A Philanthropic Approach to Boosting Business

All the way back in Chapter 2 of Gitman’s textbook, The Future of Business, the term strategic giving was defined:  “the practice of tying philanthropy closely to the corporate mission or goals and targeting donations to regions where a company operates.” This trend is on the rise according to Gitman, and it seems that GSK is no exception to the list of companies who have made philanthropy a mutually beneficial act.

Since GSK is a member of the health care industry, it only makes sense that they would direct their charitable efforts toward causes in that sector. In particular they aim to address global health care through four avenues (taken directly from their website):

• Improving affordability by preferential pricing of our medicines and tiered pricing of our vaccines in the world’s poorest countries, exploring new business models in middle-income countries, and providing discount cards in developed countries
• Investing in research and development that targets diseases affecting the developing world
• Working in partnerships to research new medicines and to help deliver healthcare services
• Undertaking community investment activities and partnerships that foster effective healthcare

GlaxoSmithKline has been offering preferential pricing since 1997, and began not-for-profit (revenues only cover the cost of drug sustainability), NFO,  pricing in 2001. NFO pricing currently applies to 64 of the world’s least developed countries and covers medicines such as anti-retrovirals and malaria treatments. In 2009 GSK announced that from April onward the price of patented medications in Least Developed Countries, LDC’s, would be reduced to no more than 25 percent of the price in developed countries. This price reduction covered 110 products and cut prices by an average of  45 percent (source).

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Research and development for diseases primarily affecting the developing world is strikingly different from R & D for developed nations. Many of these diseases have treatments perfected for use in the developed world, but may be unsuitable for use in LDC’s because of factors such as heat and humidity resistance, ease of use constraints, and, of course, affordability.  GSK is currently conducting research on 12 vaccines and infectious disease treatments that will have a great impact on the people of these nations: bacterial meningitis, chlamydia, dengue fever, hepatitis E, HIV/AIDS, leishmaniasis, malaria, pandemic flu, pneumococcal disease, Chagas disease, human African trypanosomiasis and TB. R & D is a finance intensive and risky venture, for 5,000 to 10,000 compounds tested, an estimated five reach clinical trials and only one reaches the market. For medicines with a market in developed countries, such as HIV/AIDS treatments, GSK can apply its classic R & D business model. Other medicines that have no private market, however, require different business strategy to be successful. (source)

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It is with regards to medicines like these that the Public-Private Partnership, PPP,  model comes into play. Collaboration between the public sector and private business has opened avenues that neither could have achieved alone. A current example is the Tres Cantos R & D site in Spain where the focus is on treatments for malaria and TB. Half of the scientists at the site are funded by the Medicines for Malaria venture and TB Alliance PPP’s. GSK is seeking to expand the site with further collaboration with governments, NGO’s, and other companies (source).

Below is a video featuring Andrew Witty, GSK’s CEO, speaking on the challenge of African health care and how his company’s work with AMREF is working toward a solution.

There is no doubt that those in LDC’s will benefit from GSK’s philanthropic efforts, but it would be naive to think that it is a purely selfless act on the company’s part. Adam Smith argued that the private search for profit advances the public interest, and GSK happens to be a prime example (source). At its core GlaxoSmithKline is a business with the  primary aim of turning a profit, and it has  found a way to meet this goal simultaneously while helping others.

The practice of corporate responsibility has become a bigger factor in business decisions as companies feel pressure from investors, employees, NGO’s, etc. to perform well financially while also contributing to the greater community. Such practice enhances a company’s reputation which will in turn attract positive attention, a loyal workforce, and new investors. For example, working alongside stakeholders such as the WHO and the UK ministries of health and education on worthy causes cannot hurt GSK’s chances at future collaboration on highly profitable drug contracts.  Justine Frain, who heads the global community programs, reinforces this notion by identifying GSK’s three primary motivators for philanthropy as:

1. The company’s business success gives it the ability to contribute beyond its core business.

2. It supports GSK’s reputation and helps build business relationships.

3. It motivates employees and helps them feel proud to work for the company.

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Chantal Tregear provides a comprehensive analysis of GSK’s corporate responsibility practices in an article from the link here.

Bottom line is, as long as companies can use their socially responsible practices to make a profit, there is no reason for the trend of corporate responsibility and strategic giving to fade.

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