Analysis of International Business Risks Affecting GlaxoSmithKline

This report provides a comprehensive analysis of the international business risks impacting GlaxoSmithKline (GSK), a major multinational pharmaceutical company. It examines the effects of political risks, such as Brexit, and the implications of exchange rate fluctuations on GSK's financial performance. The report delves into commercial risks, including competition from local markets and cuts in healthcare investments, and it highlights the importance of effective cross-cultural management within GSK's diverse workforce. Furthermore, the report discusses the impact of these risks on GSK's global operations, emphasizing the need for strategic adaptations to navigate these challenges successfully. It concludes with recommendations for GSK to mitigate these risks and maintain its position in the international market. The report also provides an overview of GSK's business, its focus on innovation, performance, and trust, and its commitment to delivering high-quality healthcare products globally.

Running head: INTERNATIONAL BUSINESS RISKS AFFECTING GLAXOSMITHKLINE
International business risks affecting GlaxoSmithKline
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Executive summary
The chief purpose of the report was to analyze critically the impact of international business risks
on multinational pharmaceutical companies. GlaxoSmithKline, the multinational giant in the
pharmaceutical industry was chosen for this purpose. The report focused on the cross-cultural
aspect of its global operations and analyzed it in terms of international business and the risks
associated. In addition, the report elaborated precisely about the various risks that concern
multinational companies in general and pharmaceutical MNCs in particular. The report also
recommended certain steps that GSK must take to survive and flourish in international market.
The report concluded with an overall summary of the analysis.

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Table of Contents
Introduction......................................................................................................................................3
Risks associated with international business...................................................................................4
Impacts on pharmaceutical company...............................................................................................6
Overview of GlaxoSmithKline........................................................................................................8
Cross-cultural management...........................................................................................................10
Recommendations..........................................................................................................................11
Conclusion.....................................................................................................................................13
References......................................................................................................................................14

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Introduction
International trade, in recent decades has seen an unprecedented growth and
Globalization has played a major role in this. Owing to the phenomenon called globalization, the
exchange is business has been visible in almost all the countries of the world. The trend has
largely contributed to the economic growth of many developing nations by opening the gates of
employment to millions of unemployed youth. With great opportunities however, international
business brought with it, many impending risks as well. As defined by Kot and Dragon (2015),
international business risks refer to the possibility of unfavorable occurrences that a company
might encounter while expanding internationally. While international business provides immense
profit to a certain company, it also comes with endless risks. Many risks are encountered by
multinational companies in operating their business in regions other than their native place. The
rise in competition has further escalated the risks and an issue faced by the MNCs.
Pharmaceutical companies in particular is affected by the risks associated with international
business. One of the most prominent effects in recent times, on international business has been
the exit of Britain from European Union.
The given report provides a thorough analysis of the impacts of international business
risks on pharmaceutical companies. The report would specifically analyze the impact on one
aspect of the company’s global operations, which is its cross-cultural management. The
multinational company chosen for the purpose is GlaxoSmithKline. The company is based in
Britain and has operations in countries spreading across Asia, America and Europe. The report
tries to present elaborately, the importance of cross-cultural management in international
business mainly pharmaceutical. The major risks concerning international business include
political risk, exchange risk, credit risk, market risk and cultural risk and transport risk. Dinu

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(2015) has however identified four major risks that MNCs face in business operations. These are
commercial risk, financial risk, country risk and cross-cultural risk. In the report, four major risks
shall be explained – political, commercial, exchange and cross-cultural.
Risks associated with international business
International business, as already mentioned is abound with risks that confront all
transnational or multinational companies. In the pharmaceutical industry in particular, these risks
exert an added influence. Jaberidoost et al., (2013), mention that pharmaceutical companies,
since they deal with products that are deemed sensitive and cautionary, have to pay extra care
while doing international business. However, the focus of this report is to analyze the impact of
the risks in the global operations of the company. The major risks as already mentioned include,
Political risk – Political risks surface due to the unpredictable political incidents. Unstable
political environment arising from dangerous political actions; result in increased difficulties for
MNCs to operate smoothly. Uncertainties also loom large on the stability of the government that
rules a certain country. It thus becomes extremely difficult for a firm to operate smoothly and
generate revenues. According to Musacchio, Lazzarini and Aguilera (2015), strict regulations
and unprecedented government influence deters the quality of business and leads to increased
cases of corruption. Corruption and malpractices especially in the said industry has severe
consequences as it concerns human lives as well. One prominent example of political instability
affecting international business is Brexit (Pharma.elsevier.com, 2018). Pharmaceutical
companies in particular have significantly faced the wrath of Brexit as they are forced to end
their operations in Britain since European business is no longer allowed to continue.

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Exchange risk – While doing business in a foreign country, the company has to exchange
its currency since each country has its own system of currency. The currency of one country is
exchanged in another country at certain rate. This rate of exchange fluctuates at regular interval
thus causing loss in business. The case is similar for pharmaceutical companies as well. Often
the pharmaceutical companies are faced with the problem of higher expenditure and lower profit
owing to exchange risks. Kim and Park (2014), argue that the fluctuating rates of currency
exchange hamper a company largely because it disturbs their business planning which they have
to redesign in order to meet financial requirements.
Commercial risk – It refers to the risks associated with fluctuations in the market of a
country where the company has its operations. These risks arise when the multinational company
makes wrong decisions in choosing partners and executing strategies. MNCs must realize the
differences in doing business in alien lands with distinct rules and regulations. The severe
competition in the global market demands frequent transformations in business strategies. In case
of pharmaceutical companies, as pointed out by DiMasi, Grabowski and Hansen (2016), these
commercial risks negatively affect the reputation and thus result in reduced revenues.
Cross-cultural risks – It is one of the most common risks that affect international
business. Operating in a foreign land with a diverse workforce requires exceptional knowledge of
multiculturalism. Culture is an aspect that holds great value to any nation and any violation of
this result in huge loss for the company. It is one of the reasons most companies nowadays have
dedicated a separate department to monitor these issues. Pharmaceutical companies have also
employed similar strategies to tackle cross-cultural issues. In views of Ahammad et al., (2016),
cross-cultural management is very important in case of pharmaceutical MNCs because any

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negligence in the timely management might result in conflicts. These conflicts in turn may cause
heavy loss to the company.
Impacts on pharmaceutical company
The previous section briefly highlighted the impact of international business risks on
pharmaceutical companies by pointing out certain concerns that confront this industry. In this
section, those impacts shall be further explained with evidences from credible sources.
Pharmaceutical companies are responsible for manufacturing and selling medicines and
other related items to patients and prescribers across the globe. Political instability causes these
companies to abandon or abort their operations that not only cause loss to the company but also
to the receiver. The company has to be extremely cautious while dealing with medicine and
vaccines and possess deep knowledge regarding those as many vaccines and medicines are
banned in some countries. According to Dadfar et al., (2013) however, pharmaceutical
companies also have the opportunity to benefit from the political conditions prevailing in a
country by exerting their influence through lobbying and such tactics. It needs to be mentioned
that companies that have the capability to turn risks into advantages have the best chance to
sustain in extremely risky environments and profit.
Exchange rates determine the economic position of a country and each country makes
increased effort to strengthen its exchange rate in order to yield benefits. Constant fluctuations in
exchange rates are the result of the growing competition between countries to move ahead in the
race. The pharmaceutical industry often fall prey to this fluctuating tendency and faces great
loss. Hutson and Laing (2014), point out three particular impacts on pharmaceutical companies
that may arise from risks in exchange rates. These are transaction exposure, translation exposure

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and economic exposure. Transaction exposure comes from the fluctuation effects of exchange
rates that compel a company to change its strategies regarding making and receiving payments in
foreign currencies in future. Translation exposure refers to the effects exchange rate fluctuations
have on the combined financial statements of both original business and foreign subsidiaries.
Lastly, economic exposure has an influence on the company’s market value.
The rapidly expanding market poses great number of opportunities for pharmaceutical
companies in addition to all the risks. As per the views of Giuliani et al., (2014), commercial
risks faced by pharmaceutical companies arise mostly from the emergence of local markets that
present stiff competition to the global brands. The emergence of local markets poses threats in
the form of local advantages enjoyed, no pressure of exchange rates, and exemption from taxes
and so on. These advantages allow the local brands to gain at a better rate than MNCs. Chandra,
Holmes and Skinner (2013) however argue that the most glaring impact of commercial risks on
pharmaceutical industry is the significant cuts in healthcare investments in several countries.
These reductions in healthcare spending result from slow economic growth and uncertainty.
Pharmaceutical is one such industry that has, in one roof, a team of scientists, researchers,
developers, system analysts, lawyers, managers and others (Forbes.com, 2018). Therefore, it
becomes extremely complex for the management team to organize and manage the vivid
workforce. Training in cross-cultural management has become an integral part of an organization
because it ensures profit through effective cross-cultural communication. With such a variety of
individuals working together in pharmaceutical industry, the effect of cross-cultural risks
becomes more evident. Contractor (2013), states that the industry demands competence in
cultural management because of the diverse group of people that work in it. In particular, the
pharmaceutical MNCs are the most affected when it comes to handling cross-cultural workforce.

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The MNC culture demands constant interactions with people from various cultures and this often
leads to miscommunication and poor results in turn.
Overview of GlaxoSmithKline
GlaxoSmithKline is a pharmaceutical company based in Britain. The company’s
headquarters is situated in Brentford, London. The company was established in the year 2000
when Glaxo merged with SmithKline. However, this company is considered one of the largest
pharmaceutical companies ranking sixth in the world. The company has been improved after
Emma Walmsley became its CEO in March 2017. She is the first female CEO of
GlaxoSmithKline. According to the data published in the annual report of the company, its
vaccines and drugs have earned more than 1.5 billion pounds in the global markets
(Annualreport.gsk.com, 2018). On the other hand, the consumer products of the GSK such as
Aquafresh, Horlicks, nicotine replacements and Sensodyne have earned more than 5.2 billion.
The company mainly aims to introduce distinguished, high quality as well as needed
healthcare products to more people throng their global business. First, the company has a wide
portfolio of advanced and established medicinal products. The company recently focused on the
development of new medicines to support respiratory and infectious diseases, immune-
inflammation and oncology. It has conducted diverse research to explore these areas. The
vaccine business of the company has an extensive portfolio through which the company reaches
a considerable number of people through its innovative pipeline of vaccines. These vaccines aim
to protect people of all age groups. It delivers more than two million doses of its vaccine each
day to the patients living in approximately 150 countries. The third section of its business
focuses on the healthcare business for the average consumers that develops as well as markets

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numerous brands possessed by the company. The brands are recommended by the experts that
categorizes in the areas of oral health, respiratory, pain relief, skin health and nutrition.
The company has proved to be one of the most innovative and best performing healthcare
companies, which the patients trust. The company has three basic priorities such as innovation,
performance and trust. The company invests in technical as well as scientific excellence to
develop a more advanced supply of new products. This will meet all the requirements of the
patients, consumers and payers. The company aims to achieve an industry leading growth by
means of effective investment in its core business. In addition to this, the company aims to
develop the people associated with the company and deliver the service flawlessly (Gsk.com,
2018). Including these, GlaxoSmithKline commits to ensure quality, reliability and safety in all
sections of the process and products. The company is a modern employer that focuses to build
trust through its approach for engagement in progressing global health.
The company believes that the governance structure that the company follows, underpins
its ability for delivering the Group strategy that can easily grow in a diversified business like its
own business. This enables the company to deliver more products of value. Including this, this
particular governance structures amplifies the operating model that the company currently
follows. GlaxoSmithKline is transparent in its business methods. The company publishes details
on its Board Committees along with non-Board Committees, its shareholder information, ethical
conduct as well as services it provides, global compliance and the contact details for its UK or
US offices. Despite these facts, the company has numerous issues in its organizational culture
that has led to business risks.

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Cross-cultural management
It can be seen from the annual reports of most pharmaceutical giants that no company is
safe from the risks of international business. GSK, one of the giants of the pharmaceutical
industry, too suffers from the risks of international business. Managing global operations is a
daunting task for any company including GSK (Tarasanski, 2017). Many facets of global
operations are there that include – other than cross-cultural management – diversity in
workforce, examining changing rules and regulations in other countries, updating global business
information and so on. Stahl and Tung (2015), comments that the cultural dimension is the most
significant part that gives an extra edge to any organization. The cultural management that
determines the international business relations can be better understood by two of Hofstede’s
cultural dimensions that include power distance index and uncertainty avoidance. Power distance
index refers to the culture of acceptance of superiority of others without questioning it. The
country that scores high on this index demonstrates this quality. Uncertainty avoidance refers to
the rejection of anything new and innovative. Countries that score high on this index are
considered culturally closed that is they do not welcome change or anything new (Bondy and
Starkey, 2014).
GlaxoSmithKline is based in London where the culture is quite open innovations are
welcomed and appreciated. However, in majority of countries where it operates, there is
minimum acceptance of new ideas. Risks related to international business have huge impact on
the cross-cultural management of GSK. Managing over one million employees in more than
forty countries is evidently an operation that requires extreme skill, energy and time. According
to Gollnhofer and Turkina (2015), political risks also contribute towards cultural imbalance in a
company that is evident form GSK’s case. The author put forth the case of Brexit, which were a

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political decision and its glaring impact on pharmaceutical companies in the UK. With the
announcement of Britain’s exit from the EU, GSK is estimated to lose a good portion of its
employees who hail from other European countries. However, Brexit is less likely to affect the
revenues generated by GSK as the pound sterling’s fall in link to the dollar is probably going to
benefit the company, believed GSK officials.
Focusing on cross-cultural aspect of GSK’s global operations, although Brexit has
affected its employee figures, it has certainly not hampered cross-cultural management in
countries outside Europe. The company has directed its attention towards Asia, one of world’s
fastest emerging markets of pharmaceutical that has the potential to yield unmatched profit. In
order to rule the market however, GSK has to consider the risks related to government and
industry regulations, societal regulations and most importantly, cultural regulations. Wang and
Chung (2013), believes that the perfect strategy to win in Asia is to develop a workforce and an
organizational culture that has the closest affinity to the region’s culture.
Cross-cultural aspect of global operations managed in GSK is further affected by the
market risks faced by the pharmaceutical industry in the global market (Bremmer, 2014).
Multinational companies have to go through lengthy processes to have access to an international
market and then they have to adjust with the culture of that region. After going through all these,
they have to focus on expenditure and revenue. With the emergence of local markets, these
MNCs have to be always on their toes.
Recommendations
Although every firm faces business risks common to all, but multinational companies
face risks that are unique and challenging, as already mentioned. In case of pharmaceutical