Mr Morofuji. After a couple of years spent working in sales, he set his sights on one of the few parts of the domestic economy that was almost guaranteed to see future growth.

“The ageing of Japanese society was beginning to be featured on the news regularly at that time; how the percentage of older people in the population would keep on rising and how they held the most of the country’s assets,” he recalls. “But I realised that going into the actual medical or healthcare business required a lot of investment, and there were a lot of barriers.”

His first foray into the market did not go according to plan. The venture was an agency that specialised in finding accommodation for elderly people, complete with suitable facilities and available care. However, when Japan’s long-term care insurance system came into operation in 2000, competition increased and fees dropped, rendering the business unprofitable.

Fear of this type of failure partly explains the lack of entrepreneurs in Japan in recent decades, according to Mr Morofuji – something he believes must change if the economy is to grow.

Undaunted, Mr Morofuji then founded SMS in 2003, with the aim of providing “information infrastructure” for the elderly care market and its associated industries. His first step was to take the advertising related to elderly care, including personnel recruitment, and shift it from leaflets and newspapers to an online model. With revenue from the success of this venture, SMS was able to expand its offerings.

“A lot of people don’t understand what we do as a company, and think we’re just an employment agency for elderly healthcare. In fact, that is only a part of our operations,” he says.

SMS now operates more than 20 web-based services to meet the needs of the elderly healthcare and medical industries, companies supplying it, those working in it and the elderly themselves. These include a website that provides advice from industry professionals for people caring for elderly relatives recently discharged from hospital; an online community for care workers and managers, and another site promoting professional qualifications for those employed in the sector, collecting commissions from schools when its members sign up for courses.

With 80 per cent of Japan’s numerous elderly-care companies consisting of independent, often family-run, concerns, SMS created a dedicated, computerised management system, which is now used by more than 15,000 of them.

The overlapping nature of the various services mean many of the businesses feed into each other, while big data analysis has helped identify needs and develop new offerings, according to Mr Morofuji.

“Our overarching strategy is to be ahead of the curve in creating the full range of information infrastructure services,” he says.

SMS listed on the Tokyo Stock Exchange’s so-called mothers section for high-growth start-up companies in 2008, and was promoted to the first section in 2011. Annual revenue topped Y10bn (£62m) for the first time in the year to March 2013, while net profits for the quarter ending September jumped 35.5 per cent on the previous year to Y1.08bn.

As the populations of Japan’s Asian neighbours are expected to age rapidly in the future, SMS is positioning itself to take advantage. The first generation of parents from China’s one child policy will retire over the next few decades, skewing the demographics of its vast population even more than that of Japan. SMS has subsidiaries in China, as well as in the greying nations of South Korea and Taiwan. This is in addition to operations in countries with younger demographic profiles, including Malaysia, India, the Philippines, Thailand and Indonesia.

“If there is any one area where Japan leads, it’s the shrinking, ageing population,” says William H Saito, a serial entrepreneur, venture capitalist and government adviser. “And this will soon be a problem for countries all around the world. Japan has a 20-year head start on this.

“The person who figures out how to address this issue – and it’s going to be through ideas and technology – is going to do very well. That is going to be exportable to many countries very soon.”

Having run SMS for a decade, Mr Morofuji, who still owns 31 per cent of the company, has decided the time has come to step aside and let another chief executive take the reins. He believes that companies that continue to be run by their founders tend to underperform, often becoming vehicles to implement the boss’s will.

“In order to develop an organisation that can continue for 50 or 100 years, it’s important to nurture talent properly in the company and have a career route for them through to chief executive,” he says.

Mr Morofuji says he plans to provide support to the development of SMS’s business overseas from April 2014 – while thinking about his next move.

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