INCREASING BUSINESS DIPLOMACY EFFECTIVENESS

Business diplomacy involves establishing and sustaining positive relationships by top executives or their representatives with foreign government representatives and non-governmental stakeholders (economic and non-economic) with the aim to build and sustain legitimacy (safeguard corporate image and reputation) in a foreign business environment. Corporate diplomacy is considered a synonym for business diplomacy; both concepts describe the same business process and associated elements. The keywords Corporate Political Activity (CPA), Corporate Political Strategy (CPS) and  Strategic Political Management (SPM) describe the same concept and thus can also be seen as synonyms.

CPA, CPS and SPM are focused on influencing public policymakers (in the home country and increasingly in foreign countries) in favour of the firm. In contrast, business diplomacy is concerned with the creation of long-term, positive relationships with foreign government representatives and non-governmental stakeholders (economic and non-economic) in order to create legitimacy in a foreign business environment.

Lobbying, which in Europe stands for “any proactive political strategy” is an essential element of CPA and serves as a mechanism for influencing public policy outcomes. Corporate political activities, such as campaign contributions for the purpose of influencing home government officials, are not part of business diplomacy.

Business diplomacy and CPA overlap in that they are both focused on influencing parties in the organization’s external environment. The keywords MNC-government relations and MNC global governance can be seen as important elements of business diplomacy. In order to gain legitimacy and create business opportunities around the world, it is necessary for a MNC to build up positive relationships with multiple host-government representatives and non-governmental stakeholders (economic and non-economic), such as NGOs. There is a growing importance in committing to and negotiating with a variety of stakeholders (such as NGOs) on social and environmental matters in the international business environment

Generally functions and departments like Public Affairs, Corporate Communications, Public Relations, Government Relations and Government Affairs are concerned with business diplomacy activities.

MNCs define business diplomacy as the bridging of the gap between the core business activities and having an understanding of the political social elements in all places within which the multinational company operates. The more global a firm gets, the more important it is to tighten the relationships with governments and non-governmental stakeholders. Business diplomacy, at its best, safeguards corporate image and reputation.

The conduct of business diplomacy depends on the country, its institutional situation and  therefore, a universal formal business diplomacy policy does not suffice. Regional issues also play an important role in determining how positive relationships are established and maintained with foreign governments and other stakeholders.

The responsibility for establishing and sustaining positive relationships with foreign government representatives and non-governmental stakeholders usually does not lie at the headquarters level, but within the foreign subsidiaries. By doing so, MNCs recognize the need to adapt business diplomacy to the institutional situation of the respective country. Local employees in foreign subsidiaries have the best insight into the institutional context in which they operate and therefore have a certain degree of freedom in adapting business diplomacy to the specific characteristics of their local business market. Culture in particular affects the approach towards business diplomacy. The local people on the ground have a better understanding of what local rules and protocols to adhere to in order to establish and sustain positive relationships with all stakeholders in the country.

All foreign subsidiaries usually act in line with the general guidelines and codes of conduct set by headquarters. But at a certain point country manager in the foreign subsidiaries have to deal with the specific issues (e.g. rules and regulations) locally and adapt business diplomacy to the specific characteristics of their local market.

MNCs deploy a wide variety of means, methods and channels to establish and sustain positive relationships with foreign government representatives and non-governmental stakeholders (economic and non-economic) e.g. events, forums, meetings, industry associations, social projects and social partnerships are used as means for business diplomacy and provide opportunities for meeting with key government officials and industry associates. Entering into direct stakeholder dialogues can serve as an important means for business diplomacy.

The amount of time and money spent on business diplomacy depends on the institutional context of a country e.g. in countries in which the obtaining of licences proceeds slowly and laborious, more time and attention are paid to maintaining contacts with local authorities than in countries in which these matters run faster and smoother.

The degree of intensity in business diplomacy depends on the type of industry in which a MNC operates. Companies that operate in industries in which the business is strongly influenced by government policies (rules and regulations) are more likely to build upon long-term relationships with governments. Companies also act differently in different countries, depending on the institutional setting. Companies rely heavily on personal networks in host countries in which the institutional infrastructure is weak and are more likely to recognize the importance of business diplomacy.

Since governmental structures and procedures differ substantially between countries, MNC subsidiaries are forced to deviate from standard procedures in order to interact with political actors. 

Making business diplomacy more effective

Only a few MNCs recognize the importance of business diplomacy. Instead of training managers in business diplomacy, most MNCs hire political diplomats and rely on their experience in managing complex relationships with host-governments. MNCs need to anticipate stakeholder conflicts, communicate with non-business pressure and interest associations, influence host-government decision-making and maintain constructive relations with external constituencies. Therefore, MNCS cannot just rely on advisors, but should develop their own business diplomacy competences. Know-how regarding business diplomacy should be shared through the company by global managers. In order to realize this core competence, global companies should create a Business Diplomacy Management function consisting of a Business Diplomacy Office, similar to the Public Affairs Office but expanded to include diplomatic functions and placed under direct supervision of the CEO.

Recommendations

1. The CEO should provide policy directives: delineate the business diplomacy domain in which non-specialists are involved on an operational basis and specialists who are in charge of the other domains; shape a link between business diplomacy management and strategic planning to create a socio-political-economic view in exercises regarding scenario planning; provide the necessary resources to maintain relationships with non-business stakeholders and to scan the business environment continuously; develop competencies for analysing environmental and social issues; initiate a knowledge system for business diplomacy management to capture cumulative learning; PROVIDE BUSINESS DIPLOMACY TRAINING TO MIDDLE MANAGERS.
2. Diplomacy should be integrated in the organizational culture. Management should ensure that a diplomatic style of operation is applied, as opposed to an aggressive closed-door style.
3. Leaders within the organization should show the value and relevance of business diplomacy to others in the process: to peers, subordinates, customers, etc.
4. Diplomatic managers should take time to look back and reconsider the functioning of the diplomatic process.
5. Diplomatic managers should learn from their mistakes.
6. Diplomacy should become the natural way of life for the organization.
7. Crisis should be managed carefully in a diplomatic way by not making an overuse of power; widening the community of those concerned and keeping objectives restricted.