By: Sasha Richardson, Serge Savasta, Kedar Iyer, Daniel Traylor, Philipp Haenle “Best in France” Case Study GlaxoSmithKline

Executive Overview  GSK - Worldwide  GSK - France  GSK - Products  GSK - Clients  Why France?  GSK - Values  Adaptation to France  Constraints in France  Key Benefits  Essential Advice

GSK - Worldwide  GlaxoSmithKline (GSK) is a world leading research-based pharmaceutical company  GSK R&D is based at 24 sites in 11 countries  Headquartered in the UK  Operations based in the US  One of industry leaders (est. 7% of world's pharmaceutical market)  Leader in four major therapeutic areas: - Anti-infectives - Central nervous system (CNS) - Respiratory - Gastro-intestinal/Metabolic

GSK - Worldwide  2004 Annual Results GSK worldwide: - Sales of £20.3 billion - EBIT £6.1 billion ($11.1 billion) - Pharmaceutical turnover : £17 billion - Consumer healthcare turnover : £3.2 billion  100,000 employees worldwide  40,000 in sales/marketing  35,000 employees at 82 manufacturing sites in 37 countries  15,000 in R&D ( R&D budget ~ £2.8bn/$5bn)

GSK - France  Registered in May 2001 in Marly - le – Roi  5650 employees in 4 production sites: Evreux, (2 000 employees), Mayenne, Hérouville, Notre Dame de Bondeville, Ulis (main research site)  2nd largest branch after US; Largest GSK branch in Europe  3rd largest pharmaceutical group in the French market

GSK - France  2004 Revenues €3.23m  2 main activities: - GlaxoSmithKline Labs (account for 95 % of sales) - GSK Public Sector ( 5% of sales i.e non-prescription & OTC)  Contribution by Business Unit: - Pharmaceuticals: €1.425m - Export : €1.634m - Public sector (non prescription&OTC)€0.172m  315,6 million Units produced for over 100 countries  65% of French production output for export

GSK - Products  GSK is a leader in four major therapeutic areas-anti- infectives, central nervous system (CNS), respiratory and gastro-intestinal/metabolic.  In addition, GSK is a leader in production of vaccinations and has a growing portfolio of oncology products.  The company also has a Consumer Healthcare portfolio comprising over-the-counter (OTC) medicines, oral care products and nutritional healthcare drinks, all of which are among the market leaders.

Pharmacological Products produced in France: Anaesthesia Anti-asthmatics Antibiotics Anti-malaria Anti-thrombolytics Anti-viral Cardiovascular Dermatological Gastro-intestinal HIV treatments Neurological Oncological Oral Anti-diabetics Respiratory Rhinitis/anti-allergy Smoking Cessation Urology Vaccines

GSK - Clients Who are GSK’s clients?  GSK's clients are Patients.  However, as selling/advertising directly to customers is prohibited in France, GSK’s customers are the doctors who write prescriptions. Based on demand created by prescriptions, GSK sells through two primary distribution channels, wholesalers & retailers (pharmacies) How does a presence in France help or hurt the company's ability to satisfy client demands?  France is the largest market in Europe, so GSK’s presence in France is imperative  French made is perceived as ‘high quality’

Why France?  The pharmaceutical industry is global  “A must” to be present in the largest European market in order to maintain competitive in the pharmaceutical industry  France is the second largest market in the world for pharmaceutical products  To foster partnerships with government authorities and lobby for new drugs

GSK - Values Core Values:  Transparency  Innovation  Partnership with all stakeholders  Be reactive/responsive in order to bring new medicines to the patient “Performance with Integrity”

GSK - Values French value system:  Emotional  Achievement oriented  Collaborative and team oriented …and their fit to the French Culture Hence, difficult to implement, but gradually adaptive and successful.

Adaptation to France 1/2 Easy adaptation to the French market due to GSK’s European origins and familiarity with stringent regulations common to the industry. Few hurdles with respect to people management.  Broad talent pool of highly skilled engineers and upper level managers (excellent engineers, scientists, researchers make France a great fit for an R&D based industry).  Middle management is the weak link in the French labor market.  Struggle to recruit “star” international candidates. Paris is not seen as a location with high growth opportunities to build a career.  Management development needs to focus on international and leadership notions to better fit to the Group’s culture.  Workforce Planning made difficult by the lack of flexibility of French employment systems. Unions are critical link; lasting relationships with unions ease workforce problems. People management

Adaptation to France 2/2  Team performance is valued more than individual performance. Hence, Performance appraisals are closely linked with team performance outcomes.  Performance based compensation is less relevant than in Anglo-Saxon corporate cultures.  Motivation practices such as the “employee of the month” nomination are absolutely prohibited in France.  Job Design and Job Assignment fit French regulatory and cultural constraints.  Communication with personnel account for recurrent negative criticisms but positive counter proposals are characteristic to French culture.  Paris was natural choice for their headquarters to launch operations in France as real estate costs were a negligible part of GSK’s operations

Constraints in France  Cumbersome to acquire work papers for international transfers from non-EU states.  Social security and firing costs in France are higher in Europe, but the high quality human resource pool largely makes up for the social costs.  GSK, a global enterprise, established a work force based primarily on the French labor pool, thus communication problems never existed; top executives and many other managers speak fluent English.  GSK France operates as a subsidiary to GSK Worldwide, allowing for some degree of autonomy in operations; this approach also nullifies French management integration issues.

Key Benefits What are the key benefits of being in France?  Product quality: high quality manufacturing facilities built and operated by leading French managers, engineers, and laborers; GSK positively reinforces its brand by employing a French labor force.  France provides the largest revenue/profit center in Europe; margins are consistent with company standards.  Location benefits: most employees are hired locally; living in France is prerequisite for much of the work force.  Social security costs are relatively high, however the associated costs are negligible when compared with the revenues generated in the French market.  Market growth and penetration come with innovation which are linked to R&D expenditures; market structure and competitive advantage are based on scientific breakthrough and government approvals.

Essential Advice 1/2 What advice do you offer to other companies in this sector concerning use of France as a location? 1. Before coming to France  Assess the available market share: French market is the largest “pharma” market in European. Entry in the market requires a pharmaceutical company to set up a large subsidiary in France. Without prospects for significant market share, market entry must be re-thought.  Clearly identify the employment rules and fiscal policy constraints: Entry in the French market needs substantial capital expenditures, including set up and approval costs uncommon in neighboring European states.  Relationships with labor officials and medicine regulators is critical (Sécurité Sociale, Ministère de la Santé, Authorisation de Mise sur le Marché, etc.) French market entry is aided by job creation, corporate headquarters, production facility development, and R&D research programs. Maintaining a healthy working relationship with the authorities is absolutely necessary since regulatory authorities control the medicine market, advertisement & pricing policy.

Essential Advice 2/2 2. Adaptating to France  Maximize efforts on R&D: France produces highly talented researchers that aid innovation necessary for growth. The pharmaceutical industry is about R&D. In addition, performing R&D in France means investing in French knowledge. This facilitates the establishment and maintenance of cooperative relationships with health authorities.  Size manufacturing based on a “hub” strategy for Europe. France is nearly the largest market in Europe (in under 3 years, according to recent studies). Manufacturing products in France enhances quality standards. However, a close look must be taken at the potential to use French manufacturing facilities as hubs for Europe and Africa for example. 3. Future investments in Europe  Invest in Eastern European countries, like Poland, for manufacturing may costs savings become key in this extremely profitable industry; manufacturing could be re-located to countries within Europe with lower cost of living.

We Thank  Mr. Patrice BRIOL, HR Director (Corporate and Scientific HR)  Ms. Sophie MARCHANDISE, Financial Controller  Mr. Jean-Francois CHAMBON, Director of Public Affairs

Our Team  Sasha Richardson,  Serge Savasta  Daniel Traylor  Kedar Iyer  Philipp Haenle