The GSK Scandal: When Questionable Global Practices Met Imperfect Institutions in Emerging Markets Harvard Case Solution & Analysis

In the 1980, China made some social reforms that left its medical officials, including doctors underpaid and many of the hospitals became under-financed. The only way to minimize the funding gap for the hospital was the revenue generated by their services, consequently it compelled the doctors to reduce their wage rate to work. Global pharmaceutical companies, in traditional market, are well aware of wooing doctors and hospitals to support their drugs and medicines selling through their prescriptions. While these controversial “marketing” practices had gone to peak in Chinese market. Pharm companies used significant financial flows towards hospitals and doctors that was whether illegal or legal, in order to increase the sales of their drugs by prescribing. It had formed deep routes in the healthcare system of the China, which led to a new reform by the government in 2009. However, this reform was not only to overcome the bribery and other kickback-seeking practices in the industry, but also to ensure the more spending on in million on healthcare.

The first impact was on a large British pharm company, GlaxoSmithKline Inc. (GSK), who had been operating in the country since 1984. The Chinese government started an investigation on GSK’s operation in China about its practices of attracting various hospitals, doctors, and administrators to promote GSK drugs in their prescriptions. These unethical marketing of drugs was the open secret in the pharmaceutical industry. Was the initiative a sign of support to local players from the country’s government against the multinational companies. However, the industry marked an intense growth rate, but this regulated industry only has a bare-boned distribution framework in this market economy with Chinese culture, while it acquired with patient-trying administrative obstacles.

Would the strategic investment yield the desired results? Is it better to carry on the operations in China? Would it be better for GSK to modify the existing strategy to sustain for a longer term in the country?

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