Glaxo new build decision defies laws of time and space. Or have I misread the story?

Tudor Rickards

The day after the Budget, Glaxo announces plans to build a new factory in Ulverston, England, influenced by financial changes favourable to the industry. The timing seems to defeat principles of business decision-making processes until we look more closely at the story

The Mail outlined the background to the decision which will create 1000 jobs in England and Scotland in the pharmaceutical industry

Britain’s £10billion pharmaceutical industry was given a welcome boost yesterday as drugs giant GlaxoSmithKline announced plans to create 1,000 jobs. The company, which employs 15,000 UK workers, confirmed it is pumping £500million into its manufacturing sites. This includes building a new factory at Ulverston, Cumbria – the firm’s first in 40 years. GSK’s move was influenced by tax cuts in the Budget on money invested in research and development. Sir Andrew Witty, GSK’s chief executive, said the introduction of a ‘patent box’, which cuts corporation tax rates on profits from UK innovations, fuelled the decision.

As well as building the new factory, it will inject £100million into Scottish sites at Irvine and Montrose, and £80million at its site in Ware, Hertfordshire, to boost capacity for inhalers and at Barnard Castle, County Durham, for skin-care products.

A lightning fast reaction?

Good news for Britain. But how was the company able to make the announcement within hours of the budget announcement? Perhaps in part because as the article continued:

Sir Andrew, who is part of the Prime Minister’s business advisory group, said: ‘The patent box has transformed the way in which we view the UK as a location for new investments.’

First new build for forty years

The BBC reporting threw more light on the developing story

Glaxo made its announcement after Chancellor George Osborne confirmed in the Budget on Wednesday that the government would go-ahead with the introduction a so-called patent box.
These allow corporations to pay a lower rate of tax on profits generated from UK-owned intellectual property.

“The introduction of the patent box has transformed the way in which we view the UK as a location for new investments, ensuring that the medicines of the future will not only be discovered, but can also continue to be made here in Britain,” said Glaxo chief executive Sir Andrew Witty. “Consequently, we can confirm that we will build GSK’s first new UK factory for almost 40 years.”

A little more history

Tucked away at the end of the BBC article was a little more history of the way the decision was reached. Glaxo said last year that it would build a new facility at one of four potential sites in the UK if a patent box, [the favourable change in intellectual property taxation] first proposed by the Labour government in 2009, was brought in.

News breaks quickly but may have been a while in the making

So maybe the decision reported as if it followed the announcement in the budget was actually the public announcement of a carefully planned business strategy. It would have involved quite a bit of behind-the-scenes negotiations.

Something old, something new?

Another fact not mentioned in the current news story: Glaxo has a great deal of local knowledge of Ulverston. The image (from the company website) is of the plant built there in 1948.

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2 Responses to Glaxo new build decision defies laws of time and space. Or have I misread the story?

  1. Interesting case! Reminds me about the value of inside information. Being the first to know leads to first mover advantage. Assymetry of information, as the literature in strategic management discusses, is a source of competitive advantage. But, is it ethical? Or in business this is not an issue?

  2. A very fair point indeed and worth discussing. Thanks Fernando.

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