Friday, September 27, 2013

Jeremy Warner writes. Bribery case will test China as much as GlaxoSmithKline. China is one of those “can’t live with it, can’t live without it” markets.

I’ve yet to meet a Western chief executive who actually enjoys doing business in China – too alien, too disrespectful of intellectual property, too politically capricious – but woe betide the business leader who attempts to ignore it.

For GlaxoSmithKline’s Sir Andrew Witty, this potentially vast market has come to present a double dilemma. So determined is he to realise its potential that he’s even sited one of the company’s global research and development centres there, even though China is, for the moment, less than 4pc of global revenues.

Yet now, GSK finds itself part of China’s crackdown on bribery and corruption, and there is every chance of its operations there going the same way as Bo Xilai. China is determined to make an example of some high-profile cases; the truth or otherwise of the allegations may be almost beside the point. Already sales have collapsed to the point where the operation starts to look unsustainable; it may well be that the damage is irreparable whatever the outcome of the investigation.

So far, GSK has adopted a kind of grovelling “spank me as much as you like, and by the way, if you want to do it some more, please be my guest” approach to the problem. This can sometimes work in emerging markets, where it is rarely pays to kick against the regime. Just take the punishment, however unfair. Yet this cannot ultimately be a way forward.

Something untoward has plainly been going on here, but that it was officially sanctioned by GSK in China, let alone by head office back in London, seems so deeply unlikely as to be almost laughable.

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