Understanding the Nuts & Bolts of a Successful Business: A Case Study From China

Author: David Xu

Many readers are aware of the American business model as it relates to hearing aids. In that model, which is popular in Europe, Australia and Canada, professional services are associated with the sale of hearing devices. However, in other parts of the world, that business model was virtually non-existent until recently. There are several reasons you do not see the traditional business model, in which services and devices are sold through a licensed professional. First and foremost, there is a shortage of licensed hearing care professionals in places such as China. Audiology is a modern profession that was established in the US in the 1940s to serve the communication needs of WWII veterans. Many parts of the world lack the resources to train mid-level medical professionals–and the enormous middle-class population, often taken for granted in North America, Western Europe, Australia, and New Zealand, that can afford the out-of-pocket costs associated with hearing aids. Many places lack the medical infrastructure to support widespread clinical support. Even when a place like China or India graduates an audiologist (a growing number of audiologists originating from these countries are attending AuD programs), their home country has a paucity of brick and mortar clinics where they can practice. For these reasons, alternative business models are crucial to address the needs of millions of individuals with hearing loss. Fortunately, Chinese entrepreneurs have been able to attend conferences in the United States to learn business practices from American audiologists and apply them to the Chinese market. This case study explores the impact of American business practices on hearing aid use rates in China. Readers should consider the high rate of non-hearing aid wearers in their own community and consider how key points from this case study apply to their own business in the US.

Hui’er Hearing
Location of Business
Hui’er Hearing was established in 1987. There are more than 800 Hui’er Hearing clinics in China and its professional service network covers more than 240 cities in China.
Who is their core customer?
There are more than 1600 professionals who provide high-quality services to patients with hearing problems in Hui’er Hearing, which provided services to more than 120,000 patients in 2020. Most of the patients (70%) who received help from the Hui’er Hearing are older than 55 years of age. The retirement age in China is 50 years for women and 60 years for men.

According to officials at Hui'er Hearing, older patients usually purchase hearing aids with basic technology, whereas most parents want their children to be fitted with premium-level technology.

The average price for hearing aids selected by older adults is approximately $1,000 (US) and the average price for hearing aids dispensed to children and teenagers in 2020 was $3,000.

Like Americans with hearing loss, many patients who are older than 18 are concerned about cosmetic appearance. Hence, many persons with hearing loss prefer to wear invisible hearing aids such as CIC-type devices. For most patients, especially older adults, the ability to understand others in noisy situations is the most important feature, and they don't care as much about advanced features.

There are large wealth disparities in China where the average income is $14,000--and yet China had the most billionaires worldwide in 2021. China also has the largest middle-class consumption market in the world today. These consumers are readily able to find effective hearing aid technology with a high quality-to-price ratio, and many are able to afford premium technology, professional services through Hui'er Hearing as well as U.S. and European hearing aid manufacturers. Because Hui'er has its own hearing aid factory, it is also able to offer basic technology to serve the needs of low-income citizens.
What is their value proposition?
Hui’er Hearing is able to provide the most professional audiological services with the least possible cost to persons with hearing loss. What’s more, Hui’er Hearing wants to raise awareness on how to prevent hearing loss and promote hearing care across  all of China, a nation of more than 1.3 billion people.

Furthermore, they want to improve most patients’ quality of life and help more children with hearing loss to engage in social activities, improving their academic performance, or even getting more success in the future by using their hearing aids.
What is their value chain?
Hui’er Hearing has four main links in their value chain that create value for the customer:

  1. Hearing health fairs and free hearing screenings
  2. Financial assistance to those who qualify
  3. House call hearing care
  4. 30-day free trial period without any fees

World Hearing Month is March and that is a prime time to explain how the Hui’er Hearing company creates value in a public relations campaign. During World Hearing Month this year, Hui’er Hearing organized 1,013 hearing health fairs in more than 240 cities. This campaign attracted thousands of patients with hearing loss and their family members into Hui’er Hearing locations. More than 25,260 people made appointments for free hearing screenings and 11.4% of the tested population had measured hearing loss. For financial assistance, after checking patients’ proof of low income, Hui’er Hearing gave them appropriate subsidies. Furthermore, Hui’er Hearing also designated about 6,130 free hearing aids for patients, especially young kids who are not able to afford the costs of hearing aids. For some older patients, they provided house call hearing care. In all, Hui’er Hearing provided house call hearing care to at least 2,100 patients in March. What’s more, 3,576 patients who have made appointments will come to Hui’er clinics in different cities for fitting hearing aids with a 30-day free trial period.

All patients can get free hearing evaluations in a Hui’er Hearing location and attend activities such as hearing health fairs to learn how to protect their ears, take care of their hearing aids, and obtain some helpful knowledge for free.

What is their revenue model?
Almost 99 percent of Hui'er's revenue comes from the sale of hearing aids. The Hui’er company provides free hearing tests for patients who come to their clinics in China. Also, because most patients in China do not use rechargeable hearing aids, Hui'er Hearing also generates some revenue from selling batteries. What’s more, every year, Hui’er company recommends about 500 patients to some hospitals for fitting cochlear implants. Some cochlear implant companies give Hui’er Hearing a finder’s fee; a practice that is unethical or even illegal in many parts of the world.
What are their cost structures?
The following is a breakdown of the various costs, expressed as a percentage in a typical Hui’er Hearing location. Note the percentages for cost of goods, marketing and labor are, on average, slightly less than the typical American audiology practice that provides most of its care to the private pay market. Hui’er Hearing uses its relatively sizeable net profit to open more clinics in the underserved areas of China.
Table 1. A breakdown of average revenue and costs, expressed as a percentage, for Hui’er Hearing
Hearing aid revenue 99%
Battery revenue 1%
Gross revenue 100%
Cost of Goods 25%
Gross Margin 75%
Marketing Costs 10%
Building + Utilities Costs 10%
Labor Costs 25%
Taxes 10%
Net Profit 20%
What Key Performance Indicators (KPIs) are managed on a weekly or monthly basis?
There are two main KPIs for the Hui’er Hearing. First, an annual growth rate in revenue of 18% is expected. That is, each month, they compare the total revenue of that month with the total revenue in the same month last year and check whether it meets a growth threshold of 18%.
A second KPI is related to the number of new clinics opened each year. Hui’er Hearing expects four new clinics per month to open in 2021. Readers should note these aggressive KPIs reflect the growth mode of an under-penetrated market. This is considerably different than the market in the US.

Let’s look more carefully at how these two KPis are managed. For total revenue, if the increasing year-over-year rate of total revenue is lower than 18%, the manager will spend more money on marketing over the next month or two. Additionally, managers are encouraged to give patients substantial discounts in order to get a sale. Although these actions may decrease the net profits, now it is a critical time in China for hearing aid companies to capture the market, increase awareness of the company, and attract more new patients. Strategically, it is important to win more market share at the expense of monthly profitability.

KPI for opening new clinics;, if the number of new clinics do not meet goal, Hui’er will hire more administrative staff or increase the workload of existing staff responsible for opening new clinics, in order to meet the KPI goal. This is a strategy that is not customary in the United States, but in an under-penetrated market, it is proving to be successful.
What demographic or psychographic data is used in marketing plans?
The World Health Organization (WHO) reported 1 in 4 people (2.5 billion) are projected to have hearing problems by 2050. In 2012, the prevalence of hearing aid use in the United States, among elderly people with mild-to-moderate hearing loss was less than 25%, but the rate of hearing aid adoption is even lower in developing countries. China's population is 1.4 billion with 9.5% of the population aged 65 years or older. The hearing aid use in mainland China was less than 17% in 2015. Hence, it is easy for us to find that in the future, China will be one of largest hearing aid markets in the world. This explains the strategy of managing the two KPIs mentioned in the previous section.
How does the business balance business needs with quality of care?
First, they provide free hearing screenings for different communities across China, and they also provide free hearing evaluations for all patients. Furthermore, for hearing aids which are made by Hui’er Hearing, they provide 3 years warranty and 5 years of free further adjustments in a bundled cost model. Also, if patients are fitted with another company’s hearing aids in different clinics of Hui’er Hearing, they still guarantee a 3-year warranty and 5 years of free further adjustments. The professionals of Hui’er Hearing only fit hearing aids based on patient’s hearing threshold, configuration, their personal needs and affordability. If entry level technology hearing aids are able to give patients enough help, they will let patients know that and not recommend premium technology level hearing aids, unless patients really insist on higher-end devices. Hui'er Hearing also offers customer service resources and contacts to assist customers on an ongoing basis.
What are the results of a SWOT analysis?
SWOT stands for Strengths, Weaknesses, Opportunities and Threats. It is a common business practice in China, similar to other parts of the world, for business managers to conduct a so-called SWOT analysis annually.

There are more than 1600 professionals who provide high-quality services to patients with hearing problems in Hui’er Hearing. They provided services to more than 120,000 patients in 2020. There are more than 800 clinics in China and every year, Hui’er Hearing plans to open at least 50 new clinics. Hui’er Hearing has more clinics and professionals in China than any other company, which is a competitive advantage. Furthermore, they have some experts who are very familiar with Chinese policies and marketing. What’s more, Hui’er Hearing is the most famous hearing aid company in China, and has had a sea of repeat customers.

They also have their own hearing aid factory and by comparing with some European and American hearing aid companies, they have cheaper labor costs, which may put them in a favorable position in comparison to other foreign hearing aid companies. Also, they have a solid relationship with Chinese universities. There are only a few universities which have audiology training programs in China, and most of their excellent students are willing to work for Hui’er Hearing.

Interestingly, more international students from "belt and road" countries are coming to China to study audiology than ever before (China's belt and road initiative (BRI) is a strategy initiated by China that seeks to connect Asia with Africa and Europe with the aim of improving regional integration, increasing trade, and stimulating economic growth). Many of these students are working in Hui’er Hearing for their internship. Hui’er Hearing has a really good relationship with them and some of them may be hired by Hui’er Hearing. Others go back to their home countries and open new Hui'er Hearing clinics, which allows Hui'er Hearing to become favorably positioned in some European and African countries.

There are not very many audiologists at Hui'er Hearing because the Chinese government does not require people to have a college degree in order to conduct hearing aid evaluations and fit hearing aids. As a result, many staff lack audiologic knowledge that could best serve patients.
Additionally, although Hui'er Hearing can manufacture their own hearing aids, they must buy microchips from other companies. Due to the COVID-19 pandemic, there is a microchip shortage all over the world. Hence, demand for hearing aids is currently outstripping production.

There is no doubt that in the future, there will be more patients with hearing loss in China. In 2019, China’s GDP of $14 trillion was the world’s second largest, after that of the United States. This suggests China has a good economy and an attractive market, but the adoption rate of hearing aids in China is significantly lower than developed countries. With the development of the economy in China, more and more patients with hearing loss can afford hearing aids. Furthermore, there are mature industrial systems, modern supply chains, and cheap labor costs in China, which may put Chinese hearing aid companies into a favorable position in making some OTC hearing aids and selling them in the US. Also, the Belt and Road Initiative may give Hui’er Hearing a big push for developing European and African hearing aid markets!

A rising number of European and American hearing aid companies have entered the hearing aid market in China recently. Some younger Chinese people, with mild hearing loss, are willing to buy cheap hearing aids online, instead of coming to clinics and getting a hearing evaluation before buying hearing aids. Recent economic development in China has resulted in increased fixed costs including labor and rental lease payments recently.
An overall assessment of this business
Hui’er Hearing has amazing potential in the future and many investors wanted to invest in his IPO in Hongkong or NASDAQ. Hui'er Hearing will have more clinics in China and they will also enter the Southeast Asian and African markets by manufacturing cheaper hearing aids relative to European and American hearing aid companies. Furthermore, Hui’er Hearing is working to meet FDA criteria for OTC hearing aids in the United States, with the intention of selling them in the United States and in some European countries in the future. More and more international students from Belt and Road countries come to China to learn audiology and are working at Hui’er as interns. Hui’er Hearing has an excellent relationship with them and some of them are hired by Hui’er Hearing and go back to their counties to open clinics, which may put Hui’er Hearing into a favorable position in some European and Asian countries. In a nutshell, Hui’er Hearing has kept the 18% increase rate of total revenue for almost 10 years and now they generate more than $85 million in total revenue per year. In the future, Hui’er Hearing may become one of the largest hearing aid companies in Asia.

If Hui’er Hearing can obtain more professional audiologists who receive a quality clinical education, they may provide better services to their patients. Also, because most older patients in China have endured poverty throughout their lifetime, even though most of them can afford hearing aids today, many are hesitant to spend money on the technology to improve their quality of life. This is one of the main reasons that the adoption rate of hearing aids in China is significantly lower than the USA. In the future, with the development of its economy, coupled with more young people getting good audiology training to address the growing needs of those with hearing loss, the hearing aid market in China will increase significantly.

To learn more how Hui’er Hearing’s strategic initiatives fit into the broader market of hearing care services, readers are encouraged to explore these two articles:

Said, A. E. (2017). Health-related quality of life in elderly hearing aid users vs. nonusers, Egyptian Journal of Ear, 18, 3, 271-279. org/10.1016/j.ejenta.2017.11.006.

Tahden, M., Gieseler,A., Meis, M., Wagener, K.C.& Colonius, H. (2018) What Keeps Older Adults With Hearing Impairment From Adopting Hearing Aids? Trends Hear. 22.    
David Xu is an AuD student at UW-Stevens Point. He can be reached at hxu899@uwsp.edu.