WHY BUSINESSES NEED DIPLOMACY
Business diplomacy is focused on creating long-term positive relationships with both business and non-business stakeholders through communication and engagement. By Fahad Alammar.
Business diplomacy is focused on creating longterm positive relationships with both business and non-business stakeholders through communication and engagement. By Fahad Alammar.
Globalisation has changed the international business landscape; businesses now operate in different countries, deal with multiple jurisdictions, engage in negotiation and the development of trade standards and treaties and face increasing geopolitical risks and pressure.
This is coupled with decreasing governmental support for firms operating internationally; many embassies around the world, for example, do not offer their businesses the support they need. Firms engaging in internationalisation are likely to face cultural clashes, conflicts and disputes in host countries where they have to rely on themselves to solve these issues.
Accelerated by the internet, there is also mounting criticism from civil society and the increasing power of stakeholders, which businesses are seldom prepared to handle. For example, while a crisis may spread across international media within an hour, it takes companies, on average, 21 hours to respond, making them vulnerable to rumours and speculations. Businesses now need the capability to cope and deal with the pressure of multiple stakeholders and special interest groups. This requires companies to establish relationships with multiple business and non-business stakeholders – not to sell goods and service, but to seek common ground and to identify alliances and opportunities.
To survive in this complex and rapidly changing business environment, businesses need to develop competencies in what is termed business diplomacy – the adoption of the mindset and skills of diplomacy for businesses. In particular, business diplomacy is the ability to establish and maintain positive relationships with multiple stakeholders, locally and globally, to shape and influence the environment and ultimately create a favourable condition for the business and seize new opportunities.
It consists of many essential elements such as developing cultural and historical awareness and knowledge, positive communication and engagement, considering other perspectives and ethics, and the ability to identify possible alliances and trends.
Many New Zealand companies that wish to form partnerships or expand into emerging markets overseas are encountering barriers. These [perhaps] include a lack of home and foreign government support, an inability to gain access to the market, language and cultural barriers and a lack of knowledge in management and international practice.
Business diplomacy can offer a way to overcome these barriers. Businesses equipped with diplomatic competencies and knowledge should be able to develop and discuss plans with companies, governments, and multiple stakeholders, look for commonality of interests, understand different laws and practices of various governments, and be familiar with the management style of various countries.
Fonterra’s active reaction to the milk powder scandal in China in 2008 is an example of business diplomacy in practice that helped the company maintain its external and internal legitimacy and reputation.
Fonterra quickly distanced itself from Sanlu (its partner in China), made a one-off US$5 million donation to a charitable foundation in China and, most significantly, got the New Zealand Government involved, which helped elevate the issue to a bilateral trade issue.
In this case Fonterra demonstrated competency in business diplomacy by engaging with non-business stakeholders, aligning its interest with its home government, and distancing itself from potential risk to its reputational capital.
As a part of my current PhD in exploring business diplomacy, I have conducted interviews with chief executives, diplomats and business executives from different nationalities and backgrounds. All participants recognise the value of business diplomacy and believe that it should be practised and exercised by businesses, whether small or large, around the world. In particular, participants believe that there are a set of specific diplomatic knowledge and skills that businesses need to adopt in order to succeed in today’s global environment.
It is important, though, not to confuse business diplomacy with the political activity of corporations that is mostly concerned with power, lobbying, or influencing politicians and policymakers.
Business diplomacy is focused on creating long-term positive relationships with both business and non-business stakeholders through communication and engagement. It can enhance businesses’ reputation and legitimacy, identify new opportunities, mitigate potential risks and create new allies from around the world. For New Zealand businesses it should be part of being ready and prepared to handle today’s increasingly complex operating environment.
Fahad Alammar is a PhD candidate at Massey’s School of Management. His current PhD thesis is focused on empirically investigating the concept of business diplomacy and its related elements among diplomats and business people.