Category: GlaxoSmithKline

Introduction

Globalisation has changed the dynamics that operates in global economies. It has altered some conventional corporate practises and introduced new methods of efficient operations. The idea of globalisation posits expansions and diversification. These two aspects are viewed as primary goals of most enterprises. Firms of today have become focused on exploring various markets and developing products. In addition, globalisation has created several ideas that promote flexibility. It is imperative for companies to remain open to possibilities as globalisation attempts to shape the inner processes and strengthen the external economic foundations.

It is believed that globalisation impacted some concepts that are being used in production. Since companies are now catering to vastly diverse markets, production scheme have been revisited to make the necessary modifications. Moreover firms have realised that changes will continue to happen. Aside from the production chain, there are certain shifts observed in firms that were influenced by globalisation. Corporate social responsibility, for instance, is fuelled by the different conditions where the firms operate. Companies have also exercised business ethics, which is critical in building its reputation and credibility in the market.

The succeeding discussions will centre on the impact of globalisation in a firm that operates in a global scale. GlaxoSmithKline (GSK) will used as referenced since it operates in various global locations. GSK is also known to have a manufacturing plant and wide-scoped distribution scheme. The discussions will also consider the practises of the company that promote corporate social responsibility. Further, GSK will be evaluated based on its position in reference to globalisation.

Objectives of the Study

The aim of the study is to determine the impact of globalisation in a company. This research has highlighted GlaxoSmithKline (GSK) as the firm to be studied. It has to be noted that GSK is a multinational firm that operates in almost 100 locations in the world. In addition, GSK has several manufacturing sites to boost its capacity to meet the demand in the market. Specifically, the study seeks to ascertain the effects of globalisation in the production schemes used by GSK. Moreover, this study will investigate the firms view on Corporate Social Responsibility (CSR) as affected by globalisation. Further, the research will emphasise the actions taken by GSK on its workforce to respond with globalisation issues.

Company Background

GlaxoSmithKline (GSK) is multinational pharmaceutical firm based in London, United Kingdom. It has a varied business portfolio ranging oncology to vaccine products. In addition, GSKs Consumer Healthcare segment is the worlds leader in providing oral healthcare products and nutritional drinks. The drug manufacturer was created out of the merger between GlaxoWellcome and SmithKline Beecham. As of 2005, GSK has a reported 100,000 workforce across the globe. The manufacturing sites are located in the U.K. and some parts of the U.S. It operates in 72 countries and also has minor presence in other vital locations (GlaxoSmithKline, 2007).

GSK is known in the industry as a diverse and creative firm. The products cover several segments in the market and cater to most medical necessities. Part of the company strategy is to focus on maintaining high quality standards. Its production process prides on the value that is being added in the medicines. GSK is also known for its vast and comprehensive research and development processes. The firms has innovated some drugs that are regarded as breakthroughs. All of these processes follow the cost-effectiveness program of the company. These are the most important components of its strategies for continuous growth and goals to expand in other markets.

GSK is also known as a responsible company. It has been a major contributor in the quest to eliminate several infectious diseases. The firm has devoted its resources to ensure that these illnesses have medical cures. It is committed in supporting other initiatives that will ensure better health in deprived communities. GSK has joined global alliances that monitors that health condition of target areas and provides financial and research aid to improve the state of these communities.

Impact of Globalisation

Mann (2006) viewed globalisation as a major breakthrough in the global economy. For GSK, it is an opportunity to introduce the products in foreign markets. Aside from its domestic targets, the focus of operations has shifted to other parts of the world where medicines are heavily demanded. The role of globalisation is to open markets that are untapped. These markets are still in the process of developing and GSK needs to take advantage of that rapid growth. Globalisation will also allow GSK to determine the different needs of these diverse markets. This will boost their research and development programs and long-term product prospects.

Because of globalisation, taxes in foreign countries were considerably reduced and markets became flexible in welcoming foreign products (Kellner, 1998). Taxes and tariffs have been considered as major barriers for global firms such as GSK. The ides of globalisation allows GSK to distribute its goods in foreign markets without being exposed to high tax rates. The cost of transporting the commodities is lessened and revenue possibilities are high. In addition, globalisation has opened the doors for agreements made by states. These economic pacts provided protection to the products being distributed by GSK.

Globalisation has propagated the concept of information technology. Drucker (1993) noted that the impact of information technology is evident in firms. Because of the computers and the Internet, GSK has been provided with another avenue to introduce its products. The scope that information technology covers is wide and critical to the operations of the company. Instead of the traditional processes of marketing, GSK can exploit the speed and reliability of information technology to its advantage.

Boosting the Production Chain

The production chain is all about the value being added to the product. These stages of manufacturing have to be improved since markets are now competitive. GSK needs to ensure that quality is being emphasised in all levels of production (Deming, 1986). It is important that GSK understands the needs of its customers. As a response, GSK has instituted a team dedicated to address consumer needs. These teams are responsible to determine balance the requirements of the market and the goals of the firm. In the production process, stages that are deemed as efficient are retained while stages that result to wastes are eliminated.

Barney (1991) asserts that quality has to be instituted in the components of the production process. Because of globalisation, the need for quality has become more intense. Without that commitment, GSK will have difficulties sustaining its presence in the market. It is imperative that quality checking is maintained from the product development stages until the finished goods are delivered to the customers. Globalisation has totally altered the production system where quality is maintained in one stage. Each process needs to be evaluated meticulously. This is the only way in which GSK can assure the efficiency in its production system.

The value chain is another concept being used since globalisation emerged (Porter, 1980). The value chain highlights the importance of each stage after production is completed. Once the finished products are packed it is important for GSK to provide a quality storage room. This will prevent the products from being damaged or exposed to external elements. GSK also has to maintain a fast distribution scheme. The high demand for its products means that supply needs to readily available.

In a global market, efficiency is always the key to success. Globalisation has led to firms becoming more efficient producers. Flinchbaugh and Carlino (2006) stress the value of reducing cost in the manufacturing process. As GSK expands, its exposure to losses and risks has become more relevant. Aside from avoiding excessive cost, GSK needs to evaluate its products in the market. Conventional wisdom suggests that products that fail to acquire reasonable market share needs to be scrapped. But this will entail more losses as cost in developing such products have been incurred. GSK has to be creative in handling these circumstances. The products lack of appeal can be compensated by through aggressive marketing.

The need to develop a computer based production scheme is also needed. This will allow GSK to eliminate other stages that will become useless. Jonscher (1995) pointed out that most business today under the guidance of computers. These machines are important in creating order in the production schemes. In addition, computers can be used to serve as the memory of the production process. All the necessary aspects of production can be stored in the computers. This will prevent the production personnel from going out of the system. The processes are also protected being accessed by individuals who are unauthorised by the firm.

Globalisation also paved the way for the emergence of outsourcing. Outsourcing has become an important avenue for companies to minimise cost and improve operation efficiency (Erber and Sayed-Ahmed, 2005). Outsourcing, however, has created several labour issues. There have been reports of employee maltreatment by multinational firms. These companies which took advantage of globalisation are also exploiting the weakness of some personnel.

The impact of globalisation is evident in the management of operations that are related to production and other activities. Operations management is defined as the design, operation, and improvement of the system that creates and delivers firms products and service combinations. It also deals with the proper allocation of resources and the strategic acquisition of technology (Juran, 1974). Operations management also includes the proper consideration of the outside entities as contributing agent that will eventually affect the performance of the firm. The external environment consists of the customers and other economic indicators. These are major catalysts where production processes have to be referenced.

Begin (1991) argued that the means have to work with the ends. In relation to GSK, the production processes have to be based on customer satisfaction. The technical process of production pertains to the emphasis of quality in the different stages of operations. The rationale behind this strategy is that the continuous inclusion of quality in the process will result to highly competitive and superior products. As discussed earlier, the value added to each process will sum up the value of the product. Any miscalculation in the process will result to problems in the succeeding stages. Maintaining quality will ensure fast flow of production.

Globalisation has pushed GSK to create strategies that will improve production management. Mintzberg (1989) observed that strategy is linked to plans and the behaviour patterns within organisations. Management of production chain has to be associated with long-term plans of GSK. Because of this notion, GSK has changed its process and make these more flexible. GSK needs to ensure that its production schemes are in-line with its strategies.

Enhancing Corporate Social Responsibility

According to Lewin (1983), corporate social responsibility (CSR) highlights the duty of the organisations to their stakeholders. Instead on focusing on corporate activities, firms have decided to undertake endeavours with perceived social relevance. The views on the existence of firms have become diverse because of the improving consideration on social welfare. Although still inclined with profit maximisation, several companies have started allocating funds for activities that goes beyond the corporate purpose. Some firms use CRS as strategy in building a strong market reputation and will eventually command high rate of market share.

Another important definition of CSR was provided by Mosley, et al. (1996) stating that organisations have the obligation to formulate policies and make crucial decisions that are beyond the scope of law. These policies and decision, however, are deemed as promoters of values and objectives of the society. In short, CSR underlines the responsibility of the organisations to their stakeholders and their accountability to the actions taken within societies. The organisations have to use their respective resources to ensure that the goals of CSR are attained. Also, firms have to persuade the stakeholders to actively participate in such activities.

The emergence of globalisation has exposed GSK from several ethical queries. The most common perception is that GSK is only focused on profits. Although revenues are primary targets, GSK has been sharing its earnings to the public. Another ethical issue being raised by some groups is the environmental exploitation being manifested by firms such as GSK. Globalisation has been linked as to the degradation of the environment because of the production plants that these companies establish. Further, GSK is being accused as one of the firms which take advantage of varying laws in foreign locations. Lawsuits are major obstacles that GSK try to avoid.

There are several aspects that are attributed to the prominence of CSR. Usually, CSR is derived from the focus provided by firms in contributing to the overall welfare of the society. This is usually done by channelling to individuals the benefits enjoyed by firms. CSR also details the necessity for organisations to develop and maintain relationship with stakeholders. Aside from good corporate governance, this is observed through quality performance (Van de Ven, 2006) Globalisation has further outlined the role of CSR in the society.

Shrader (1994) observed that social responsibility has been studied and equated with the performance of organisations. Several groups have been calling out firms to reveal their social responsibility strategies. In response to these issues, GSK has enhanced its efforts on incorporating social responsibility on its operations. Since the concentration of GSK is in medicines, it has conducted several medical missions. This is important because there are several areas where medical assistance is unavailable. GSK participates with non-government organisations and local government units to ensure that ample health services are delivered.

GSK needs to address the ethical allegations through its CSR system. The CSR program is primarily in-charge with the promotion of the image of GSK. The company has been conducting wide information campaign on the products its sells. It is part of GSKs responsibility to inform its clients on the safety measures in consuming its products. On the issues of waste, the CSR is tasked to provide policies that keep the wastes of the production plants from being exposed to the environment.

Enhancing Human Resources

Becker (1994) highlighted the contention of Adam Smith that since training of employees in costly, it has to be considered as an investment. From this conception, several theories on human resources have evolved. Amit and Schoemaker (1993) mentioned that the internal resources of the company are responsible for the formation of distinct competitive advantage. Human resources are one of the internal resources that companies have. The interaction contributes to the promotion of competitive advantage. Human resources that create value, rare, inimitable, and non-substitutable are vital components in sustaining competitive advantage.

The function of human resources is critical to the success of GSK. Basically, the employees are responsible for the reinvention of GSK product and the efficient manifestation of its operations. Providing the employees with all the needed resources contributes to their effectiveness. Quality equipments and machineries ensure that the processes are completed with ease. The workplace of the company is also important. Promoting quality atmosphere will limit incidence of conflicts between and among employees. Also, the working station acts like the second home of the workers. It is time to give justice to such distinction.

The salaries and benefits provided to workers are mandated by laws. Some perks, however, are introduced by GSK to improve performance and loyalty. Once workers are paid well, there is a perception that their value is being recognized. Monetary mechanisms are used to motivate employees the increased income will boost their spending capacities. Likewise, the improved financial benefits will likely result to loyalty for the employees.

GSK has to outline the importance of Human Resources Management (HRM). It has to be in line with the changes as affected by globalisation. The role of HRM is threefold: to hire, to train, and to maintain. It is the task of HRM to seek for competent applicants that will contribute and make a difference once hired. Moreover, HRM practitioners identify suitable training schemes that are designed to improve the skills and competency of the employees. In addition, HRM revolves on the creation of programs that will keep the employees loyal, contented, and productive. Because of globalisation this task has been grown as HRM practitioners have been accorded the capacity to settle employee related disputes.

Globalisation serves as an event that makes Strategic Human Resources Management necessary. Miller (1987) stated that SHRM are decisions and actions that pertain to the management of personnel. It is important that the employees play significant roles in implementing business strategies geared towards sustained competitive advantage. It also concerns the development of appropriate strategies and policies in relation with the employees. SHRM has become an important instrument among firms; several methods were developed to successfully introduce SHRM. One of the methods used was aligning the attributes of the manager to the strategic goals of the firm (Barney, 1991).

It is important to understand the globalisation has change the value of the workforce. Also, it is important for the workers to be equipped with the knowledge used in their tasks. The training and advancement programs of the company will help employees be fit in all aspects. These improvement mechanisms are designed to inject versatility among workers. Such is important because changes in the industry are prevalent and multi-faceted workers have the best value for the company.

Recommendations

GSK is on the verge of reaching the peak of its business cycle. Globalisation, however, can alter the firms direction and stall its expected growth. The role of globalisation extends beyond providing opportunities for expansion. It also poses some challenges that GSK needs to overcome. In the production chain GSK has to continually focus on being cost-effective. Each stage in the production process has to be added with a certain value. Another viable option that GSK can employ is to transfer its production plants to areas where production inputs are cheap. The CSR initiatives of GSK are known in the industry. But GSK can still improve its CSR policies through active participation in health related advocacies. Finally, GSK has to recognise the role of its personnel in its growth and development. Personnel enhancement and provision of sufficient benefits will ensure quality performance and loyalty from employees

Conclusion

The effect of globalisation is the world is huge. Globalisation paved the way for trade and exchange of goods. It is also globalisation that has opened the doors of once closed markets. The emergence of globalisation has led to opportunities for firms to expand. Domestic markets have become saturated and consumers have moved to substitute products. For these firms to continue growing, foreign expansions are needed. Moreover, globalisation pushed for the changes in the metrics where global markets are based. Reduction to taxes on foreign goods and protection to imported products are some of the highlights of globalisation. These specifically have change the direction where GSK is headed in the future.

Globalisation has altered the processes being maintained by GSK. In the production cycle, the importance of quality is always emphasised. The research and development structure of the company has improved immensely. In addition, the product pipeline that GSK maintains has been geared towards diversity. Production process has been shortened to ensure more efficiency and reduce waste. Computers where installed to store the production schemes and protect there processes from threats. The gradual improvements in the processes can be deemed as globalisation backed.

Aside from the production process, there are other company practises that were affected by globalisation. GSK has become more involved in communities through its participation is medical missions. The firm donates medicines and supports other activities where its expertise is needed. CSR has become an important tool in improving its image in the market. GSK has worked extensively in developing its personnel and make the workforce a major contributor to sustained success.

References

Amit, R. and Schoemaker, P. (1993). Strategic Management Journal. Strategic Assets and Organizational Rent.

Barney, J. (1991). Journal of Management. Firm Resources and Sustained Competitive Advantage.

Becker, G. (1994). Human Capital: A Theoretical and Empirical Analysis with Special Reference to Education. Chicago: University of Chicago Press.

Begin, J., (1991), Strategic Employment Policy: An Organizational Systems Perspective, Englewood Cliffs, NJ: Prentice-Hall.

Deming, W. E., (1986), Out of Crisis, Cambridge: MIT Centre for Advanced Engineering.

Drucker, P., (1993), The Practice of Management, London: Harper Collins.

Erber, G. and Sayed-Ahmed, A., (2005), Intereconomics, Offshore outsourcing  A global shift in the present IT industry,

Flinchbaugh, J. and Carlino, A., (2006). The Hitchhikers Guide to Lean: Lessons for the Road. Dearborn:, MI: Society of Manufacturing Engineers

Jonscher, C., Information Technology and the Corporation of the 1990s:

Research Studies, An Economic Study of the Information Technology Revolution, New York: Oxford University Press.

Juran, J., (1974), The Quality Control Handbook 3^rd Edition, New York: McGraw Hill.

Kellner, M, (1998), The Washington Times, This Growing Firm Brings Computers to Its Customers, Washington: News World Communications, Inc. Pp. 24.

Lewin, T. (1983). The New York Times. Business Ethics New Appeal.

Mann, C., (2006), Accelerating the Globalization of America: The Role of Information Technology, Washington, DC: Institute for International Economics.

Miller, P, (1987), Journal of Management Studies, Strategic industrial relations management and human resources management,

Mintzberg, H, (1989), Mintzberg on Management, London: Free Press.

Mosley, D., Pietri, P., and Megginson, L. (1996). Management: Leadership in Action. New York: Harper Collins.

Porter, M. (1980), Competitive Advantage: Techniques for Analyzing Industries and Competitors, New York: Free Press.

Shrader, C. (1994). Journal of Managerial Issues. Investigating the Dimensions of Social Responsibility and the Evidences fir Corporate Financial Performance. Pittsburgh: Pittsburgh State University.

Van de Ven, B. (2006). The Journal of Corporate Citizen. Strategic and Moral Motivation for Corporate Social Responsibility.

Ethical Issues Raised by GlaxoSmithKline’s Decisions

The main ethical issues that the decision by GlaxoSmithKline to promote and market drugs unapproved for some uses include the following. First, the decision exposed the consumers of the drugs to unknown risks. The use of any drug by humans requires prior tests to verify the efficacy and safety of the drug. Secondly, the action took advantage of people who deserved empathy. The company made profits from patients without due regard to the long-term well being of the patients.

The question of whether such practices are morally permissible or unethical depends on the specific conditions surrounding the practice. For instance, if the drugs provided relief for patients who would otherwise suffer pain because of their ailments, then the practices would be morally defensible.

This also depends on whether there were approved alternatives to the drugs. If there were proper alternatives within reach of the patient and the only factor that guided their buying decision was the marketing efforts of GlaxoSmithKline, then the practices are not morally defensible.

Ethical Acceptability of GlaxoSmithKline’s Decision to Retain Data on Diabetes Drugs

There are requirements in law that a drug manufacturing company should release research data to support the safety of the drugs it seeks to sell (BBC). Failure to provide the data and making unverified claims about the safety of the drugs is illegal. The first ethical question that arises is whether it is acceptable for a company dealing with drugs to flout laws.

The reason why drug laws exist is to protect the lives of people who take drugs. This makes obeying the law a moral imperative. Therefore, the failure of the company to release the data for whatever reason brings to question the commitment of the company to the safety of the people who consume their drugs. In this sense, it is not morally acceptable to refuse to release data that regulators can use to verify the safety of drugs. It can lead to harm.

Moral Difference between Hiding Information and Making Active False Claims

The moral difference between failure to provide information and making false claims depends on the reasons for failing to provide the information (Rogers and Braunack-Mayer 14). If the failure is for a good reason such as the need to protect a business secret, or because of internal doubts regarding the accuracy of the available information, then there is a moral difference.

This is only true if no subsequent action takes place. However, if the information hidden clearly shows potential for harm, then there is no moral difference between hiding the information, and making false claims. In both cases, the consumer faces harm.

Moral Obligation of Large Food and Beverage Companies

Large food and beverage companies have a moral obligation to consider the consequences that their products have on people. The documentary clearly links obesity to the increasing availability of junk food and soft drinks (Altman and Leitch). The case of Mexico is the most telling, where Coca-cola drinks formed part of the school feeding programs (Altman and Leitch).

There was evidence of collusion between school heads and the soft drink marketers to sell only one brand of soft drinks in the schools. India and China have an increasing number of obese people because of the influx of junk food and fizzy drinks in the last fifteen years (Altman and Leitch). The documentary points out correctly that the food companies are not social service organizations.

Rather, they are in business. The more people eat, the better their business performs. Most food and soft drink manufacturers are reporting increasing profits from the developing world. There is a strong moral imperative for them to step back, and reexamine their businesses models. The harm that their products are causing to humanity is not morally acceptable (Wolf 48).

Moral Issues Relating To Food and Beverage Marketing Techniques

The marketing techniques are all morally problematic because the consistent consumption of these products leads to obesity. Obesity is the precursor of diabetes and heart disease. Morally speaking, the companies take advantage of unsuspecting people. For instance, the companies sell the same junk food as a healthy source of nutrition because they have fortified the junk food with micronutrients (Altman and Leitch).

While this improves the overall nutritional value of the junk food, the consumers wrongly believe that the junk food can replace the natural sources of the same nutrients. The second moral problem with this issue is selling the junk food to poorly informed people or to defenseless children. It is tantamount to making profits without regard to the damage the food inflicts on people in the long term.

Comparison of Responses in the Two Cases

The moral standards applied to the pharmaceutical companies were similar to the standards applied to the food and beverage companies with one important exception. In the case of GlaxoSmithKline, there was some leeway given because of the assumption that drugs are a vital component of healthcare.

There are situations where even if GlaxoSmithKline broke the law, its actions could be morally defensible. The food and beverage companies cannot enjoy this exemption because their products are not fundamental to the well being of humanity. No universal harm will materialize if these companies close down.

Works Cited

Altman, Vivien and Marianne Leitch. “Globesity – Fat’s New Frontier.” 24 July 2012. ABC News: Foreign Correspondent. Web. <https://www.abc.net.au/foreign/globesity-sizzler/4144562>.

BBC. “GlaxoSmithKline to Pay $3bn in US Drug Fraud Scandal.” 2 July 2012. BBC News: US and Canada. Web. <https://www.bbc.com/news/world-us-canada-18673220>.

Rogers, Wendy A and Annette J Braunack-Mayer. Practical Ethics for General Practice. New York: Oxford University Press, 2004. Print.

Wolf, Martin. “The Morality of the Market.” Foreign Policy (2003): 47-50. Print

Introduction

As businesses globally become complex, so is the type and amount of data they use. Organizations are finding master data to be of importance in their day-to-day operations and for future business predictions (Loshin, 2008).

Metadata and tools are essential in utilization of large sets of data in any company. This essay will use GlaxoSmithKline plc (GSK) as the company. This assignment will create a plan to be followed in GSK. The plan will give examples of such metadata in GSK. The essay will also discuss tools to be used in the project.

Finally, the essay will look at the factors that GSK will address to implement the project successfully, particularly about the choice of tools. GSK is a company that deals with pharmaceutical products, with markets across the continents. It was formed in 2000 as a result of merging two firms. These were Glaxo Wellcome and SmithKline Beecham Company. It is one of the best performing companies in the world.

Plan

Metadata is defined as data that give information about other data (Loshin, 2008). GSK is a complex and multinational company with huge amounts of data. In order to create metadata, it is prudent to comprehend the characteristics of the data to be described and standards to be used. The process involves the use of codes in disk files (Otto, Hüner & Österle, 2012). For one set of data set, there is only a file in the computer disk describing it.

There are four steps involved in creating metadata. The fist step involves the collection of information regarding the data to be described. This is followed by creation of a file having the metadata. The metadata should be arranged according to the standards used (Loshin, 2008).

The third step involves arranging the information in the files to achieve the required structure. The final step involves testing the completeness of the metadata. The step will verify that the subject under description is described fully by the information in the disk file (Otto et al., 2012).

Metadata to be created

Metadata is based on metadata stacks (Loshin, 2008). A metadata stack is an organization of information flows (data objects) from top to bottom. Metadata in GSK will describe the data entered about the pharmaceutical products that the company manufactures and markets. For example, a product like Augmentin (antibiotic produced by the company), its metadata would include where it was sold, date, the company representative who sold and the pricing. The customer information would also be described.

A metadata stack for this application in GSK would involve five primary components. The first is a store in which external information regarding the product will be saved. The second is an internal store which creates a link between the product records in the store and other applications in the company master data.

The third component is a co-ordinating store that fetches information from all the stores in the system. The fourth component is a model giving information about what is found in the stores. The final component is an assembly of objects under description. This final component is necessary in the management of objects about the pharmaceutical products in GSK. All the five components must be used to describe the metadata in the stack.

ETL tools

Advance in modernization of systems, complex warehousing and increase in the number of products that GSK deals with requires that complex tools for extracting, transforming and locating data be used. This will ensure that there is sharing of the required information in time.

However, before the information can be moved, it has to be extracted from the file records and transformed accordingly. The ETL tools that GSK will use can either be developed by technical experts in the company from scratch or be bought from software vendors. The two sources have both merits and demerits that should be analyzed by the project implementing team.

Factors

Tools are important for successful implementation of a master data management project (Silvola, Jaaskelainen, Kropsu-Vehkapera & Haapasalo, 2011). Several factors will affect the selection of the master data management tools at GSK. One of the factors is the complexity of the project envisaged by the management.

A complex project will require sophisticated tools while a simple one will need simple tools. The amount of money that the company will be ready to spend on the project will also determine the tools that will be used. If the project budget will be accommodative enough, then complex tools will be used to implement the project.

The personnel will also play a critical role in the selection of master data management tools (Silvola et al., 2011). The personnel working with GSK will give their views on the system that they can operate. Thus, their input will be necessary because they will form part of the end-users. If the number of personnel who are IT-compliant is big, then the tools to be used can be complex. However, the interests of all the personnel will be considered before selecting the tools for the project.

References

Loshin, D. (2008). Master data management. Burlington, MA: Morgan Kaufmann.

Otto, B., Hüner, K. M., & Österle, H. (2012). Toward a functional reference model for master data quality management. Information Systems and e-Business Management, 10(3), 395-425.

Silvola, R., Jaaskelainen, O., Kropsu-Vehkapera, H., & Haapasalo, H. (2011). Managing one master data–challenges and preconditions. Industrial Management & Data Systems, 111(1), 146-162.

Changes in Technology That GE Has Undertaken in Product and Process

General Electric (GE) built Local Growth Teams (LGT), which was a process change of the manufacturing technology that the company has always used. The new process shifts the focus of production to where the company has a high potential of selling its commodities.

In addition, LGT allows GE to build latest offerings, which are separate from the items that are already in its inventory. Previously, all subsidiaries of GE worked as part of the whole company; however, fresh subsidiaries under the LGT structure operate as new companies.

Therefore, their interaction within the organization occurs as a form of partnership enabling them to obtain necessary resources when needed, and still maintain their autonomy for operation (White and Bruton 2-3).

The company also introduced the concept of ‘ecomagination’. This was another method innovation in the use of technology. It merged the generation of energy and the process of manufacturing vehicles that use the spawned energy.

The innovative process of production gave general electric the ability to create new opportunities, which increased its products value and their market demand (White and Bruton 4).

GE also undertook product innovation changes. In the first case, the company used a system-integration approach for existing products to improve them and increase their market share.

While developing LGT structures, GE used applied research methods to utilize existing knowledge, about the products in its inventory to develop first-hand products.

The up to date products by LGT improve the firm’s market position in emerging countries that lack a sustainable market for its traditional products. Therefore, the above example illustrates the use of systems integration as a type of innovation.

For example, the company applies the same basic research that developed ultrasound machines technology to develop portable ultrasound-machines in India and China. The firm also re-engineered its work progression.

Instead of controlling the processes of LGT from once central location, GE allowed all LGT to operate independently and consolidate their functions as individual companies.

This ensured that the organization was deleting all unnecessary hindrances in management levels and work. The above innovation was an example of using applied technology to create altered merchandises.

The company introduced new-fangled products, which lead to new opportunities in emerging markets. At the same time, the company introduced the modern process of researching and manufacturing that concentrate of its high-growth market.

Combination of Technology and Management

General Electric has made changes to its organization, which gives it a market advantage when using technology. The firm altered its structure where necessary like in the case of LGT. It also reviewed its personnel policies and leadership.

The firm created local teams that understand the needs and challenges of specific markets. This allowed the company to come up with products that are relevant and cost-effective in their respective markets.

The organization holds patents to various technologies and allows its local growth teams to exploit the patents and come up with new products.

To achieve this objective, the firm reorganized its management roles and objectives to realign them with technology. The new orientation implied that policy and leadership bend towards a technology that fit the business the company wants to grow in (White and Bruton 4).

Strategic Concerns for GE in Future

As General Electric extends its global presence, it should also seek to develop new customer relationships in its existing markets. The company should not take for granted markets where its strategies are already doing well.

Technological innovations often lead to the loss of a company’s competitive advantage. For example, fresh technology might render a product obsolete or cut its production costs and force companies to reduce their prices or face the wrath of recent entrants to the market. So while GE is shifting its power to where the growth is, it should also look at existing markets that are not growing but are under threat of disruption by technology.

As GE expands its manufacturing capabilities in new markets, it should also look at its capabilities more closely. Its competitors will soon copy its innovative processes of fabrication and come up with competitive outputs.

The company must ensure that the introduction of toned-down alternative products, in unknown markets, does not make it appear to be neglecting the demands, of the market.

Otherwise, it might suffer a backlash on its products as consumers seek to fulfil their needs with better products from competitors. As the firm realizes high returns in new markets, it should not become a victim by defending its market share when other firms introduced superior products.

Technology and Product Changes to Monitor

The firm should monitor the technologies that alter the demand of its products or render them obsolete. It should also monitor processes that tear down geographical boundaries or market barriers.

These processes will either remove its competitive advantage of exclusivity or allow it to tap fresh value-creating ideas. It should look at processes that allow existing technologies to serve additional purposes, and lead to new commodities (Tidd, Pavitt and Bessant 17-21).

Marketing and Technology Balance

General Electric maintained a balance of its marketing efforts and technology by managing its technology and innovation as the core of its production. The company used technology to produce products of distinctive capabilities and costs.

Having varied versions of the same product allowed the company to serve a wider market, including fewer traditional areas. The company also followed other technology developments within the industry but leveraged its expertise and network to create new products that eventually earn it a significant market share.

GE bought technology when it realized that the development of its own technology would take time or was expensive. The firm bought other firms that already had the technology it was eyeing, or the marketing capabilities that increased its market share (White and Bruton 2-4).

Special Planning Needs for GSK

GSK needs to plan how to diversify its global business while it continues to simplify the operating model of the firm. The firms need to plan how to retain its competitiveness of producing new products. Therefore, it needs to reorganize its research and development area to make them more efficient.

The firm needs to build an internal innovation foundation, which will support innovation. It needs processes that allow knowledge to transfer among its eight broad areas of focus. As it generates ideas and products, the firm also needs to manage them at any given time. Thus, the firm requires an efficient evaluation process.

During the planning phase, GSK needs to consider its technology and innovation strategy in relation to its dominant competitive position. It needs to look at how processes, operations and systems are influencing its capabilities.

Thereafter, it should examine ways to alter its organization structure to take advantage of the knowledge for internal innovation. The company has to coordinate its operations globally to ensure the outputs for customers, stakeholders and competitors become valuable data for processing in its R&D areas, which will strengthen its competitive position.

Industry Trends for Consideration

GSK should look at entrant companies in the eight market areas that make up its focus. The mint companies increase the competition for the existing market share and may come with new technologies, which disrupt the dominant position of GSK.

In addition to checking for newcomers, the company should also observe how existent products are influencing the economic inefficiency that exists within the industry. When all inefficiencies cease to exist, it will no longer be profitable, for the firm to continue innovating in the particular focus area (Zahra and Ali 105-106).

The firm should look at epidemic trends of neglected diseases that form the core of its research focus. The trends assist the firm to plan on the scale of resources that it should commit.

The trends also provide information that might be replicable in the development of drugs for similar diseases. Above all, the company should monitor breakthroughs in treatment technologies and medical combinations. Up to date processes and products will allow the firm to introduce modern ways of using their existing technology or come up with fresh products.

GSK can be innovative enough to beat its competitors in the race of introducing new products. However, the firm also needs strong retail presence to sell and grow its market share.

Therefore, the company should monitor mergers and acquisitions within the production channel. It should also keenly follow the changing preferences of retailers as state requirements influenced them in their respective countries.

Lastly, GSK should monitor regulatory conditions that govern the administration of health care. Often, official directives lead to the abandonment of a product in favour of another. In other cases, users develop the resistance to a specific combination of medication and require new types. The firm should look at medication resistant trends.

Critical Implementation Issues

The allocation of over 10 per cent of revenues on research and development was critical to the company’s development of high mid-size products. The firm needed to support its innovation and marketing efforts an appropriate financial budget to make it sustainable (Betz 51).

If it had not allocated funds to develop mid-size products, then it would be exposing its strategic advantage when its successful products become obsolete. Therefore, the allocation of ten per cent of revenues, on the product, research was important in the firm’s diversification strategy (White and Bruton 71).

Without the research and development of mid-size products, the firm would fail on its strategy of delivering more products of value. Having a constant stream of new products ensures that the firm is competitive and profitable.

If it instead concentrated on a few big-size products, then it would succumb to cyclic periods of good and bad performance (Betz 51). The quest for the market leadership position in the pharmaceutical industry obliges firms to remain innovative even when they are enjoying the market dominance.

Besides, new diseases and their resistance are always emerging; therefore, it is paramount that the firm allocates substantial revenue to research and development. Another critical implementation issue is the return on innovation policy.

Without a criterion for justifying the development of a specific product, the firm would waste resources on areas that do not meet its expectations. For a company generating so many products in a particular period, proper control of its inventory is important to ensure that the production resources do not go to waste (White and Bruton 72-73).

Influence of Changes Made in 2008

The changes made in 2008 that created Discovery Performance Units will accelerate the implementation of the firm’s critical issue of competitive advantage.

For example, in line with the research and development of mid-size products, DPU will reduce the organizational inefficiency associated with decision-making in large organizations.

In addition, concentration on particular focus areas by the DPU will enable GSK to develop better quality products and reduce research mistakes that come with diverse interests.

Funding guarantees for DPU also give them a security of tenure, which allows them to plan and implement research and development calendars without financial interruptions.

The elimination of short-term discontinuances will ensure that GSK achieve its goal of providing the best science and products to consumers. The 2008 restructuring allows the firm to continue benefiting from innovations and continue developing capacities for more novelties in the future (White and Bruton 73).

After the new introductions of 2008, project management at GSK has become more decentralized. The dispersion makes the firm more adaptable to emerging trends within the industry. It allows the research to focus on different technologies without compromising the firm’s already dominant position in specific products.

Special Evaluation Needs

GSK needs to determine whether the innovations coming from its research labs, and the subsequent product developments, will be successful, in the market. The firm has to know how many products it intends to produce over a given period and offer them in the marketplace. It also needs to define the quantity of each product line.

The company needs to look further than sales and profits when it evaluates its long-term strategy concerns. The evaluation should focus on how its products are relating to their substitutes, in the market. GSK already has strategies for its business and needs to evaluate their effectiveness and relevance in the industry.

The corporation has to know if the growth of a diversified global business contributed to its dominant position. Secondly, its strategy of delivering products of more value should be evaluated against the need for making profits. Lastly, it should evaluate its efficiency strategy to see if there are additional avenues for reducing costs or increasing value.

The use of an internal innovation strategy has the most influence on how well GSK evaluates its progress. The cross-fertilization of ideas encouraged by the company is also crucial for knowledge transfer with aids decision-making within the firm.

The sharing of information among departments assisted the company to reorganize its operations in 2008. It will continue to influence the evaluation of progress within the firm.

Control Systems for GSK

GSK obtains much of its competitive advantage from its human capital. Therefore, it needs human-resource system to control the exploitation of human capital (Verburg, Ortt and Dicke 54). The system would assist the firm to control the compliance of its employees and increase their commitment to its goals.

The company also needs a balanced scorecard system to increase the efficiency of inter and intradepartmental transactions and services (Sisaye 37). The company has many product lines and needs a just-in-time technology (JIT) system.

The system will reduce transaction costs and other costs that arise from the production, distribution and sales processes. As it continues to develop products from preventing disease, the company also needs to prevent its operations from causing harm to its environment.

An environment system, which reports the organization’s impact on its ecology, will assist it to create more value without violating environmental laws of specific countries.

Works Cited

Betz, Frederick. Managing Technological Innovation: Competitive Advantage from Change. 2nd ed. Hoboken: John Wiley & Sons, 2003. Print.

Sisaye, Seleshi. The Ecology of Management Accounting and Control Systems. Westport: Greenwood Publishing Group, 2006. Print.

Tidd, Joseph, Keith Pavitt and John Bessant. Managing Innovation: Integrating Technological, Market and Organizational Change. West Sussex: John Wiley & Sons, 2005. Print.

Verburg, Robert, Roland Ortt and Wilhelmina Margaretha Dicke, Managing Technology and Innovation: An Introduction. New York: Routledge, 2006. Print.

White, Margaret A and Garry D Bruton. The Management of Technology and Innovation: A Strategic Approach. Boston: Cengage Learning, 2011. Print.

Zahra, Shaker A and Abbas Ali, The Impact of Innovation and Technology in The Global Marketplace. New York: International Business Press, 1994. Print.

Introduction

Glaxo Wellcome and SmithKline Beecham combined in 2001, and turned into GlaxoSmithKline, the second largest pharmaceutical company around the globe and operated in about 120 nations by affiancing with formation, innovation, production, and promotion of pharmaceutical and customer healthcare products with the highest level of care to assure the most superior quality of services for the global customers (GlaxoSmithKline, 2010)¹.

Operating throughout a global network of production spots, GlaxoSmithKline offers its wide ranging drugs and other Medicare-products to the final consumers all over 150 realms of Europe, North America, Central and South America, Caribbean, Asia, Australasia, South East Asia, Africa, and Middle East. The company undertook the reorganization process of the entire business in 2007 to augment its revelation to emergent countries and it completed four mergers in those emergent countries throughout half of the 2007 financial year (Loughran, 2009).

Recently, GlaxoSmithKline has made a $3.6bn takeover of Stiefel, one of the biggest autonomous dermatology businesses of the globe- this new-fangled firm has expected to have a joint turnover of about $1.5bn and a strengthened product-pipeline. In order to carry out uninterrupted business operations it takes various programs such as the ‘PHASE initiative’ that operates in 16 nations including Bangladesh, Bolivia, Brazil, India, Indonesia, Kenya, Malawi, Mexico, United Kingdom, etc; in the international region, its Global Community Partnerships concentrates on supplying partnership funding for health education.

Table 1: Key Statistics of GlaxoSmithKline plc^2. Source: Yahoo Finance (2010).

Pharmaceutical Market Profile of the World

Illustration of the world pharmaceutical market profile has mostly focused on the robust growth of this sector for the last decade as well as potential market forecast within 2012. Before attempt to continue broad discussion, it should require to consider about the global market share of multinational companies in this sector –

Table 2: Market share of the Pharmaceutical Companies in global market. Source: Pharmaceuticals Industry Analysis (2004, p.9).

Pharmaceutical market researchers and the major players of this industry have wished to earn aggregately more than trillion dollars in terms of their revenue though there have keen potentiality of changing market development and growth strategies to achieve revenue target. In terms of production volume, the UK has ranked at peak and other side, 34% most significant pharmaceutical markets have generated from other regions and countries³. An exclusive study on pharmaceutical market during 2006 has pointed that recent slump of this market growth has because of patent expiry of several major blockbuster markets⁴ at the same time.

Conversely, emerging areas⁵ of the global geography have earned enormous success. Statistical overview⁶ has forecasted that in 2010–12, CAGR⁷ of the world pharmaceutical industry would be around 6% (RNCOS, 2008). An empirical study of the pharmaceutical industry highlighted that key growth drivers have shifted towards the emerging countries due to low-cost of production and low-wages of labours globally increase of disease prevalence, increase of per capita income of the common people, and in case of blockbuster market players, M&A⁸ has most effective tool for market growth (Anon, 2008).

Considering above discussion, following are the major study outcomes of global pharmaceutical industry (RNCOS, 2008) –

• From 2000–05, revenue of the aggregate industry was US $534.8 billion, and it has quantified that it would be around US $1043.4 billion at the end of 2012 where current CAGR rate has been 8% (RNCOS, 2008);
• At the end of 2007, North America has titled as the largest global pharmaceutical sales magnet by involvement of 42.8% and market forecast has anticipated that during 2012 it might be 49% excluding Europe and Asia-Pacific region⁹. Conversely, European market specially, central and eastern Europe would have been faced a sluggish market growth for next five years because of patent expiry of common and significant drugs and medicines, diseases related with lifestyles and significant changes in principle market development strategies as well as drug pipeline supply chain management;
• Due to an unutilized large population in the Asia Pacific region, there have a strong potentiality and opportunities of market diversification¹⁰. Additionally, excluding Latin American countries like Brazil and Mexico have shiny future in lucrative global pharmaceutical market

Foreign exchange rate

Hypothetically, the term foreign exchange rate or the exchange rate has quantified price/value of a country’s currency/money, which would be equivalent to another country’s money. For instance, in following table a comparative scenario among US dollar ($) and Japanese Yean (¥) exchange rate has presented. In the macro economic study, the exchange rate has treated through the balance of payments, for instance, if the value of the US dollar in exchange of the pound sterling were 1.56, then the US buyer would have to buy one pound with 156 US cents.

In the international money market with the duration of time, foreign exchange rate value has changed due to several reasons and here increase of currencies proportionate to another currency has termed as appreciation and conversely, depreciation has indicated price reduction of currencies. Fluctuation of exchange rates has greatly impact on different countries interest rates, aggregate value of export and import, FDI¹¹, per capita income, investment scopes and so on. Globally, US$ is the most dominant foreign currency and fluctuation of US$ has great impact on global trade balance. Additionally, price changes in oil, gas and gold has impact on changes in US$ value. Meanwhile, in recent years Euro has become growing significant against US$ dominant image (Pearson Education, 2010).

Credit ratings

Both in domestic and international credit rating policies have similar characteristics. Corporate bodies, domestic and foreign government policies have mostly focused on aggregate cost of debt though this consideration has no impact on the WACC¹². During credit rating, government of a country has also required to consider share market attitude as well as shareholders interest (Bodie, Kane, and Marcus, 2005). It has unambiguous that optimal credit rating of an organization has not always been considered the highest rating or scoring.

Hypothetically, credit rating has displayed information on default potentiality, value of loan and losses as well as recovery percentage. Additionally, the credit rating has warned the government how to minimize debt risks, but not suggested potential equity benefits (Pandey, 2007). Common misunderstanding of credit rating has arisen during discussion on corporate and government business operation objectives and vision, and it would referenced that there have strong trade-off among credit rating, and both business and financial risks (Ross, Wererfield, and Jaffe, 2006).

Rational to fluctuate exchange rate and credit ratings in different countries

Stability of the foreign exchange rate and price has drawn through demand supply equilibrium in diverse market (Kaplan, 2002). On the other hand, equilibrium of the capital market has quantified the interest rate of a nation (Kaplan, 2002). Under macro economic study exchange rates determination have generated through inflation and GDP¹³ equilibrium where these two dynamics have considered respectively as demand and supply (Kaplan, 2002). Fluctuation of the components of demand and supply of the exchange rates have termed as the floating exchange rate and in following illustration three fundamental assumptions of exchange rates fluctuation have drawn (Kaplan, 2002).

Assumption-1, equilibrium phase

In following figure horizontal axis has indicated quantity of US$ and the vertical axis has presented supply of US$ consistent with the other foreign currencies in the money market. As for example, this figure attributed through Japanese currency. Equilibrium point of the curve has determined price of the US$ and thus surplus and deficit condition have act as dynamics of fluctuating exchange rates.

Assumption-2, depreciation

During this circumstance due to oversupply of the US$ price has been fallen of the exchange rates and conversely import value of country has increased.

Assumption-3, appreciation

During this phase demand for exchange rates has increased against domestic currency and hence price of the foreign exchange rates have increased and denoted as the appreciation. Additionally, this circumstance has also indicated higher interest rates against US$ in international money market.

Affect of oil price variation

Due to buffering effect, fluctuation of oil prices both in local and international market has greatly affected variation in US$ prices globally. Consequently, increase of exchange rates has also made variation in consumers and suppliers demand supply volume like oil demand in transportation industry (KPMG LLP, 2008)

Impact on global economy and business operation

Due to a macro economic component, exchange rates have been also a dynamics of global economy as well as business operations and strategies. Firstly, concept of exchange rates have related with individual country’s currency value and reserve (Block, and Hirt, 2005). Secondly, concept of supply and demand has constructed supply chain management of the country; more specifically, aggregate import and export values. Excluding these issues interest rates, inflation rates, unemployment ratio, and per capita income have varied because of exchange rate variation (Block, and Hirt, 2005). Hence, global business operation and it strategies have also affected by the fluctuation of foreign exchange rates (Besley & Brigham, 2007).

Conversely, effects of credit areas¹⁴ of credit rating on global economy have almost similar to the exchange rates (Elkhoury, 2008). Additionally, here government’s debt liability and price index of the consumers have included (Elkhoury, 2008).

Impact of credit rating & exchange rate on GSK

The professors Imed Eddine Chkir and Jean-Claude Cosset stated that the impact of exchange rate and credit rating has influenced the Multinationals to adopting bi-dimensional scenery of the diversification strategy that involved with elevated agency costs of debt as well as the mixture of both categories of diversification ensure lesser operating risk in the emerging market (Chkir and Cosset, 2009). Even though such strategies influence the determinants of capital structure through factors like widespread profitability plus operating risk, which will negatively interconnected with the debt ratio of the MNCs in global pharmaceutical industry.

GlaxoSmithKline (2008) confirmed that the counterparty risk management policy of this Pharma MNC functions with a selective group of financial institutions that faced towards long-term credit ratings maintained by CCO¹⁵ rather than Corporate Treasury. All overseas branches and CFO have integrity with the CCO to scrutinize the credit rating of any counterparties, and it is the duty of CCO to notify all variations of credit rating to the Corporate Treasury for take appropriate measure in time. Lehman Brothers was the baker of GSK during its collapse in 2008; GSK was capable to reduce the impact of credit crush as it implemented the policy of holding cash equivalence and liquid investments to face unavoidable circumstances. The counterparty credit rating of GSK has shown in the following table-

The collective credit risk of GSK in relation to its financial instruments possibly will have a counterparty aimed to long-term credit ratings and the follow above table demonstrates the credit ratings of counterparties in support of liquid investments including cash, cash equivalents as well as derivatives.

Meanwhile the exchange rates also have tremendous impact of GSK while GlaxoSmithKline (2009) reported following data regarding its influence on exchange rate in different countries –

The above table demonstrates that the volatilities to foreign exchange rates upon its America dollar, Euro as well as Yen have at least 20 percent variation that has evidenced from the data of 2007 to 2009 with fully hedged to maturity along with currency swaps (GlaxoSmithKline, 2009).

Current Strategies of GSK

The pharmaceutical company has currently undertaken various strategies, which includes the following:

• The company is implementing its plan to expand the business globally by branching out its Medicare-products to construct further unwavering product-portfolio and it is spending in major growth areas such as in promising markets like India, in formation of some vaccines, and in the customer healthcare segment (GlaxoSmithKline, 2010)¹⁶;
• It wants to engender the future sales augmentation through intensification of the central business-operations and adding it up with amplified speculation in development zones, for instance, in R&D, new product developments, research works, marketing and promotional facilities, etc (Annual report, 2009);
• The business’s strategy is to strengthen its market in emerging economies and especially in Japan; with this vision, it accomplished ten mergers in 2009 and launched the Viiv Healthcare program as a joint-venture with Pfizer designed to offer more upgraded treatment-facilities for AIDS infected patients (ICIS.com, 2010);
• Its key focus would remain on improving and creating products that are the most superior ones in terms of quality and maintaining the foremost supply of medicines, assuring that those are upholding the reputation of GSK (Annual report, 2009);
• Since GSK is expanding its operations, it would focus more on diverging and enhancing an advanced capacity of mid size Medicare-products for clearly defined customers, which would improve a low-risk portfolio that is independent on the performance of one or two large products (PR Newswire, 2010);
• GlaxoSmithKline is indeed a very huge and multifaceted business, which has been facing problems with managing and coordinating their operations; in such circumstance, the company has planned to simplify and renovate its organizational structure to lessen difficulties, advance proficiencies, and diminish expenses; this international reorganization program is an essential catalyst of the company’s strategy (GlaxoSmithKline, 2010)¹⁷;
• Moreover, GSK would emphasize to rearrange the entire production process, rationalize and modernize its activities, lessen working capital, and so on (GlaxoSmithKline, 2010)¹⁸;
• GSK has intended enhancing its rate of return on investment along with a long-standing plan to boost its rate of return for research and development to approximately 14 percent for the betterment of the business as a whole (Annual report, 2009);
• In order to execute the expansion strategy, besides of many other plans, the company has made a $253m takeover of Laboratorios Phoenix, an Argentine player of this industry sector to speed up sales and broaden its portfolio in the Latin American section (GlaxoSmithKline, 2010)¹⁹;
• GSK has been changing in a more biotech approached-business, building little divisions of with about eighty scientists to trail advancement agendas; as per Andrew Witty’s policy, the company would form a venture-arm to spend in emerging innovative treatments (FierceBiotech, 2010).

Conclusion

The purpose of this report was to discuss the influence of actual and potential changes in the exchange rate on GlaxoSmithKline’s global operation. However, this paper has also considered information about the world’s pharmaceutical sector, the connection between changes in exchange rate and global pharmaceutical companies. As one of the foremost pharmaceutical companies of the world, GlaxoSmithKline is running successful operations throughout Europe, North America, Central and South America, Caribbean, Asia, Australasia, South East Asia, Africa, and Middle East, serving its consumers with the highest level of customer care offering high quality vaccines, medicines, and other products.

Recommendation

In order to become global market leader in pharmaceutical industry, GSK should focus on the following issues –

• For a real progression, the company needs to re-design it’s strategy for global operation and it should reduce its dependency on the US market;
• At the same time, it should increase the market drive in the Asian market, for example, India and Japan is the potential market;
• In order to minimise the risk of US recessionary impact on US currency and probable inflation, GSK needed to invoice for its items in Euro;
• It should develop its global marketing strategy considering the competitors’ strategy, for example, market leader Pfizer seeks to manage its foreign exchange risk by operational means, including managing expected same-currency revenues compared with same-currency costs and same-currency assets proportionate to same currency liabilities;
• The pharmaceutical industry is experiencing challenges, GSK should implement its existing strategy for the Least Developed Countries (LDCs);
• The management should expand its business by concentrating on the mergers and acquisitions strategies;
• The credit crunch, fall down of the US sub-prime money market and recession have been seriously injured the global economy, therefore, it should increase the budget to develop research department to measure the interest rate, credit risk, default risk, country risk, liquidity risk, market risk, and business risk.

Reference List

Anon (2008) Global pharmaceutical market forecast to 2012. Web.

Besley, S. & Brigham, F. E. (2007) Essentials of managerial finance. 14^th ed. New Work: Thomson South Western College.

Block, B. S. & Hirt, G. A. (2005) Foundations of financial management. 11^th ed. Boston: McGraw-Hill Irwin.

Bodie, Z. Kane, A. & Marcus A. J. (2005) Investments. 5^th ed. New Delhi: Tata McGraw-hill.

Chkir, I. E. & Cosset, J. C. (2009) Diversification strategy and capital structure of multinational corporations. Web.

Elkhoury, M. (2008) Credit rating agencies and their potential impact on developing countries. Web.

FierceBiotech (2010) GSK chief elaborates on biotech strategy. Web.

GlaxoSmithKline (2008) Annual Report 2008: GSK is changing. Web.

GlaxoSmithKline (2009) Annual Report 2009: GSK is changing. Web.

GlaxoSmithKline (2010) Deliver more products of value. Web.

GlaxoSmithKline (2010) GlaxoSmithKline: A full-service contract manufacturing partner. Web.

GlaxoSmithKline (2010) Grow a diversified global business. Web.

GlaxoSmithKline (2010) GSK drives Latin America growth strategy with acquisition of Laboratorios Phoenix.Web.

GlaxoSmithKline (2010) Simplify the operating model.Web.

ICIS.com (2010) GlaxoSmithKline: strategy and financial highlights information from ICIS. Web.

Kaplan, J. (2002) The balance of payments and exchange rates. Web.

Kesič, D. (2008) Strategic Analysis of the World Pharmaceutical Industry. Web.

KPMG LLP (2008) Oil and gas prices: the exchange rate impact. Web.

Loughran, P. (2009) GlaxoSmithKline says job cuts are not related to the downturn. Web.

Pandey, I. M. (2007) Financial management. 9^th ed. New Delhi: Vikas publishing house.

Pearson Education (2010) Define the term exchange rate using examples, Chapter 16: Specific Influences on Global Business. Web.

Pharmaceuticals Industry Analysis. (2004) The history and analysis of the pharmaceutical industry. Web.

PR Newswire (2010) GlaxoSmithKline unveils strategy for growth. Web.

RNCOS (2008) Global pharmaceutical market forecast to 2012. Web.

RNCOS (2008) World pharmaceutical market- 2007. Web.

Ross, A, Wererfield, R. & Jaffe, J. (2006) Corporate finance. 8^th ed. London: McGraw-Hill.

Yahoo Finance (2010) Income statement, cash flow and balance sheet of GlaxoSmithKline plc. Web.

Footnotes

1. Web.
2. Web.
3. North America, Latin America, Europe, Asia-Pacific and Africa.
4. US and Western Europe.
5. Asia and Latin America such as India, China, Brazil, Russia.
6. Statistical overview on the past, present and future, together with statistics and analysis pertaining to market size, growth, segmentation, government policies, healthcare indicators, key players, health coverage, new developments and future prospects.
7. Compound Annual Growth Rate.
8. Merger and Acquisition.
9. Web.
10. Bio Pharmaceuticals, Pharmacogenomics and Biologics market.
11. Foreign Direct Investment.
12. Weighted Average Cost of Capital.
13. Gross Domestic Product.
14. Income and economic structure, economic growth prospects, general government burden, political, fiscal and monetary flexibility, offshore and contingent liabilities, monetary flexibility, external liquidity, GDP per capita, GDP growth, inflation, ratio of non-gold foreign exchange reserves to import, ratio of the current account balance to GDP, external debt burden and the debt burden, default history and the level of economic development and Consumer Price Index (CPI).
15. Corporate Compliance Officer.
16. Web.
17. Web.
18. Web.
19. Web.

GlaxoSmithKline’s mission statement and decision to limit supply of its drugs to Canada

The GlaxoSmithKline’s mission statement is: “Our mission is to improve the quality of human life by enabling people to do more, feel better and live longer.” The decision by GlaxoSmithKline’ to limit the supply of drugs in Canada was against its mission of ensure improved quality of human life. The first reason is that, holding of the drugs decreased the accessibility of the drugs to Canadians and Americans. A great percentage of Americans and Canadians rely on GlaxoSmithKline’s medicines. So when the company withheld its supply in Canada, the cost of the drugs increased hence increasing the cost of health care.

As a result, the drugs become unaffordable to the common citizen. Another reason as to why the decision was against its mission statement is that, people were not able to do more and feel better as the mission statement states. A great number of citizens, especially senior Americans spent more time travelling to get drugs. The time spent in travelling could have been utilized in other investments. The final reason is that, withholding drugs increased the burden on healthcare. The Americans were looking for a relief from high costs of healthcare. Withholding drugs and increasing their prices increased the cost of healthcare. As a result, the burden on common man is more than that of senior citizens.

Effects of GSK’s decision to limit supply of its drugs to Canada on its primary and secondary stakeholders

The GSK’s key or primary stakeholders include stockholders, customers, suppliers, employees and creditors in Canada. These groups of persons were greatly affected by GSK’s decision of limiting the supply of drugs in Canada. Due to high demand and low supply, the prices of the medicines were high. It was difficult for the common citizen to access and afford quality medicine. Limiting supply of drugs meant that stockholders held to their stock longer than expected.

The main is that the price of drugs was high and not all suppliers were willing to buy at high prices. The impact on consumers was increased burden of healthcare, decreased affordability and accessibility to GSK’s drugs. Increase in prices was the main cause of such scenario to consumers. The impact on suppliers was decreased profits and fewer sales. The prices were not consumer friendly. Employees of the company were also affected by this decision. Reduced activity and wages are the main impacts they might have faced.

Limiting supply of drugs in Canada also had effects on secondary stakeholders. Mostly, secondary stakeholders include general public, activist groups, media, business support groups and communities. General public had a negative perspective concerning GSK. It perceived GSK as greedy, mean and insensitive which in turn can have effect on sales of the company. Activist groups were also affected by GSK’s decision. They were not pleased to see their fellow citizens’ struggle with healthcare costs. Activists preferred tobacco companies because GSK had acted in an insensitive manner. Business support groups experienced loses due to reduced activity in the markets (Thomas, 2008).

Was it ethical for GSK to limit supply of its drugs to Canada? Evaluate the decision from the utilitarian perspective, the individual rights perspective the justice perspective and give your overall opinion on the decision given your analysis.

The utilitarian perspective focuses on outcomes or consequences an action or policy has on ones well- being. Its main principle is that, ethical actions produce more good than harm. In this perspective, it was unethical for GSK to limit the supply of drugs in Canada. The effects of withholding drugs had more negative impacts as compared to positive ones. First, limiting dugs increased the burden of healthcare, decreased common man’s affordability and accessibility to drugs. According to utilitarianism, GSK should have asked this question before limiting the drugs: what effect will limiting of drugs in Canada have on general balance of good over evil? Utilitarianism, gives a few exceptions to drug scarcity.

If the cost of distributing drugs evenly is high, then cost is an acceptable reason. Another exception occurs when the medical service is not lifesaving. Considering the case of GSK, the drugs were essential and limiting their supply is unethical. Utilitarian perspective values human life and human dignity. Despite the cost of producing drugs that GSK incurred, it should have acquired another alternative to deal with Americans. Withholding drugs from the Canadian market was not the best solution to sustain the sales. Limiting the supply of drugs in Canada had negative impacts on the image of the company. On another note, GSK’s action was somehow ethical because it led to establishment of a medical cover which made healthcare services accessible and affordable to Americans.

The individual rights perspective states that every human being is entitled to quality healthcare. Every individual has a right to access drugs at an affordable price. The decision by GSK in this perspective was unethical. The reason is that, all ethical decisions including those in healthcare should satisfy all aspects of a human being. That is, biological, social, psychological and spiritual. The GSK’s decision was unethical because it failed to meet all the cultural aspects of human being. Ethical decisions in healthcare should meet the needs of a human health and satisfy physical and psychological well being. The decision by GSK failed to meet these needs.

Instead it caused the Americans time while travelling to acquire drugs for themselves. Limiting the supply of the drugs also led to the limitation of accessibility and affordability. Lack of essential drugs is against individual rights. Those affected lacked intellectual freedom because they were thinking on how to get drugs. When GSK limited supply of its drugs in Canada, the prices of the drugs increased. Considering the low purchasing power of the majority of the citizens, the vulnerable and common men were unable to purchase drugs. Such a scenario caused psychological problems to the Canadians. Individual rights value human dignity which in turn advocates for fulfillment of basic human rights. Medical care is a basic human right that was violated by GSK through limiting of drug supply in Canada (Thomas, 2008)

Justice perspective is another moral virtue which encourages the society to be willing to grant the other person what he or she is entitled to. Healthcare is a basic need. Accessibility and affordability of drugs constitute good healthcare services. The decision by GSK to limit supply of drugs was against the ethical values of health care. Society is obliged to ensure equitable and adequate access of healthcare services without overburdening the patient. Considering this statement, it was unethical for GSK to limit the supply of drugs in Canada. The reason is that, many citizens had excessive burdens while trying to get the medication they needed.

Healthcare is a basic need that ensures human health flourishes. This perspective states that, it’s everyone’s responsibility to ensure healthcare for common good. If healthcare its common good, then the decision by GSK was unethical because it was based on selfish grounds. GSK held its drugs to cause an artificial demand which led to increased prices of drugs. Unequal provision of drugs by GSK was unethical. The reason is that, the same drugs were sold at different prices, within the same country but different states.

In my opinion, withholding drugs was unethical. The consequences of the act comprised of negatives than positives. Accessibility to affordable healthcare is a basic need to every individual. Good state of mind and body constitutes well being of a person. Limitation of drugs deprived off people their well being. One needs to be awarded as per their needs and efforts, lack of adequate drug supply acts against these two principles. Individuals were denied their rights. Withholding drug is against social justice. Healthcare services should be equitable and affordable. Decisions made in this sector should ensure common good of the citizens. The decision by GSK was selfish and violated rights in social justice sector (Thomas, 2008).

Corporate governance mechanisms to help GSK prevent similar incidents

Corporate governance mechanisms refers to the procedures and policies implemented by a company in order to protect and control the interests of stakeholders in business; both internal and external. Large organizations like GSK need corporate governance mechanisms assist in management of business because they are large and complex. In the past, GSK limited supply of drugs in Canada in order to prevent senior American citizens from buying in Canada. In order to prevent such a scenario from repeating itself, GSK needs to put in place corporate governance mechanisms to protect its stakeholders.

The first mechanism is board of directors. Board of Directors is used in protection of interests of shareholders in the company. Board of Directors bridges the gap between shareholders and the managers. Board members are elected by shareholders during annual general meeting of the company. To ensure that the same case does not re-occur, GSK needs to put in place a Board of Directors. The shareholders will use the directors to communicate to managers on their behalf.

For instance, if the shareholders have an issue with pricing of drugs in their state, the board member will communicate the issue to the managers and a viable solution will be concluded. Also shareholders should be allowed to elect a member of their own choice to represent them in the board. GSK being a multinational company, it should ensure that CEO’s of its branches are indigenous and not foreign. Such moves will reduce protect the interests of shareholders and create a sense of belonging. It will also enhance communication between the shareholders and the managers.

Shareholders should be allowed to own a given percentage of shares in the company. The Board of Directors should come up with a compensation plan which suits the shareholders they represent. These steps will reduce shareholder conflicts and create a sense of belonging. If GSK had such structures in place, communication would have been effective. The company would have used a different strategy to deal with senior Americans. The members in the Board communicate the situation in their countries to managers hence facilitating changes needed.

The second corporate governance mechanism is audits. Audits refer to financial reviews of a company which are done independently. Audits ensure that organizations follow nationally stipulated accounting regulations, standards and other guidelines. In order to assess an organization objectively, shareholders rely on this information. Audits would address the scenario in GSK. It would constraint the American suppliers to follow the right channel to get drugs. Audits would have avoided limiting of drug supply. Audits have a good tracking record which could have been used to track the activities in Canada.

Once anomalies have been detected then, the situation will be corrected early enough. Use of audits also would have applied external accounting standards to traders in Canada and protect the common man from lack of drugs. Audits would have helped GSK to form a partnership with pharmacies in America to supply drugs at a considerable price. With such structures in place, GSK would not have limited the supply of drugs in Canada. In conclusion the stakeholders would have a clear picture of the financial situation of the company and prevent any possible conflict.

Audits can be used to oversee any form of risk to the company and come up with solutions. Using audits, GSK could have noticed that prices in America are double those in Canada. The company would have come up with a criterion to address this situation. Audits will help GSK to look at the dark side of its exposure. As result it would come up with consumer friendly prices in America. Audits act as monitoring tools. Audits would help GSK shareholders to ask the questions they have and challenge some of the decisions the company makes. Audits also ensure that the members in the Board of Directors discharge their duties diligently. The member needs to challenge the external auditor and financial officer.

Reference

Thomas, W. and David H. (2008). Strategic Management and Business Policy. Eleventh Edition. New York: Pearson-Prentice Hall.

New Products

GlaxoSmithKline PLC is a science-led healthcare entity that deals with the development of innovative pharmaceuticals, consumer healthcare products, and vaccines (GlaxoSmithKline PLC, 2017). The company introduced a number of pharmaceuticals and vaccines in the year 2016. Some of these new products were RelvarlBreo Ellipta, Anoro Ellipta, Incruse Ellipta, Menveo, and Bexsero (GlaxoSmithKline PLC, 2017). The new products accounted for about 24% of the total pharmaceuticals sales.

Quality of Existing Products

The existing product generated 83.71% of the total revenue. This amounted to $23.4 billion. The core operating profit that was generated from the existing products amounted to $6.5 billion. This indicates that the existing products have immensely contributed to the success of the business. This can be explained by the fact that the company has been able to find additional uses for these existing products.

Return on Equity

The 2016 performance was driven by the new products which gained a lot of momentum during the year. This can be attributed to the high demand for the products. Thus, the number of sales that were generated from the new products doubled as compared to the results of the previous year. The profit for the year amounted to $1,062 million. Out of this amount, $173 million was attributed to the new products. The total equity was $4,963. Thus, the return on equity for the new products is 3.49%, while for the entire company is 21.4%. This shows that the company is selecting good products and services for investment (GlaxoSmithKline PLC, 2017).

Return on Capital

The net income for the year 2016 amounted to $1,062 million, while the total capital was $23,753. The resulting value of return on capital for the entire company is 4.471%. The value that is associated with the new products is 0.73%. The ratio is quite low and it is caused by the high amount of debt (GlaxoSmithKline PLC, 2017).

Financing of the Initiative

The initiative was financed using debt. A review of the financial statement shows that the value of debt is about 3 times that of equity. This signifies that the company is highly levered. This high amount of debt is majorly spent on research and development. Since the company is highly levered, raising capital through debt is easier than equity. This is based on the fact that potential equity investors shy away from extremely levered companies due to the high-interest cost. Further, the company has been able to maintain a fairly constant amount of debt. The times interest earned ratio shows that the GlaxoSmithKline PLC is solvent because the operating expenses can cover the interest expense (Horner, 2013). Therefore, using debt is advantageous because the value of the company is maintained (Goyal & Goyal, 2013).

There are a number of microeconomic variables that have affected the performance of some sections of the company. GlaxoSmithKline PLC faced a declining pressure on prices in some of its markets. This can be attributed to the competition. In addition, there was deterioration in the growth of emerging markets. Since the company has a presence all over the world, foreign exchange fluctuations also affected the performance negatively. For instance, translation of financial results of foreign subsidiaries often resulted in foreign exchange losses (Marshall, McManus, & Viele, 2014). This affected some reported balanced. The negative impact of these microeconomic variables was offset by the outstanding performance that was reported in some regions such as the US and Italy. Therefore, the variables did not affect the value of the company and operating income. Also, the healthcare sector’s value and operating income continued to grow despite a tough microeconomic environment (GlaxoSmithKline PLC, 2017).

References

GlaxoSmithKline PLC. (2017). GSK annual report 2016. Web.

Goyal, V. K., & Goyal, R. (2013). Financial accounting (4^th ed.). New Delhi, India: PHI Learning Private Limited.

Horner, D. (2013). Accounting for non-accountants (9^th ed.). Philadelphia, PA: Kogan Page Limited.

Marshall, D. H., McManus, W. W., & Viele, D. F. (2014). Accounting: What the numbers mean (10^th ed.). New York, NY: McGraw-Hill/Irwin.

Quality and Usefulness of Financial Reporting

GlaxoSmithKline plc operates on a global basis, primarily through subsidiary companies established in the markets that are traded. Entities that the Group has the power to control the operating and financial policies are accounted for as subsidiaries. Where the Group has the ability to exercise joint control, the entities are accounted for as joint ventures, and “where the Group has the ability to exercise significant influence”, they are accounted for as associates.

The results and assets and liabilities of associates and joint ventures are incorporated into the consolidated financial statements using the equity method of accounting. “Business combinations are accounted for using the acquisition accounting method”. Identifiable assets, liabilities, and contingent liabilities acquired are measured at fair value at the acquisition date (Bragg, Nach & Barry 2009).

Accounting Policies at GlaxoSmithKline

When there is an indication that the assets of the company may be impaired, the carrying value of all non-current assets is reviewed. The intangible assets and intangible assets with indefinite valuable lives, which are not available for use, are examined for impairment every year. A provision of impairment is charged against the statement of the annual income for the respective year. The impairment of goodwill cannot be reversed.

Only impairment losses on non-current assets can be reversed when a change in the estimates occurs (Bragg, Nach & Barry 2009). The recoverable amounts are established to the extent that the reversed recoverable value does not surpass the carrying amounts when depreciation is netted. To estimate impairment, the higher of fair value, less expenditure to sell, and the value in use as calculated by examining risk-adjusted future cash flows are used. An appropriate interest rate is used to discount these estimates. Thus, the future cash flows are intrinsically judgmental (Bragg, Nach & Barry 2009).

In the financial statements, the impairment is charged to the cost of sales, which according to the year 2010 annual reports was reflected as follows: 31 million (2010-142 million), R&D 89 million (2010-46 million), SG&A 70 Million (2010-17 million), and incorporating 131 million (2010-57 million) arising from key reform program. Subsequent reviews of impaired assets result in a reversal of impairments (GSK 2010). This is where the conditions that caused the original impairments are no longer applicable.

The reversals are attributed to sales costs (Bragg, Nach & Barry 2009). Either the fair value, fewer costs model or value in use are used to assess the recoverable value of other money generating units. The formula of determining value in use is summing up the terminal value of the money generating unit (goodwill allocated) to present the net value of risk-adjusted in the pre-tax cash flows. The impairment test shows the recoverable amounts being less the carrying value.

This is repeated with a pre-tax rate of reduction and pre-tax flows for determining the existence of impairment in addition to determining its magnitude. Goodwill is estimated at cost fewer impairments and is considered to have an indefinite useful life. It is tested every year for impairment (GSK 2010). The recoverable amounts are established to the extent that the reversed recoverable value does not surpass the carrying amounts when depreciation is netted.

As indicated in Table 1, the impairment losses are recognized in the annual income statement deemed as operating income in addition to the amount reserved for implements, reclassified as fair value provision. Primarily, impairment originates from significant reductions in fair value of the venture equity below the cost of acquisition, consequent to which a further reduction in fair value is directly incorporated in the statement of income. Impairment of goodwill is not reserved, which contrasts related companies in the industry (Bragg, Nach & Barry 2009).

Table 1. Other investments.

The resolution to rationalize facilities whose estimation is based on the value in the use of fair value, less selling cost results in impairment losses. The net present value is risk-adjusted, and cash flows (post-tax) relevant to the cash-generating unit or relevant asset to the project are used to determine the value in use. A discount rate is applied at a rate of Group post-tax weighted average cost of capital (WACC). For example, during the 2011 financial year, a WACC of 8% was used. In the event that a pre-tax cash flow computation is anticipated to give rise to totally different results, where an impairment is revealed, the pre-tax discount rate and pre-tax cash flows would be performed (GSK 2011).

Principle Risks and How They Are Managed

Instruments of managing risks

GSK applies several instruments to finance its operations. It also uses derivative financial instruments to manage various risks. The derivatives majorly comprise foreign currency contracts, currency and interest rate swaps. Currency swaps are used to swap borrowings and assets (liquid) to legal tenders necessary for the Group’s management of exposure risks emanating from fluctuation of interest rates and foreign exchange rates.

GSK reports its financial results in Sterling and its dividends are issued in Sterling, which exposes it to high fluctuation risks. The Corporate Treasury manages and monitors its external and internal risks on finances by the use of a range of financial instruments to finance the operations. It uses derivative fiscal instruments to control risks that are occasioned by variations in the interest and foreign rates (Bragg, Nach & Barry 2009).

Financial Risks that the group faces

Various “jurisdictions compel both actual and potential duties on the Group to remediate polluted sites” (GSK 2011). The company faces potential risks due to its numerous sites which can pose environmental pollution if care is not taken. This means that the company is likely to incur huge expenses to manage happening of environmental degradation. The repercussions in the event that the company fails to undertake its environmental management properly, is significant since it can cause serious negative impact on its financial results.

According to IFRS, particular financial instruments that change in terms of market value, should be reported in the financial reports, even before the recognitions of losses or gains. This may have significant impact on a particular year’s statement of income. Another risk may arise because of volatility of inter-company inventory, which results from the deferred taxation – this is dependent on the reporting entity itself rather than the whole group (GSK 2011).

Hedging instruments

Income statement movements are mainly caused by hedging instruments, relating to US legal provisions, in addition to trade receivable and payable. The hedging instruments offer economic hedges. In Table 2, the respective provisions are not related to financial instruments, but rather offer economic hedging. As such, they are not incorporated in the table. The combination of the hedging sensitivity instruments and the provisions would have been of no significance had they been included.

Table 2. Foreign exchange sensitivity.

The group experienced both current derivative and non-current financial instruments, whose measurement during 2010 and 2011 financial years was based on fair value (155 million-2010-190 million 2011). Most of these amounts are associated with swap interest rates and foreign exchange contracts that are recognized as accounting hedges. Adjustments in cash flow hedges in comprehensive income statement are recognized to the extent that the hedge remains effective.

Portions that are ineffective are recognized in loss or profit instantly. Other amounts that are deferred in comprehensive incomes are reclassified to the statement of income once they impact either profit or loss. The same way is used to give an account of net investment hedges as cash flow hedges. Fluctuations of the fair value, in regard to hedged liabilities or assets for fair value of derivatives that are designed as fair value hedges, are all recorded in the income statement.

However, changes in the fair value of any of the derivative instruments that fail to qualify for hedge accounting, gain an immediate recognition in the income statement. Estimation of financial instruments’ fair value, which do not have active market are based on the assumptions and methods such as liquid investments. In this method, the principal value in the case of non marketable securities results from their short reprising period nature. The other alternative is referring to the discounted cash flows in the underlying net assets (Patel 2006).

Hedge accounting

Derivative instruments of finance are classified as being held-for-trading and are recorded at their fair value in the balance sheet. On the other hand, derivatives that have been designated as instrument of hedging are classified on commencement as cash flow hedges – the net investment hedges/ fair value hedges. Portions that are ineffective are recognized in loss or profit instantly. The quantity deferred in other comprehensive income can be reclassified under the income statement in the event of the hedged item affecting the profit or the loss.

The same method that is used to account for the cash flow hedges is also used to account for the net investment hedges. Any adjustments in the derivatives’ fair value, which are built like the fair value hedges, are accounted for in the statement of income, together with the any variation in the fair value of the hedged assets or liability. The changes in the fair value of several derivative instruments that fail to qualify for purpose of hedge accounting are recognized in the income statement (Bragg, Nach & Barry 2009).

Exposure of foreign currency transaction that arises from internal and external trade flows is not hedged. Exposure in a foreign country operating subsidiaries transaction is reduced by matching the domestic currency earnings with the domestic currency prices. The international trading transactions are, therefore, matched and the Group manages inter-company terms of payment – this reduces the risk of foreign currency.

In cases of exceptional foreign currency, cash flows could be hedged in a selective manner in the supervision of the TGM and Corporate Treasury. These hedging instruments offer economic hedges, while the associated provisions are not the instruments of finance, thus, they cannot be included in financial statements (GSK 2011).

Accounting Policies That Recognize Post-employment Benefits

The provision of pension has been defined under the benefit schemes, which is calculated with the help of projected unit credit method. It is spread over a period, upon which benefits are expected consequential from the employees’ services, in consistence with the advice of professional actuaries. The obligations of pensions are determined with the present value estimated with cash flow discounted at the rates that reflect the high corporate bonds.

The pension scheme property is estimated at fair value at the date of balance sheet. The actual gains and differences among anticipated and actual returns of the assets and the effect of actuarial assumption are recognized in the statement of income annually. The Groups has a defined contribution plan that is charged to the income statement that is incurred.

The cost of post-employment liabilities is calculated the same way as the benefit scheme, and spread over the duration that benefits are to be derived from employees’ services, based on the actuaries (King 2066). Employees get incentives and awards that are shared from the scheme.

The cost of pension services and other post employment benefits get charged under the income statement in line with IAS 19 on Employment Benefits over a period of employees’ services and the cost are assessed by a selected management. The assumption comprise of future earnings and benefits. Projected units have been used to account for the pension cost. In specific countries, the benefits are given at unfunded grounds and in others they are administered by company trustees (Bragg, Nach & Barry 2009).

Conclusion

GlaxoSmithKline plc has ensured compliance with IASB requirements in its financial reporting and disclosure. The comprehensive income statements, the statements of financial position, statement of cash flows, as well as all other accounting policies and notes have been reported professionally, and have indeed increased the usefulness and quality of the company’s financial reports.

In particular, the financial statements have been prepared in accordance with the requirements under IFSR, which have been issued by IASB. As a result, the users of these financial reports can get to know the true and fair value, together with the underplaying assumptions of these reports. This has increased their usefulness (Patel 2006).

References

Bragg S, Nach, R & Barry J 2009, Wiley GAAP Codification Enhanced, John Wiley and Sons, New York.

GSK 2011, Company annual reports. Web.

GSK 2010, Company annual reports. Web.

King A 2006, Fair value financial reporting: meeting the new FASB Requirements, John Wiley & Sons, New York.

Patel A 2006, Fair value financial reporting, John Wiley & Sons, New York.

Introduction

PESTLE analysis focuses on political, economic, sociological, technological, legal and environmental factors that may impinge upon the existence and performance of an organization. As an organization grows in size and scale it is generally observed that it reaps economies of scale and improves its bottom line. In fact, some organizations resorted to growth option with the sole objective of reaping such economies of scale. In the case of pharma majors like the Glaxo Smith Kline, all such factors come into play; however, the major and core factor is elated to the core realities of the pharmaceutical trade. This relates to technological and legal aspects and it is the R&D activities of the company. An exception to the principle of economies of scale has been presented recently in the R&D activities of large-sized pharmaceutical companies where a large and growing size did not result in economies of scale and forced the concerned corporates to restructure their R&D operations.

Case of Glaxo Smith Kline

Glaxo Smith Kline is a pharmaceutical major which has operations worldwide through its network of franchisees and collaborations. It has political and legal factors affecting its working as it has to seek permissions and approvals to set up its operations and to seek patents in varying jurisdictions. The sociological factors work directly into the day to day operations of the pharma giant as it affects the lives of people which it employs directly or indirectly as well the lives of patients who get treated through its drug formulations. (GSK) has the strongest pipeline in the pharmaceutical industry the globe over. Needless to emphasize that this employment generation, GSK sales in each jurisdiction contribute to the economies of the respective jurisdictions as well. In order to widen its socio-economic and political sphere of influence, GSK has pursued since the 1980s a strategy of vertical integration of its operations. This strategy instead of focusing on one particular segment of the value chain focus instead on expanding the span of operations within the value chain by merger amalgamations, collaborations, acquisitions and tie-ups for manufacturing, distribution and R&D. Technological and legal issues come to the forefront when the most important constrain to GSK expansion i.e. its R&D activities are examined. This R&D pipeline is achieved when out of millions of compounds screened about 250 make it to pre-clinical testing, 10 make it to clinical testing and only one gets approved for patient use. With these astronomical trial efforts involved, R&D activity needs to be brisk and fast at all stages to keep the pipeline growing. GSK’s recent robust performance is threatened substantially by this very patent and pipeline uncertainties. Therefore the period 2004-06 will require the company to devise methods to emerge out of these uncertainties as competition mounts pressure throughout this period. In order to resolve its diseconomies of scale on formal innovation(each commercially released drug is equivalent to an innovation), GSK has restructured the company’s R&D functions into strategic business units, styled Centre of Excellence for Drug Discovery(CEDD), breaking from an organic and holistic structure in order to hasten the process of innovation. GSK appears to be attempting to keep its pipeline filled via this method.GSK followed this restructuring with another round when it introduced Medicine Development centres (MDCs). The main task of MDCs is to streamline decision making and maximize the global development opportunities for each product. The MDCs are responsible for product development from the concept stage to the manufacturing and marketing stages.MDCs enter into collaborations with CEDDs at an early stage thus integrating R&D, manufacturing and marketing functions. Because of the smaller scale of these units, the decision layers in each activity has not only been reduced but has also become transparent and accountable. Intra organization communication is now specialized in competence functions and thus is quick and decisive. A growing pipeline is an indication that this flatter organizational structure is yielding positive results for GSK.

Galbraith has stated that there is no standard and best way to organize, and no structure that fits all the requirements of all organizations (Galbraith, 1977). This presents managers and changes agents with a unique problem viz. to tailor-make an organizational structure to suit the specific need of a particular organization taking the overall context of the organization into account. “Traditionally, large-sized pharmaceutical companies had separate functional units for each stage of the product development (including R&D) and marketing process. It is time that the industry drew inspiration from companies such as Dell and General Electric to assess the possibilities of organization models based on distinct strategic business units. These companies have improved their profitability by pushing responsibility for profits down to such smaller business units. This implies theoretically that companies have moved from a functional to an integrated business organization model. These business units could be organized around in an integrated manner based on therapeutic, customer or scientific areas of focus, resulting in closer coordination, control and faster decision-making. Integrated business units would also ensure P&L accountability, and put in place new metrics that shift the focus from overall product revenues to business-area profitability, return on investment and functional productivity”(Rebuild 2003). GSK seems to be riding its PESTLE factors comfortably along the lines of the above accepted theoretical construct.

References

1. Galbraith, J.R. Organization Design.Addison-Wesley.1977.
2. “Rebuilding Big Pharma’s Business Model“, In Vivo: The Business & Medicine Report, pp 73, 2003. Web.

Introduction

Globalisation has changed the dynamics that operates in global economies. It has altered some conventional corporate practises and introduced new methods of efficient operations. The idea of globalisation posits expansions and diversification. These two aspects are viewed as primary goals of most enterprises. Firms of today have become focused on exploring various markets and developing products. In addition, globalisation has created several ideas that promote flexibility. It is imperative for companies to remain open to possibilities as globalisation attempts to shape the inner processes and strengthen the external economic foundations.

It is believed that globalisation impacted some concepts that are being used in production. Since companies are now catering to vastly diverse markets, production scheme have been revisited to make the necessary modifications. Moreover firms have realised that changes will continue to happen. Aside from the production chain, there are certain shifts observed in firms that were influenced by globalisation. Corporate social responsibility, for instance, is fuelled by the different conditions where the firms operate. Companies have also exercised business ethics, which is critical in building its reputation and credibility in the market.

The succeeding discussions will centre on the impact of globalisation in a firm that operates in a global scale. GlaxoSmithKline (GSK) will used as referenced since it operates in various global locations. GSK is also known to have a manufacturing plant and wide-scoped distribution scheme. The discussions will also consider the practises of the company that promote corporate social responsibility. Further, GSK will be evaluated based on its position in reference to globalisation.

Objectives of the Study

The aim of the study is to determine the impact of globalisation in a company. This research has highlighted GlaxoSmithKline (GSK) as the firm to be studied. It has to be noted that GSK is a multinational firm that operates in almost 100 locations in the world. In addition, GSK has several manufacturing sites to boost its capacity to meet the demand in the market. Specifically, the study seeks to ascertain the effects of globalisation in the production schemes used by GSK. Moreover, this study will investigate the firm’s view on Corporate Social Responsibility (CSR) as affected by globalisation. Further, the research will emphasise the actions taken by GSK on its workforce to respond with globalisation issues.

Company Background

GlaxoSmithKline (GSK) is multinational pharmaceutical firm based in London, United Kingdom. It has a varied business portfolio ranging oncology to vaccine products. In addition, GSK’s Consumer Healthcare segment is the world’s leader in providing oral healthcare products and nutritional drinks. The drug manufacturer was created out of the merger between GlaxoWellcome and SmithKline Beecham. As of 2005, GSK has a reported 100,000 workforce across the globe. The manufacturing sites are located in the U.K. and some parts of the U.S. It operates in 72 countries and also has minor presence in other vital locations (GlaxoSmithKline, 2007).

GSK is known in the industry as a diverse and creative firm. The products cover several segments in the market and cater to most medical necessities. Part of the company strategy is to focus on maintaining high quality standards. Its production process prides on the value that is being added in the medicines. GSK is also known for its vast and comprehensive research and development processes. The firms has innovated some drugs that are regarded as breakthroughs. All of these processes follow the cost-effectiveness program of the company. These are the most important components of its strategies for continuous growth and goals to expand in other markets.

GSK is also known as a responsible company. It has been a major contributor in the quest to eliminate several infectious diseases. The firm has devoted its resources to ensure that these illnesses have medical cures. It is committed in supporting other initiatives that will ensure better health in deprived communities. GSK has joined global alliances that monitors that health condition of target areas and provides financial and research aid to improve the state of these communities.

Impact of Globalisation

Mann (2006) viewed globalisation as a major breakthrough in the global economy. For GSK, it is an opportunity to introduce the products in foreign markets. Aside from its domestic targets, the focus of operations has shifted to other parts of the world where medicines are heavily demanded. The role of globalisation is to open markets that are untapped. These markets are still in the process of developing and GSK needs to take advantage of that rapid growth. Globalisation will also allow GSK to determine the different needs of these diverse markets. This will boost their research and development programs and long-term product prospects.

Because of globalisation, taxes in foreign countries were considerably reduced and markets became flexible in welcoming foreign products (Kellner, 1998). Taxes and tariffs have been considered as major barriers for global firms such as GSK. The ides of globalisation allows GSK to distribute its goods in foreign markets without being exposed to high tax rates. The cost of transporting the commodities is lessened and revenue possibilities are high. In addition, globalisation has opened the doors for agreements made by states. These economic pacts provided protection to the products being distributed by GSK.

Globalisation has propagated the concept of information technology. Drucker (1993) noted that the impact of information technology is evident in firms. Because of the computers and the Internet, GSK has been provided with another avenue to introduce its products. The scope that information technology covers is wide and critical to the operations of the company. Instead of the traditional processes of marketing, GSK can exploit the speed and reliability of information technology to its advantage.

Boosting the Production Chain

The production chain is all about the value being added to the product. These stages of manufacturing have to be improved since markets are now competitive. GSK needs to ensure that quality is being emphasised in all levels of production (Deming, 1986). It is important that GSK understands the needs of its customers. As a response, GSK has instituted a team dedicated to address consumer needs. These teams are responsible to determine balance the requirements of the market and the goals of the firm. In the production process, stages that are deemed as efficient are retained while stages that result to wastes are eliminated.

Barney (1991) asserts that quality has to be instituted in the components of the production process. Because of globalisation, the need for quality has become more intense. Without that commitment, GSK will have difficulties sustaining its presence in the market. It is imperative that quality checking is maintained from the product development stages until the finished goods are delivered to the customers. Globalisation has totally altered the production system where quality is maintained in one stage. Each process needs to be evaluated meticulously. This is the only way in which GSK can assure the efficiency in its production system.

The value chain is another concept being used since globalisation emerged (Porter, 1980). The value chain highlights the importance of each stage after production is completed. Once the finished products are packed it is important for GSK to provide a quality storage room. This will prevent the products from being damaged or exposed to external elements. GSK also has to maintain a fast distribution scheme. The high demand for its products means that supply needs to readily available.

In a global market, efficiency is always the key to success. Globalisation has led to firms becoming more efficient producers. Flinchbaugh and Carlino (2006) stress the value of reducing cost in the manufacturing process. As GSK expands, its exposure to losses and risks has become more relevant. Aside from avoiding excessive cost, GSK needs to evaluate its products in the market. Conventional wisdom suggests that products that fail to acquire reasonable market share needs to be scrapped. But this will entail more losses as cost in developing such products have been incurred. GSK has to be creative in handling these circumstances. The products’ lack of appeal can be compensated by through aggressive marketing.

The need to develop a computer based production scheme is also needed. This will allow GSK to eliminate other stages that will become useless. Jonscher (1995) pointed out that most business today under the guidance of computers. These machines are important in creating order in the production schemes. In addition, computers can be used to serve as the memory of the production process. All the necessary aspects of production can be stored in the computers. This will prevent the production personnel from going out of the system. The processes are also protected being accessed by individuals who are unauthorised by the firm.

Globalisation also paved the way for the emergence of outsourcing. Outsourcing has become an important avenue for companies to minimise cost and improve operation efficiency (Erber and Sayed-Ahmed, 2005). Outsourcing, however, has created several labour issues. There have been reports of employee maltreatment by multinational firms. These companies which took advantage of globalisation are also exploiting the weakness of some personnel.

The impact of globalisation is evident in the management of operations that are related to production and other activities. Operations management is defined as the design, operation, and improvement of the system that creates and delivers firms’ products and service combinations. It also deals with the proper allocation of resources and the strategic acquisition of technology (Juran, 1974). Operations management also includes the proper consideration of the outside entities as contributing agent that will eventually affect the performance of the firm. The external environment consists of the customers and other economic indicators. These are major catalysts where production processes have to be referenced.

Begin (1991) argued that the means have to work with the ends. In relation to GSK, the production processes have to be based on customer satisfaction. The technical process of production pertains to the emphasis of quality in the different stages of operations. The rationale behind this strategy is that the continuous inclusion of quality in the process will result to highly competitive and superior products. As discussed earlier, the value added to each process will sum up the value of the product. Any miscalculation in the process will result to problems in the succeeding stages. Maintaining quality will ensure fast flow of production.

Globalisation has pushed GSK to create strategies that will improve production management. Mintzberg (1989) observed that strategy is linked to plans and the behaviour patterns within organisations. Management of production chain has to be associated with long-term plans of GSK. Because of this notion, GSK has changed its process and make these more flexible. GSK needs to ensure that its production schemes are in-line with its strategies.

Enhancing Corporate Social Responsibility

According to Lewin (1983), corporate social responsibility (CSR) highlights the duty of the organisations to their stakeholders. Instead on focusing on corporate activities, firms have decided to undertake endeavours with perceived social relevance. The views on the existence of firms have become diverse because of the improving consideration on social welfare. Although still inclined with profit maximisation, several companies have started allocating funds for activities that goes beyond the corporate purpose. Some firms use CRS as strategy in building a strong market reputation and will eventually command high rate of market share.

Another important definition of CSR was provided by Mosley, et al. (1996) stating that organisations have the obligation to formulate policies and make crucial decisions that are beyond the scope of law. These policies and decision, however, are deemed as promoters of values and objectives of the society. In short, CSR underlines the responsibility of the organisations to their stakeholders and their accountability to the actions taken within societies. The organisations have to use their respective resources to ensure that the goals of CSR are attained. Also, firms have to persuade the stakeholders to actively participate in such activities.

The emergence of globalisation has exposed GSK from several ethical queries. The most common perception is that GSK is only focused on profits. Although revenues are primary targets, GSK has been sharing its earnings to the public. Another ethical issue being raised by some groups is the environmental exploitation being manifested by firms such as GSK. Globalisation has been linked as to the degradation of the environment because of the production plants that these companies establish. Further, GSK is being accused as one of the firms which take advantage of varying laws in foreign locations. Lawsuits are major obstacles that GSK try to avoid.

There are several aspects that are attributed to the prominence of CSR. Usually, CSR is derived from the focus provided by firms in contributing to the overall welfare of the society. This is usually done by channelling to individuals the benefits enjoyed by firms. CSR also details the necessity for organisations to develop and maintain relationship with stakeholders. Aside from good corporate governance, this is observed through quality performance (Van de Ven, 2006) Globalisation has further outlined the role of CSR in the society.

Shrader (1994) observed that social responsibility has been studied and equated with the performance of organisations. Several groups have been calling out firms to reveal their social responsibility strategies. In response to these issues, GSK has enhanced its efforts on incorporating social responsibility on its operations. Since the concentration of GSK is in medicines, it has conducted several medical missions. This is important because there are several areas where medical assistance is unavailable. GSK participates with non-government organisations and local government units to ensure that ample health services are delivered.

GSK needs to address the ethical allegations through its CSR system. The CSR program is primarily in-charge with the promotion of the image of GSK. The company has been conducting wide information campaign on the products its sells. It is part of GSK’s responsibility to inform its clients on the safety measures in consuming its products. On the issues of waste, the CSR is tasked to provide policies that keep the wastes of the production plants from being exposed to the environment.

Enhancing Human Resources

Becker (1994) highlighted the contention of Adam Smith that since training of employees in costly, it has to be considered as an investment. From this conception, several theories on human resources have evolved. Amit and Schoemaker (1993) mentioned that the internal resources of the company are responsible for the formation of distinct competitive advantage. Human resources are one of the internal resources that companies have. The interaction contributes to the promotion of competitive advantage. Human resources that create value, rare, inimitable, and non-substitutable are vital components in sustaining competitive advantage.

The function of human resources is critical to the success of GSK. Basically, the employees are responsible for the reinvention of GSK product and the efficient manifestation of its operations. Providing the employees with all the needed resources contributes to their effectiveness. Quality equipments and machineries ensure that the processes are completed with ease. The workplace of the company is also important. Promoting quality atmosphere will limit incidence of conflicts between and among employees. Also, the working station acts like the second home of the workers. It is time to give justice to such distinction.

The salaries and benefits provided to workers are mandated by laws. Some perks, however, are introduced by GSK to improve performance and loyalty. Once workers are paid well, there is a perception that their value is being recognized. Monetary mechanisms are used to motivate employees the increased income will boost their spending capacities. Likewise, the improved financial benefits will likely result to loyalty for the employees.

GSK has to outline the importance of Human Resources Management (HRM). It has to be in line with the changes as affected by globalisation. The role of HRM is threefold: to hire, to train, and to maintain. It is the task of HRM to seek for competent applicants that will contribute and make a difference once hired. Moreover, HRM practitioners identify suitable training schemes that are designed to improve the skills and competency of the employees. In addition, HRM revolves on the creation of programs that will keep the employees loyal, contented, and productive. Because of globalisation this task has been grown as HRM practitioners have been accorded the capacity to settle employee related disputes.

Globalisation serves as an event that makes Strategic Human Resources Management necessary. Miller (1987) stated that SHRM are decisions and actions that pertain to the management of personnel. It is important that the employees play significant roles in implementing business strategies geared towards sustained competitive advantage. It also concerns the development of appropriate strategies and policies in relation with the employees. SHRM has become an important instrument among firms; several methods were developed to successfully introduce SHRM. One of the methods used was aligning the attributes of the manager to the strategic goals of the firm (Barney, 1991).

It is important to understand the globalisation has change the value of the workforce. Also, it is important for the workers to be equipped with the knowledge used in their tasks. The training and advancement programs of the company will help employees be fit in all aspects. These improvement mechanisms are designed to inject versatility among workers. Such is important because changes in the industry are prevalent and multi-faceted workers have the best value for the company.

Recommendations

GSK is on the verge of reaching the peak of its business cycle. Globalisation, however, can alter the firm’s direction and stall its expected growth. The role of globalisation extends beyond providing opportunities for expansion. It also poses some challenges that GSK needs to overcome. In the production chain GSK has to continually focus on being cost-effective. Each stage in the production process has to be added with a certain value. Another viable option that GSK can employ is to transfer its production plants to areas where production inputs are cheap. The CSR initiatives of GSK are known in the industry. But GSK can still improve its CSR policies through active participation in health related advocacies. Finally, GSK has to recognise the role of its personnel in its growth and development. Personnel enhancement and provision of sufficient benefits will ensure quality performance and loyalty from employees

Conclusion

The effect of globalisation is the world is huge. Globalisation paved the way for trade and exchange of goods. It is also globalisation that has opened the doors of once closed markets. The emergence of globalisation has led to opportunities for firms to expand. Domestic markets have become saturated and consumers have moved to substitute products. For these firms to continue growing, foreign expansions are needed. Moreover, globalisation pushed for the changes in the metrics where global markets are based. Reduction to taxes on foreign goods and protection to imported products are some of the highlights of globalisation. These specifically have change the direction where GSK is headed in the future.

Globalisation has altered the processes being maintained by GSK. In the production cycle, the importance of quality is always emphasised. The research and development structure of the company has improved immensely. In addition, the product pipeline that GSK maintains has been geared towards diversity. Production process has been shortened to ensure more efficiency and reduce waste. Computers where installed to store the production schemes and protect there processes from threats. The gradual improvements in the processes can be deemed as globalisation backed.

Aside from the production process, there are other company practises that were affected by globalisation. GSK has become more involved in communities through its participation is medical missions. The firm donates medicines and supports other activities where its expertise is needed. CSR has become an important tool in improving its image in the market. GSK has worked extensively in developing its personnel and make the workforce a major contributor to sustained success.

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