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A quick note on the GlaxoSmithKline inquiry in China

Written by Zennon Kapron 25 Jul 2013 25 Jul 2013

Although it's completely outside of our area of focus (beyond being China related), we have been getting a number of questions from clients and Kapronasia followers about the situation at GlaxoSmithKline (GSK) and so I thought we should give a bit of background, our position, and the relevance to China's FSI. 

STUFF HERE

If you haven't been following the news, very briefly, the Chinese government has accused GSK of bribing doctors and hospitals to take their products in exchange for trips and cash incentives allegedly facilitated by a local travel company. Shocker...  Some thoughts:

Firstly, this practice is growing increasingly rare, but is not-unheard of. In China, multinationals for years have operated through middlemen to, for lack of a better word, bribe local authorities, regulators and potential customers. Whether the intermediary was a marketing company, travel agent, or consultant, the agent would give the MNC a bit of arm's length to conduct business in what was once the only way of doing business in China.

Secondly, I find it very hard to believe that senior management outside of China did not know that this was happening. Bribes are rife in the pharma industry throughout the world and China has been known to be corrupt. If you can seriously say that you had no idea it was happening, you should be in a different job. To say that you/the company don't condone it, ok, not aware of it, impossible - don't throw your people under the bus and claim ignorance.

Thirdly, this is part of a Chinese government crackdown on corruption in China that is unlikely to abate anytime soon. If you are operating somehow illegally here, this is a sign that you need to change and change soon as both national and global companies are being monitored and investigated.

Finally, that vigilance is not limited to the pharma industry. Having been involved in the financial technology space here in China for nearly 10 years, we have seen graft and corruption. Whether it's revenue smoothing, over-inflated expenses or R&D centre visits ('really, you do your R&D in the Maldives??'), it has and does happen.

However, it is changing. Relationships are still going to be important. You need to be trusted to do business here, but don't get relationships confused with corruption. Will a $75 bottle of wine from California that you brought over be appreciated by a potential client? Yes of course, and it will help develop that relationship as it would with any other friend or acquaintance.

And you should think about it from that perspective: would you pay for a friend to go to London so that he would be a better friend? Well I suppose you could, but I would guess that's not a very deep friendship based on mutual trust. Much better to spend the time to get to know the client, show your commitment, and as trite as it sounds, become a 'trusted advisor'. Reasonable gifts do have their place as they do in any relationship. 

In a very brief conclusion, China is not an easy place to do business, but it is an important place to do business and you need to come in with your eyes open. Awareness is key. Complicity is not. 

 

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