introduction business diplomacy hjd

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the hague journal of diplomacy 9 (2014) 303-309

© koninklijke brill nv, leiden, 2�14 | doi 10.1163/1871191X-12341294

Introduction: Business Diplomacy

Jennifer Kesteleyn Researcher, Ghent Institute for International Studies (GIIS), Ghent University, Ghent, Belgium

[email protected]

Shaun RiordanSenior Visiting Fellow, Clingendael Institute, The Hague, The Netherlands

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Huub RuëlProfessor of International Business, Windesheim University of Applied Sciences, The Netherlands; University of Twente, Twente, The Netherlands

[email protected]

In the modern globalized economy, most firms have little alternative but to operate abroad. Some seek overseas markets, some cheap labour, others invest-ment opportunities, and yet others the extraction of raw resources. Whatever the reasons, operating abroad exposes firms to a broad range of geopolitical and other non-commercial risks. Firms need to identify and manage these risks to protect their bottom line and to be more competitive compared to their adversaries. Business diplomacy (BD) offers an approach to geopolitical and non-commercial risk management that is based on the practices and the mindset of diplomats. This special issue of The Hague Journal of Diplomacy explores whether BD exists as a separate area of activity, and how and whether it is able to meet the challenges faced by firms operating in foreign markets.

In essence, BD occurs when firms do diplomat-like things. It should be distinguished from other economic-related forms of diplomacy. Economic diplomacy, for example, ‘is the activity of governments to improve the terms of trade for their firms’.1 Within economic diplomacy, commercial diplomacy

1 Maaike Okano-Heijmans, ‘Conceptualizing Economic Diplomacy: The Crossroads of International Relations, Economics, IPE and Diplomatic Studies’, in Peter A.G. van Bergeijk, Maaike Okano-Heijmans and Jan Melissen (eds), Economic Diplomacy: Economic and Political Perspectives (Leiden: Martinus Nijhoff, 2011), pp. 7-36, at p. 17.

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actively promotes the commercial interests of individual firms, whether through embassies, trade delegations, or other government-led commercial promotion activities. In both cases, the key diplomatic actor is the government or its agents, which primarily defend the general interest of one country. In BD, it is the firm and its employees that are the prime diplomatic actors, seeking to secure the profit-making of the company and, in the long haul, its survival.

The distinction between BD and corporate diplomacy and related activi-ties such as corporate social responsibility (CSR), public affairs and public relations (PR) is more subtle. Corporate diplomacy is not normally limited to international activities, but may be applied to any of a firm’s internal relation-ships in which ‘diplomacy’ or tact might be called for. Public affairs (including lobbying governmental and non-governmental stakeholders) and CSR are both activities that BD may recommend, but are limited in as far as they do not form part of a holistic long-term BD strategy. The weakness of public affairs is that by not taking account of the international context in which the firm operates, a successful lobbying or media campaign in one market may backfire in another. CSR, which is separated from any general risk-management strategy, strives at expending resources and goodwill without any direct concrete gains for the firm. Finally, PR originates from BD. PR involves the direct, short-term commu-nication of a company towards a broader audience. The key distinction of BD from previous notions is not the actor, or even necessarily specific techniques, but rather the diplomatic mindset, which seeks to place geopolitical risk man-agement within a coherent and long-term strategic context.

In a sense, BD is not new. For example, the trader traversing the Silk Road of the early Middle Ages had to be adept in diplomatic skills to negotiate his safe passage among the multiform centres of political power that he would meet en route; and both the British and Dutch East India Companies acted as sovereign governments, governing large territories and serving as diplomatic (and mili-tary) actors. However, the range and severity of geopolitical risk confronting firms in the twenty-first century are increasing, and the number of firms con-fronted by them is unprecedented.

In recent years, most emphasis has been placed on those risks in a sense derived from the process of globalization itself. These include the risk to firms’ operations and reputation from non-state actors, whose campaigns are enhanced by new information and communications technology (ICT). Companies are seldom prepared to handle those ‘digital age crises’. More than one-quarter of the crises spread to international media within an hour. In contrast, it takes a company, on average, 21 hours to respond. This makes

305Introduction: Business Diplomacy


them vulnerable to ‘trial by Twitter’ campaigns,2 which frequently focus on issues that are on the new international security agenda, such as human rights, labour conditions, poverty, climate change, or environmental degradation. Other issues on the same agenda, such as terrorism, financial instability and organized crime, offer a more direct threat to the firm. A well-known example is that of piracy, which, as well as the high human cost, imposed an additional cost of US$ 3.2 billion upon the naval industry in 2013.3 More subtle, but no less deadly, are the challenges posed by international governance, and in particu-lar the recent spread of national extra-territorial legislation in the commercial area. The implications of the US Foreign Corrupt Practices Act are still poorly understood, even by those non-US firms that are subject to it. Since 2002, the US government has stepped up its efforts when it comes to initiating Foreign Corrupt Practices Act cases against corporations, and the number of fines and penalties has increased annually.4

However, an older, more traditionally geopolitical agenda has also been resurrected. As US hegemony is perceived as weakening, global rule sets frag-ment and international institutions stagnate. Older threats to companies, which were once thought long banished, have returned. Firms must now again confront the risks of expropriation, nationalization and political blackmail, as well as the direct physical and economic threats of civil war, ethnic conflict and inter-state war. As the international environment moves from a unipolar towards a multipolar system, firms will have to navigate between competing rule sets and value systems. Existing international law may no longer provide a reliable protection.

Nor can firms always rely on their national governments or embassies. On the one hand, the nationality of companies has become more fluid, thus mak-ing it difficult for them to determine which government or embassy to turn to for help. On the other hand, governments have to balance a number of inter-ests and priorities. These may not coincide with those of the firm in question. The firm may be operating in a country where its national embassy carries little weight, or far away from the capital where the embassy is situated. The

2 Study conducted by Freshfield Bruckhouse Deringer, available online at http://www.fresh-fields.com/en/news/Half_of_businesses_unprepared_to_handle_%E2%80%98digital_age%E2%80%99_crises/ (accessed 3 November 2013).

3 Cassie Werber, ‘Piracy Costs Fall, but Its Roots Remain, Says Report’, The Wall Street Journal, 4 May 2014.

4 See http://jbsq.org/wp-content/uploads/2010/12/JBSQ_5G.pdf.



government, or national reputation, may be part of the problem — the firm may not wish to advertise its nationality. Major firms and corporations often have better access and influence than the national government. Many embas-sies, which are narrowly focused on commercial work, do not offer the geo-political support that firms need. Moreover, with diplomatic services being cut as a result of the global financial crisis, many firms are forced to operate where their national diplomatic service is not present.

This results in firms increasingly having to adopt their own strategies and practices for the analysis and management of geopolitical risk. These strategies and practices are familiar to students of diplomacy from their own studies of both national foreign ministries and their diplomatic networks abroad. They include the analysis of geopolitical risk and the integration of the results of this analysis in long-term strategies, the development of contingency plans for geopolitical and other international crises, the cultivation of networks of influ-ence and intelligence and the formation of alliances, both with governments and other companies, to secure their intended objectives. These activities extend beyond political work to consular-like activities, such as the evacua-tion of staff from crisis situations, and even to activities that are analogous to military action (such as firms resorting to international legal action to block vital supplies to a country with which it is in dispute, or military protection for vessels against piracy). In carrying out these activities, firms face many of the same problems that are faced by national diplomatic services: the exponen-tial growth of non-state actors, with a corresponding rise of stakeholders who must be considered both in cultivating networks and geopolitical strategies and risk analysis, implications of new ICT and social media, and the dangers of asymmetric resistance tactics.

BD aims to help firms develop those diplomatic capabilities by transferring the techniques and ‘worldview’ of the diplomatic strategist to the needs of the firm. Unlike CSR, BD is not about the image or reputation of a firm, unless that is central to managing geopolitical risk. BD recognizes that the core objective of a firm is to make profit. The role of BD is to help ensure that the firm’s ability to make profits at an international level is not undermined by geopolitical risk.

BD helps firms to identify both the geopolitical and other non-commercial risks that threaten the firm’s bottom line at a global level, but also the interna-tional governmental and non-governmental actors that mediate those risks. Among the latter, it constructs multi-level networks of information and influ-ence. These, in turn, permit the creation of global and regional alliances of het-erogeneous stakeholders, built around shared interests, which serve to multiply the influence of the firm, both positively and defensively. In this way, analysis



of the geopolitical risk, and the stakeholders that shape it, is integrated into a holistic strategy to manage them.

Like government diplomacy, BD is not always soft. Some stakeholders can never be won over — they can only be isolated and undermined. Some key stakeholders need to be pressured to bring them to the table. The construction of alliances based on networks of stakeholders allows ‘problem actors’ to be isolated or put under pressure as part of a broader strategy to secure the firm’s objectives.

The challenge for BD, as explored in this collection of articles, is to what extent this diplomatic viewpoint can bring new insights and understanding to the operation of firms in the international environment of the twenty-first century. To what extent does the notion of ‘diplomacy’ offer better insights for engaging with foreign (and domestic) civil society and shaping interna-tional environments than traditional marketing studies? To what extent does business diplomacy offer a more nuanced and effective framework for inter-national strategies to secure international objectives than political and govern-mental lobbying models? If business diplomacy can demonstrate a clear role in all of these and other aspects of the internationalization of the firm, this would imply that beyond capabilities and strategies, firms also need executives with skill sets similar to those of effective diplomats. A further challenge for business diplomacy will be to identify what the contents of that skill set might be, and to develop effective and innovative ways of transferring those skills to the private sector.

This special issue of The Hague Journal of Diplomacy is the culmination of a fruitful collaboration between scholars and practitioners of BD during a semi-nar that was held at Clingendael Institute on 30 November 2012 in close col-laboration with Ghent University and Windesheim University.5 The articles in this special issue question the above-mentioned issues from both a theoretical and practical viewpoint. Theorists question the validity and applicability of BD by not only placing it in a managerial perspective, but also in the broader canon of diplomacy studies through original research and case studies.

5 The guest editors would therefore like to acknowledge and thank Jan Melissen and Paul Sharp for their support while editing this issue. At the same time, we are grateful for the pleasant cooperation between the contributors and copy editor who made the realization of this issue possible.



The first article is provided by Raymond Saner and Lichia Yiu, who, a mere fourteen years ago, published the first article on BD as interpreted in this issue.6 After a thorough conceptual demarcation of the notion of BD, they provide a sound argument that business diplomats are best suited to deal with the chal-lenges of implementing international commitments such as signing codes, charters and guidelines of good conduct. Their contribution substantiates this contention by means of a careful analysis of the challenges that implementa-tion of the OECD guidelines poses. By doing this, insights are given into how multinational corporations (MNCs) are able to manage the objectives of a company and, on the other hand, the requirements for achieving a sustained business that is based on publically agreed criteria of good conduct.

Next comes Sarah Myers’ article, which addresses the peculiarities that internet companies face while operating in China, and their role in shaping the future of the internet and its governance. Through the attentive examina-tion of three distinct cases, Myers seeks to resolve the question of whether these particular internet firms use the craft of BD during their negotiations, and whether or not this is steered by purely commercial and/or ‘diplomatic’ motives.

Both contributions derive their strength from the fact that they empirically demonstrate that BD offers a more nuanced and effective framework to secure international objectives. Saner and Yiu’s piece does this by showing the advan-tages that such a framework provides, whereas Myers’ article looks at what consequences firms face if they neglect this framework.

Mikael Søndergaard’s article adopts a more interdisciplinary angle. The modern corporation’s organizational structures nourish the necessity of embracing a diplomatic approach. This is certainly true when it comes to BD — that is, dealing with external non-commercial and geopolitical risks. An added value of Søndergaard’s piece is his contemplation on the use of diplo-macy as a tool to cope efficiently with potential differences between compa-nies’ subsidiaries — that is, corporate diplomacy. Finally, there is a dissection of the interdisciplinary nature of the conduct of diplomacy vis-à-vis the use of main theories in international business. By doing this, Søndergaard evinces that by solely adopting a classic economic perspective, latent non-commercial, geopolitical and cultural sensibilities could arise that could eventually under-mine the initial perceived benefits of ‘classic’ business/management practices.

6 Raymond Saner, Lichia Yiu and Mikael Søndergaard, ‘Business Diplomacy Management: A Core Competency for Global Companies’, Academy of Management Executive, vol. 14, no. 1, 2000, pp. 80-92.



Finally, two practitioners offer a more hands-on account from the coalface. James Small’s article provides a detailed account of the step-by-step approach that a business diplomat can use while defending company interests. It is an intriguing narrative of how a company is able to align the commercial inter-ests of a particular company with the national interests of a government. The contribution from George Haynal provides a bird’s eye view of the increasingly complex international environment in which companies operate. By adopting this view, Haynal is able to pull apart the complexity. He unveils a number of distinguished present-day challenges and ultimately advances some concrete proposals for how companies could shape their BD.

Based on all these contributions, this special issue of The Hague Journal of Diplomacy aims to develop further the field of BD studies, which is still in its infancy. It also aims to overcome the wide gap between International Relations scholars and those studying international business. Finally, it hopes to foster links between the business community, academic business schools and the discipline of political scientists. This is necessary since, as stated earlier, the global economic arena becomes the norm in which business is conducted. Geopolitical and non-commercial risks can therefore no longer be man-aged through purely traditional marketing perspectives. It is only by adopt-ing a more ‘diplomatic mindset’ that a company will be able to manage these ever-expanding risks, and safeguard its profit-making and in the long haul its existence.

introduction business diplomacy hjd

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