Sex, Drugs, and Bribery
Why pursue GSK now? China appears eager to deter healthcare providers from profiting from high drug prices—an unintended consequence of the government’s low-cost hospital service mandate. China also senses opportunity to duplicate its victory over Nestle, which in early July rolled back infant formula prices an average 11% after a state antimonopoly investigation.
“I would be quite surprised if the case changes the underlying rationale for investing in research facilities in China,” Arthur A. Daemmrich, Ph.D., an assistant professor at Harvard Business School and visiting assistant professor at China Europe International Business School, told GEN. “It does speak to the challenge for multinational corporations of a business environment in which the underlying operating norms are in flux. So whereas the rules and regulations may be reasonably clear, business practices are tricky.”
How tricky? China says some GSK employees “established good personal relations with doctors by catering to their pleasures or offering them money, in order to make them prescribe more drugs,” according to Xinhua.
“Some executives gave clear directives to the sales department to offer bribes to doctors or opportunities to attend academic conferences,” some of which were fake, Xinhua reported, adding that GSK representatives offered bribes of 10 to 20 yuan ($1.60 to $3.20) to doctors who earned a 7%–10% cut from sales of GSK drugs they prescribed.
Xinhua cited a 35-year-old GSK rep surnamed Wang, who “said she entered doctors' offices to act as their assistant, and meet their needs as much as possible, even their sexual desires.” She worked for a source of the Xinhua report, a GSK regional sales manager surnamed Li who sold respiratory drugs to more than 10 hospitals in Zhengzhou.
“The government officials at the local or regional level where they’re buying drugs are basically low-paid government officials,” Richard (Erik) M. Gordon, director of the ZEAL (Zell Entrepreneurship and Law) Program and a professor from practice at the University of Michigan Law School, told GEN. “These low-paid guys are seeing everybody else get rich, but they’re not getting rich. Whenever you have that situation in the country, what’s their one way of making a little money? Bribery.”
“Even if headquarters says, ‘Do not bribe anybody, it’s against our policy,’ if you’re doing any sales in China, somebody out in the field is defying your policy and doing it, and putting you in great danger,” said Gordon, who is also clinical assistant professor at U-M’s Stephen M. Ross School of Business. “That’s one peculiar disincentive in China. The second is, you know the real game there is the transfer of your know-how to Chinese companies.”