Glaxo Case Study Conclusions and Lessons Learned

The world's fourth-largest pharmaceutical company measured by sales (after Pfizer, Novartis, and Sanofi) is GSk and is a British multinational pharmaceutical company that deals in biologics, vaccines, and consumer healthcare. The company operates internationally and has a very large product mix. The Chinese market is one of the focus areas for the company in terms of investments. After police accused it of funnelling up to 3 billion yuan (approx. £323 million) to travel agencies to facilitate bribes to doctors to boost the sale of its medicines in July 2013, the fact that some of its senior Chinese executives appeared to have broken the law was confirmed by GSK ("GSK Under Fire Again For Alleged Corruption in China -- Business -- tutor2u," 2013). More than £13bn has been fined on pharma companies by U.S. authorities in the last three years alone. The focus has now shifted to the activities "Big Pharma" in emerging markets ("Business Ethics & CSR - GSK Promises to be Good -- Business -- tutor2u," 2014).

This bribery case has cast a shadow on many companies that plan to set up operations in China. As the CEO of a USA-based company and with subsidiaries in the United Kingdom, it is, therefore, important to understand the reasons why Glaxo got engaged in such activities and what are the business conditions, the legal and regulatory framework and even the attitude of people in China towards such a practice. It is also pertinent to consider the matter in light of the anti-bribery regulations prevalent in the U.S. and the UK where the company also has operations. The paper attempts to find out the ways and means that the U.S. based company can use to reduce and minimize such risks of doing business in China (Beijing, 2014)

Analysis:

1)

Despite the fact that Glaxo had a strict code of conduct for its employees and even for its suppliers, the incidents of bribery in China that continued unabated for a long period happened. At the end of the episode, GSK offered apologies on behalf of their employees who were working outside their internal control procedures. While there are a number of factors that could have led to the company executives engaging in the act of bribing in China. One of the primary factors is the general business conditions and the urge of the company to do well.

The pharma market in China is huge. In 2012, around the time when the series of alleged bribery had begun, the China had the third largest pharma market in the world. The total sale of the industry was to the tune of $69 billion. It was anticipated that the same market would significantly increase to touch around $150 billion by 2016. Hence the opportunities for any pharma industry in the country are immense. Due to the factors of enhancement of standard of living and additional income in the hands of the people would ensure that the market would continue to grow at a fast pace. Experts expect China to become the second largest pharma market in the world surpassing Japan in 2016 (Wu, Xu, Liu, & Wu, 2013). Hence for any company, functioning in such a growth market but with numerous international and local competitors, gaining more and more market share was important to give back more money to its investors.

GSK intended to make profits for itself and its shareholders and employees and this would be deemed to be ethical as long as the company adheres to laws and human values. But driven by the urge to gain market share and make more and more profits GSK engaged in the practice of bribing doctors and government officials. The bribe was being given to the relevant people to prescribe and promote the more expensive drugs to the general population. While this is very unethical from the business standpoint, in all countries this is illegal too. This also resulted in a rise in the prices of the drugs produced by the company by as much as one-third of the actual price and this price escalation was passed on to the buyers (Schipani, Liu, & Xu, n.d.). Hence it this act was unjust for the end users of the drugs. GSK also infringed on the autonomy of the doctors and the government officials as they were prescribing the most expensive drugs as demanded by the company and hence were not making well-informed decisions.

However, there were other schools of thought that did not put the entire onus of the scandal on the company only. Experts and business...

This is evident from the manner in which the Chinese government has embarked on an extensive program to cleanse the system of corruption in 2015 which resulted in the arrests and indictment of many government officials as well as private citizens and businessmen. According to the Transparency International's Corruption Perceptions Index, China ranked 80 among 178 nations with respect to corruption in 2013. This is often seen as a barrier to the social and complete domination of the world market by China and hence the cleansing operations by the Chinese government (Zhang, 2016).
Despite this prior to 2015, only 3% of the people accused of bribery in China actually got any form of jail sentences which highlight the lack judicial system in the country (Zhang, 2016). Another possible factor that led to the bribery scandal is the practice of bribery by GSK is the hospital management system in China. The service provided by hospitals in China is their primary source of revenue generation. Often it is customary for hospitals in China to put a surcharge on drug sales to enhance revenues and encouraging its staff doctors to prescribe costlier medicines using the sale quota system. Hence many are of the opinion that this practice by most hospitals and hospital run pharmacies in China has over the years encouraged the practice of bribery (Zhang, 2016).

Despite the Chinese government trying to control the price limit of drugs sold by the hospital and pharmacies, especially those for which the government gave subsidies and those sold at public hospitals, the upward marking of prices of drugs went on unabated. And this practice led to many of the local and even some international pharma companies to engage in bribing the doctors by hospital staff. In fact, some also believe that this had become a part of the marketing practice for pharma companies where bribery in the form of money, favors, and gifts was given to doctors to encourage them to prescribe the drugs that the companies wanted them to even at enhanced prices instead of those of their competitors.

For GSK, despite the fact that the Chinese pharma market and the prevalent system in the healthcare industry in the country encouraged bribery to doctors as a norm, it was unethical and wrong for GSK to have got engaged in the bribery schemes. Ethical principles and theories suggest that even if everyone else is engaged in a wrong doing, it is unethical for one to follow the same path.

The primary factor for GSK to have got entangled in the bribery practice was the general situation of the pharma industry in China where competitors and especially the domestic companies had made bribery and giving a dole to doctors and hospital staff a norm. Though GSK wanted to enhance sales and present strong competition to the domestic companies which had held a significant portion of the pharma market there, the path chosen by the company was not correct. This fight to gain market share and enhance sale in the multi-billion dollar market could have been done by other means that are both ethical and legal such as enhanced marketing and advertising activities. It was not proper for the company to put their worldwide reputation at risk and follow a norm or a practice prevalent in the market and encouraged by competitors. For me, the main factor that drove GSK into the bribery scandal was the general norms and practices already prevalent in the pharma and healthcare market in China. However having said this, GSK also cannot be spared of their responsibility of doing business ethically and legally.

2.)

GSK's response to the bribery scandal that not only tarnished its image in the global market but also resulted in a drastic fall in the sale of its drugs in China and elsewhere has been apologetic. Following the revelations after investigations by Chinese authorities, and the Chinese courts imposing fines on the company for engaging in the illegal and unethical practice of bribing, GSK had published and issued various statements where it said that that it was apologetic to the "Chinese government and its people." "

"Reaching a conclusion in the investigation of our Chinese business is important, but this has been a…