A Brand that Needs a Makeover: GlaxoSmithKline China

This article was original written 13th February 2014.

In the spring of 2013, investigations began into accusations that GSK China employees had spent over £320 million on bribes to hospital staff in China to boost sales. By July, four members of senior management in GSK China were taken into the police custody for the investigation and 20 staff were questioned. Xinhua reported that GSK China stopped all their business meetings with hospitals, as a result of pressure from the media.¹

In October 2013, Xinhua, China Daily and Phoenix – three major Chinese news agencies – reported that the popularity of GSK China and its products had declined dramatically. Due to the negative image of GSK China, doctors shunned GSK products. GSK China drug sales slumped 61% in the third quarter of 2013 compared to 2012, including its top-selling drugs Seretide (56% decrease) and Hepsera (76% decrease). Meanwhile, GSK’s competitors such as Roche and Novartis enjoyed a significant increase in the drug sales in the third and fourth quarters of 2013.²

Popular news site Sohu dedicated a large page to the GSK scandal titled “GSK China performed bribery recklessly and without all conventional restraints”.³ The general population in China have long been unhappy about the high price of the foreign drugs and voiced their anger after the scandal broke. Many felt that such bribery caused the extremely high drug prices, making the cost appear unethical and unnecessary.⁴

“The prices of the foreign drugs are generally very high and the price is not regulated by the Chinese government like the other national companies in the sector, this makes national companies very unhappy.” Said by Professor John (Jiang-nan) Cai – the director of CEIBS centre for Healthcare Policy and Management.⁵

Following GSK’s departure from RDPAC (R&D based Pharmaceutical Association Committee), the mistrust of GSK China became even greater with many news organisations reporting that GSK would follow in Google’s footsteps by leaving China entirely to avoid fines. As a result of this uncertainty, many hospitals have continued avoiding buying GSK products resulting in significant damage to GSK China’s sales.

According to the IMS health data, the Chinese drug market will become the second largest in the world by 2020.⁶ All the foreign pharmaceutical companies are fighting to gain market share so any setback like this can have significant long term consequences. Furthermore, with GSK having invested £3 billion in the Chinese market since the 1980s, pulling out now would be akin to cutting off their nose to spite their face.⁷

Following the scandal, GSK has promised to close the loop-holes through which it had bribed doctors. This act has been praised by some in the media, while others pointed out GSK will probably go back to its old tricks once the media lose interest in this matter. The market has not been so fickle, however, with Q4 sales still down 18% against 2012.⁸

There is a view in China that all foreign pharmaceutical companies are deceitful and untrustworthy. If GSK were to re-brand itself as an honest organisation with long-term commitment to China by taking responsibility and establishing initiatives such as student scholarships and investment in subsidised healthcare for the poor, it could gain significant market share versus its competitors for decades to come.

References

1.       http://news.xinhuanet.com/fortune/2013-12/04/c_125804514.htm

2.       http://www.21cbh.com/2013/10-23/4NODUyXzg3NjI4NA.html

3.       http://health.sohu.com/s2013/gsk/

4.       http://health.sohu.com/20130718/n381942818.shtml

5.       http://finance.sina.com.cn/chanjing/cyxw/20131217/011117651937.shtml

6.       http://www.ima-pharma.com/mail/article.aspx?idnwl=159&idart=1421

7.       http://news.xinhuanet.com/fortune/2013-12/04/c_125804514.htm

8.       http://finance.sina.com.cn/chanjing/gsnews/20140207/014318140361.shtml