China: Recruiting Talent Amid the Corruption Fallout

The fallout from the recent GSK bribery investigations in China has given recruiters pause for thought. Gregory Lovas provides some do’s and don’ts for keeping your talent recruitment drive on track in the emerging markets.

The recent GlaxoSmithKline bribery investigations in China provides a wake-up call for all Big Pharma companies committed to finding and deploying top talent in high-growth emerging country markets. Following this case, it appears that Chinese investigators have also contacted Bayer, Eli Lilly, Sanofi, Novo Nordisk, H Lundbeck, Astra-Zeneca, and UCB.

GSK reportedly placed a number of compliance officers in China, so how did it land in a quagmire of toxic bribery claims and a torrent of sensational news headlines around the world? The company alone clearly had the staff resources that should have made a difference. According to Reuters, GSK conducted “up to 20 internal audits in China a year, including an extensive four-month probe earlier in 2013.

In spite of this, GSK management were blindsided by police allegations of massive corruption involving travel agencies used to funnel bribes to doctors and officials. The scale of funds signed off by GSK to pay travel agencies for organizing educational medical meetings has triggered heated debate, with some saying such spending looked legitimate while others argued it should have raised alarms inside GSK and at its external auditor, PricewaterhouseCoopers.

Warning signs abound

Pharmaceuticals and healthcare businesses say that corruption and weak laws are top threats in emerging markets, according to the “Business Perspectives on Emerging Markets 2012-2017” survey by Global Intelligence Alliance (GIA). In the study, 94 percent of respondents said they would like to have done something differently in how they planned and executed their emerging markets strategies.

Paying to play in Asia Pacific

It is not difficult to see why corruption is a persistent problem in emerging markets. Unlike mature markets where decisions are made by highly compensated individuals in healthcare institutions, those who order drugs and medical devices in this region can earn one-tenth of what their counterparts earn in the United States.

In fact, the salaries of young physicians in Chinese state-owned hospitals are often compared with the wages of local taxi drivers. This underlying wage factor has led to a culture where Chinese doctors feel a need to supplement their incomes as physicians through other sources.

This opens the way to the development of less-than-ethical practices. As another consequence, highly qualified medical professionals in China are often willing to give up their years of specialist training and work as pharmaceutical sales executives, where their pay scales may be three times higher. Such problems are not limited to China. One just needs to look across the borders into other Asian countries and to see similar problems, albeit manifested in other ways.

The “c suite” reacts

The tremors from the investigations in China have spread far beyond the country. From global boardrooms in America to those in Switzerland, there is a higher state of caution. Some players are adopting a wait-and-see attitude about the market, crossing their fingers that things will “blow over.”

After all, emerging markets like China are vital to continued growth. In their study, GIA pointed out that global pharma expect about one quarter of their global revenues to come from emerging markets by 2017. Within the next few years, China is poised to surpass Japan as the world’s second-largest pharmaceutical market. For the time being, the market is skittish about China.

Things are awfully quiet. Many Chinese doctors are now less willing to make appointments with sales representatives because of the fear that they too will be targeted for investigation. Local sales organizations have been impacted, as customer meetings are much harder to schedule. Similarly, pharmaceutical companies have toned down their commercial sales and marketing activities in order to maintain a lower profile.

Even more intensive checks. While there has been no major slowdown or increase in executive recruitment in China, companies are now demanding even more in-depth background checks.

Who you personally know. Some companies have decided to rely on internal organizations or even personal networks when it comes to hiring. Even when there may be stronger talent available in external markets, some companies are shying away from hiring people they don’t personally know—shrinking an already small pool of emerging market talent.

Candidates shy away. China used to be an ideal work destination for ambitious top-tier job candidates who knew that the market was vital to their company’s long-term plans. There would be promising prospects for continuing development and major career advancement. Recruiting with such important career commitments could even supplement compensation packages.

It is ironic that the Chinese government has implemented far-reaching human resources policies over the last few years to attract international senior talent, particularly for industries such as new energy, bio-pharmaceuticals and life sciences. Such market scandals are giving candidates pause for thought.

Alternative talent grooming locations. An immediate reaction on the part of multinationals has been the consideration of other locations to transplant their senior managers for international exposure. However, there are companies that are still sending their top talent to places such as Singapore, Hong Kong, and Australia.

Three tips on placing senior executives in emerging markets

Make in-country experience a top priority.
It is critical to hire individuals that are knowledgeable and experienced in the region or country that you are placing them.

Look for individuals, local or expatriate, who have worked with your key target customers, managed local teams, negotiated and closed deals locally, and who know local distributors and channel partners relatively well.

Adapt your global recruitment practices in emerging markets. Companies must be nimble on recruitment and retention matters, fine-tuning their strategies to the specifics of each situation rather than seeking to impose a one-sizefits- all approach upon all emerging markets. Flexibility is key, as is sensitivity to cultural as well as business dynamics in each location.

Close the cultural gap. In the “2013 Ethics & Compliance Leadership Survey Report” by LRN, 45 percent of senior ethics, compliance, and legal executives from multiple industries said their operations in emerging markets represent the greatest concern in promoting a strong ethical culture.

Such issues exist across all industries, and it is useful for global companies to provide training in the ethics and compliance issues that are specific to various emerging market cultures for all stakeholders across the organization. In addition, they need to ensure that red flags are identified early and communicated back to the relevant global heads by mitigating the fear to speak up by explicitly rewarding those who apply the proper due diligence.

About the author

Gregory Lovas leads CTPartners’ Life Sciences Practice in executive search in the Asia Pacific ceuticals and healthcare players region. He can be reached at mailto:glovas@ctnet.com.