GlaxoSmithKline, like many other multinational companies, set up operations in China in an effort to sell products from the fast growing drug market to the 1.3 billion people there. However, the company now is accused of being in charge of a massive bribery and corruption scheme that gave China hundreds of millions of dollars’ worth of kickbacks.
According to reports, the company invested heavily in China. They opened clinical centers and research facilities in Shanghai and Tianjin. GlaxoSmithKline (GSK) boasts they have spent more than a billion Yuan on their development and research in the country.
As part of an investigation alleging fraud and kickbacks giving to the country, four of the company’s top executives have been detained by authorities. Other GSK top executives have already left the country.
While experts say they are unsure how much the scandal will affect GSK’s reputation, they say that bribes and corruption are often ingrained in the rapidly developing markets of China. According to CNN, one expert said bribery is endemic in the pharmaceutical industry of China.
Although it doesn’t make it right or legal, apparently bribes and kickbacks are commonplace. Some reports have said although GSK is facing scrutiny in China, many companies in the pharmaceutical sector in China are probably using bribes and kickbacks to further their business operations.
Authorities announced there had been a probe into price setting practices where 60 pharmaceutical companies where involved. It is uncertain to whether the allegations made against GSK are tied to that investigation. However, authorities are expected to name more drug companies in the anti-corruption probe.
Media outlets report that a spokeswoman at an anti-corruption firm in Asia Pacific has confirmed they are aware of at least four more pharmaceutical companies being investigated by local authorities. But for the meantime, Chinese authorities allege GSK’s employees used inflated charges at travel agencies to cover up the payments of bribes. The bribes were given to physicians, hospitals, and even government officials.
The salaries of medical workers in China are lower than those of other professions, so many believe those workers are more susceptible to bribes. Although medical professions require extensive education, their salaries are too low to enable a middle class lifestyle.
In China, the government also finances medical care for many residents, therefore, the government is one of the biggest customers of pharmaceutical companies. Regulators often work to keep drug prices low by setting price ceilings. Lower drug prices also help keep inflation under control.
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