GSK in China

INTRODUCTION TO THE CASE:
Joseph Nathan started an import-export business in 1873, which had

the subsidiary, Glaxo Laboratories Limited. But in 1947 parent
company dissolved and Glaxo became a public company .In
subsequent years the company acquired others and in the year 2000,
it merged with rival UK pharmaceutical firm, SmithKline Beecham to
become GlaxoSmithKline. At the time of creation, GSKs global sales
are 22.5billion dollars and employed 100000 across the world. GSK
started entering into different ventures with local health care brands in
India, South Africa and also formed wholly owned subsidiary like GSK
China. Now coming to GSKS ethics policy, it had ZERO tolerance
towards corrupt practices. As its located in UK, the company has to
abide by the laws of UK (Bribery Act of 2010) and also US Law of FCPA.
In the year of 2013, Headquarters of GSK China, Shanghai was raided
by Chinese investigators and later on Chinas Ministry of Public
Security claimed that GSK China had paid over 450million dollars in
bribe to Chinese health care practitioners, hospital administrators and
government officials in order to increase sales of GSK Pharmaceuticals
and announced that four GSK executives were under investigation.
As of July 2013, the Chinese government had not filed formal charges
against the company. On July 15, GSK issued a statement regarding the
allegations and said they are ready to change as this breached their
ethical policies. Even then the sales dropped by more than 30% in the
month of September. By the end of this month, no legal action had yet
been taken against GSK by Chinese government.
ACTORS:
The Actors who are all involved in this case are four executives namely
Liang Hong, Zhang Guowei, Zhao Hongyan, Huang Hong, all are
Chinese nationals. Physicians, Government officials, hospital
administrators. Apart from these actors entire Chinese government is
involved and different pharmaceutical companies because of the
change that would be taken up. Most importantly Chinese nationals as
they are the people consuming the products of this industry.
Consequences
The bribery case lead to violation of GSKs Ethics Policy. Employees
received training on the GSK Code of Conduct as part of their induction into
the company. GSK china failed to follow its ethics policy in order to cope up
with the sales of its pharmaceutical products in restricted legal environment
of China.
Country is making massive investments in every facet: new hospital
and primary care infrastructure is being built at a torrid pace, a national
insurance plan has been rolled out that covers almost everyone in the
country, providing increasing coverage for basic pharmaceuticals, devices
and diagnostic procedures. Yet most, if not all, of these additional
investments are being built on top of a weak foundation. Doctors are
chronically over-worked and under-paid. Hospital administrators struggle to
meet shortfalls between government reimbursement and the increasing
costs associated with the levels of service and medical products they are
expected to provide. It should be no surprise that both hospital
administrators and doctors have found alternative means to make up for the
revenue not provided by the government. For administrators, their response
has been to incentivize doctors to prescribe unnecessary pharmaceuticals,
surgical procedures, and diagnostic evaluations. Doctors have supplemented
their paltry incomes through the sort of bribes the GSK scandal has laid bare,
as well as the back-channel red envelope payments that families make
directly to doctors to ensure proper and timely care. Some Experts believed
that bribing hospital staff was common among Chinas domestic drug
manufacturers. GSK employees were accused of bribing the physicians,
hospital admins and government officials.
Total of $450 million of bribe have been paid by employees since 2007.
Chinas ministry of Public Security detained a further 18 GSK employees and
medical staff in addition to four Executives. The bribery increased the cost of
the product. Chinese government desire to control the costs of essential
goods and services. The bribery case and Chinese governments action
helped the country to fight against the corruption prevailing into the
pharmaceutical sector but to completely to remove the bribery the
government should try upon improvise economic condition of Doctors and
employees. If they are being paid in adequate amount then they wont need
to find alternative ways to earn money.
The Theory of Ethics perspective:

If we consider the theory of ethics, the actions of Chinese government,
GSK employees, Physicians, Government officials and hospital administrators
we can categorize their actions into different theory of ethics.
Chinese Government
The Utilitarian theory of ethics implies here where government is trying
to control the costs of essential goods and services consumed by its
population of 1.3 billion. This act will produce greater utility but in this act
the GSK, physicians, employees and other pharmaceutical companies are
getting less compensation as the government is imposing strict rules to
generate greater good of the population.
GSK Employees
GSK employees may have followed the categorical imperative or
egoism theory of ethics. Bribing hospital staff was common in china so they
must have accepted it as universally accepted practice. The employees also
violated GSK ethics policy to penetrate into Chinese market, it also shows
that employees may have followed stockholders theory of ethics and
stakeholder theory of ethics. If we consider deontological theory of ethics
then the employees failed to furnish their duty towards the company that
focuses on their code of conduct.
Pharmaceutical companies in particular have convinced themselves

over the last decade that they simply have to be in China. The combination
of maturing patents and price constraints in their home economies mean
some of the strongest prospects for revenue and profit are in China. Yet
Chinas pharmaceutical sector is undergoing a number of massive changes,
the most important of which has nothing to do with the GSK scandal and its
various explanations, but rather Chinas aspiration to accomplish within the
life science space what it has done in clean-tech. Chinas 12th Five Year Plan
is explicit in its desire to develop the life science sector. As part of this, China
is going to encourage international companies to partner with domestic
Chinese academic institutions, research parks, and industry. Much of this
encouragement will take shape around expectations for technology transfer,
a necessary step if China is to close the gap between what its life science
sector is capable of today, and where it hopes to see it evolve.
The idea that multinational life science companies have to be in China is not
set in stone. What could change it? If the GSK scandal applies
disproportionately to international companies, this sends a very clear signal
that multinationals cannot compete at the same level or in the same ways,
as can their domestic competitors. This forces multinationals into

increasingly high end and specialty market segments that, while profitable,
do not represent the sort of high volume opportunities that originally excited
them. In addition, the concerted effort by the Chinese government to
encourage technology transfer within this sector will lead to the competitive
landscape shifting not only within China, but also in many of the other
emerging economies around the world, where Chinese competitors could
begin to challenge international players for market share.
China is not wrong to crack down on corruption. The countrys leadership is
not wrong to leverage multinationals for more cost effective inputs to its
healthcare system. But China needs to be careful that it not overplay its
hand, lest it dis-incentivize the very industry players who have a much to
offer the Chinese people in terms of disease management and quality of life.

GSK in China

Uploaded by

Copyright:

Available Formats

GSK in China

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

GSK in China

Uploaded by

Copyright:

Available Formats

INTRODUCTION TO THE CASE:

Joseph Nathan started an import-export business in 1873, which had

The Theory of Ethics perspective:

Pharmaceutical companies in particular have convinced themselves

as can their domestic competitors. This forces multinationals into

You might also like