Scandal-Hit GlaxoSmithKline to Chop 1,000 Staffers in China

Published: Jan 27, 2015

Scandal-Hit GlaxoSmithKline to Chop 1,000 Staffers in China
January 22, 2015
By Mark Terry, Breaking News Staff

News reports today are quoting sources as saying that U.K.-based GlaxoSmithKline will lay off approximately 1,000 people this year in its China operations. Sales have slumped in China since the June 2013 bribery scandal.

The new layoffs are in response to sagging revenue in general. China operations have reported a drop of 61 percent in the first three quarters of 2013. Global revenue fell 11 percent in first three quarters of 2014.

On Sept. 19, 2014, the Changsha Intermediate People’s Court in southern China fined GSK approximately $500 million on bribery charges. It also sentenced former GSK China’s general manager, Mark Reilly, as well as four other company managers, to up to four years in prison. The sentences were suspended and Reilly was immediately deported.

The original allegations were that GSK sales executives had paid up to 3 billion yuan to physicians as incentives for them to use the company’s drugs. The story became significantly more salacious when a sex tape of Reilly and his girlfriend was sent to the company.

Reilly hired a private investigator, Peter Humphrey, to determine who had planted the camera in his apartment. Humphrey was subsequently arrested and confessed on Chinese TV. There was speculation that both Reilly and the investigator might have been set up by corrupt officials in China’s law enforcement and security programs.

The initial allegations of bribery began in 2012 when 23 anonymous emails were sent to Chinese officials. More anonymous emails were sent to GSK executives, citing falsified books and records, as well as details about the bribes. GSK is not the only company to cut back on employees in China. Bristol-Myers Squibb Company began to lay off approximately 1,000 workers in China in November 2014, including about 10 senior managers. The U.K.’s AstraZeneca PLC and U.S.-based Merck Sharp & Dohme have also been cutting their China workforce for the last two years.

Some of this may be related to China’s slowing economy. Although there are concerns about the accuracy of the economic data the Chinese government releases, it seems that the country’s GDP growth of 7.4 percent in 2014 was the slowest since 1990. In 2010 its GDP growth was 10.4 percent.

This is not the first report of GSK layoffs, however. In December 2014 the company announced plans to lay off people in the U.S., at least in part over a major restructuring plan that hopes to see $1.6 billion in annual costs over three years.

“This new restructuring program will rescale commercial operations, global support functions and relevant R&D/manufacturing across pharmaceuticals and is expected to deliver cost savings incremental to the existing announced programs and additional to the benefits anticipated form the proposed Novartis AG transaction,” the company indicated in an Oct. 22, 2014 press release. “All restructuring proposals affecting headcount will be subject to employee consultation where applicable in accordance with legal requirements.”

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