GSK Bribery Scandal in China: Case Study Analysis

Introduction and Background

GlaxoSmithKline (GSK) is the world's fourth-largest pharmaceutical company by sales — after Pfizer, Novartis, and Sanofi — and is a British multinational that operates across biologics, vaccines, and consumer healthcare. The company operates internationally and maintains a very large product mix. China is one of GSK's primary investment focus areas. In July 2013, Chinese police accused GSK of funnelling up to 3 billion yuan (approximately £323 million) through travel agencies to facilitate bribes paid to doctors in order to boost the sale of its medicines. GSK subsequently confirmed that some of its senior Chinese executives appeared to have broken the law ("GSK Under Fire Again For Alleged Corruption in China," 2013). In the preceding three years alone, U.S. authorities had imposed more than £13 billion in fines on pharmaceutical companies, and scrutiny had increasingly shifted toward the activities of "Big Pharma" in emerging markets ("Business Ethics & CSR — GSK Promises to be Good," 2014).

This bribery case has cast a shadow over many companies planning to establish operations in China. From the perspective of the CEO of a U.S.-based company with subsidiaries in the United Kingdom, it is important to understand why GSK became entangled in such activities — and what the business conditions, legal and regulatory framework, and prevailing cultural attitudes in China contributed to that outcome. It is equally important to consider the matter in light of the anti-bribery regulations that apply in the U.S. and the UK, where the company also has operations. This paper examines the ways a U.S.-based company can reduce and minimize the risks of doing business in China (Beijing, 2014).

Market Conditions and Causes of the Bribery Scandal

Despite the fact that GSK maintained a strict code of conduct for its employees and suppliers, bribery in China continued unabated for an extended period. At the end of the episode, GSK offered apologies on behalf of the employees who had been operating outside its internal control procedures. Several factors could have led company executives to engage in bribery in China, but one of the primary drivers was the general business environment and the company's intense drive to perform.

The pharmaceutical market in China is enormous. In 2012, around the time the alleged bribery began, China had the third-largest pharmaceutical market in the world, with total industry sales of approximately $69 billion. Experts anticipated that figure would grow to roughly $150 billion by 2016, driven by rising living standards and increased disposable income. China was projected to surpass Japan and become the second-largest pharmaceutical market in the world by 2016 (Wu, Xu, Liu, & Wu, 2013). For any company operating in such a high-growth market — alongside numerous international and domestic competitors — capturing market share was critical to delivering returns to investors.

GSK's pursuit of profits for its shareholders and employees is, in principle, ethical provided the company adheres to the law and to human values. However, driven by the desire to gain market share, GSK engaged in the practice of bribing doctors and government officials to prescribe and promote its more expensive drugs to patients. This conduct is both unethical and illegal in all jurisdictions. It also inflated drug prices by as much as one-third above actual costs, with the markup passed on directly to consumers (Schipani, Liu, & Xu, n.d.). Furthermore, GSK infringed on the professional autonomy of doctors and officials by inducing them to prescribe the company's most expensive products rather than allowing them to make well-informed clinical decisions.

Other perspectives, however, did not place the full burden of responsibility on GSK alone. Business commentators and experts also pointed to systemic factors beyond the company's control, noting that corruption and bribery are deeply embedded in how business gets done in China (Schipani, Liu, & Xu, n.d.). This is evident from the Chinese government's extensive anti-corruption campaign launched in 2015, which resulted in the arrest and indictment of numerous government officials, private citizens, and business executives. According to Transparency International's Corruption Perceptions Index, China ranked 80th among 178 nations in 2013 — a ranking widely regarded as a barrier to its full integration into global markets and a driver of the government's subsequent cleansing operations (Zhang, 2016).

Prior to 2015, only 3% of people accused of bribery in China received any form of custodial sentence, highlighting significant weaknesses in the country's judicial enforcement (Zhang, 2016). Another contributing factor was the hospital management system in China, where hospitals rely heavily on drug sales as a primary revenue stream. It was customary for hospitals to apply surcharges to drug sales and to incentivize their physicians to prescribe costlier medicines through sales quota systems. This practice by hospital-run pharmacies effectively normalized bribery over time (Zhang, 2016).

Despite government efforts to cap drug prices — particularly for subsidized medicines sold through public hospitals — upward price markings continued unchecked. This environment led both domestic and international pharmaceutical companies to treat bribes in the form of money, gifts, and favors as standard marketing practice. Domestic competitors, in particular, had made such payments to doctors and hospital staff a competitive norm.

Even so, ethical principles are clear: even if an entire industry engages in wrongdoing, it remains unethical for any individual company to follow suit. While GSK's entanglement in bribery was partly a product of the prevailing industry norms in China, where domestic competitors had normalized such payments, the path the company chose was not acceptable. Market share could have been grown through ethical and legal means — enhanced marketing campaigns, improved product differentiation, and stronger legitimate relationships with healthcare providers. It was not appropriate for GSK to place its worldwide reputation at risk by conforming to corrupt market practices. The company bears responsibility for its own conduct, regardless of what its competitors were doing.

GSK's Corporate Response and Ethical Obligations

GSK's response to the bribery scandal — which tarnished its global image and caused a significant decline in drug sales both in China and internationally — was apologetic. Following the investigation by Chinese authorities and the subsequent imposition of fines, GSK issued multiple statements expressing that it was "apologetic to the Chinese government and its people." The company's chief executive, Sir Andrew Witty, stated: "Reaching a conclusion in the investigation of our Chinese business is important, but this has been a deeply disappointing matter for GSK" ("GlaxoSmithKline fined $490m by China for bribery — BBC News," 2014).

GSK also committed to learning from the incident and reiterated its obligations to Chinese customers, apologizing for the price increases they had been forced to bear unnecessarily. The company acknowledged the need to monitor closely the shifting political and regulatory landscape in China — particularly as it affected foreign companies — as essential to surviving and prospering in that market ("GlaxoSmithKline fined $490m by China for bribery — BBC News," 2014).

Internally, GSK suspended a number of managers in China who had been found to have engaged in bribery through an internal investigation. However, many market experts felt that these suspensions failed to send a sufficiently strong signal in a pharmaceutical industry rife with corruption (Beijing, 2014). The company also strengthened its code of conduct for employees and third parties more broadly, and disciplined 3,947 employees globally for policy violations ranging from attendance issues to fraud. Of this total, only 233 were disciplined specifically for sales and marketing malpractice. Despite the large number of employees disciplined, the number who left or were dismissed did not increase notably in 2014 — the year the scandal broke and the fine was imposed (Roland, 2015).

Reflecting on the role of Mark Reilly, GSK's China head at the time: had there been advance knowledge of the bribery practices, the appropriate course of action would have been to halt them immediately, even at the cost of lost sales to competitors. Post-scandal, the priority should have been a sustained campaign of advertising, stakeholder engagement, and transparent communication to rebuild the company's damaged reputation.