International Business Diplomacy

Huub Ruël, Miguel R. Olivas-Lujan, Tanya Bondarouk, Huub Ruël

• Publisher: Emerald Publishing Limited
• Year: 2017
• ISBN:
  9781787432550
• Topic: Business
• Subtopic: Management
• Index: Business

Multinational enterprises (MNEs) experienced 'golden days' during the 1990s and 2000s, they expanded globally and were major players in globalization. Today they have become powerful actors in the global economy. CEOs of international businesses are welcomed by heads of state as their counterparts, they are invited by governments to help solve global issues such as climate change and poverty, and they are facing dilemmas comparable to those of other international actors.
However, MNEs are facing global legitimacy challenges. They are suspected of tax avoidance, using low wage countries for corporate benefits only, disrespecting privacy regulations, abusing consumer data, violating local community rights, exploiting natural resources, ignoring basic human rights, and employing too many lobbyists targeting national and international political decision-making processes for their own corporate interests.
Although many of these challenges are not new, they have resurfaced and become more apparent during the past couple of years, partly due to the economic recession that many developed economies have faced and to the broader awareness of increasing global inequality and the importance of sustainability.
How can international business respond? Strategic business diplomacy may be the answer. Business diplomacy involves developing strategies for long-term, positive relationship building with governments, local communities, and interest groups, aiming to establish and sustain legitimacy and to mitigate the risks arising from all non-commercial or exogenous factors in the global business environment.
Business diplomacy is different from lobbying or strategic political activity; it implies an (strategic / holistic) approach of an international business to look at itself as an actor in the international diplomatic arena. Representation, communication and negotiation are key in such an approach.One of the consequences is that MNEs are able to operate in and show respect for an international business environment that consists of multiple stakeholders. This demands a strategic perspective and vision on the sector and the business environments in which the company wants to operate, and requires a specific set of instruments, skills and competences.

PART I
CONCEPTUALIZING BUSINESS DIPLOMACY

INTRODUCTION TO THE VOLUME

International Business Diplomacy: A Strategy for Improving MNCs’ Performance?

A Review of the Concept and New Insights from Five European MNCs

Huub Ruël and Luisa Suren

Abstract

Purpose – Multinational corporations (MNCs) are experiencing a number of major challenges in the international business arena. Can business diplomacy help them to deal with these challenges effectively? In this introductory chapter we conceptualize and identify the relationship between MNCs’ international business diplomatic activities and firm performance.

Design/methodology/approach – We conducted a literature review and interviews with five large MNCs that are operating in distinctive industries. Business diplomatic activities have been classified into three particular areas to support the analysis, namely: (1) MNC–Non-Governmental Organization (NGO) relations, (2) MNC–Host Government relations, and (3) MNC–Local Community relations.

Findings – The main findings suggest that international business diplomacy has a direct positive effect on firm performance with regard to so-called soft or nonfinancial indicators. These indicators include knowledge sharing, reputation, company image, and marketing possibilities. The effect can in turn lead to a better financial performance and market stance in the long run.

Originality/value – The results of this study are important for the future awareness and execution of business diplomacy in large MNCs.

Keywords: International business diplomacy; firm performance; multinational companies; long-term relations; stakeholder management; corporate political activity

Introduction

The business environment increasingly incorporates complex international relations, due to the growing globalization and a higher degree of intercontinental connections. Multinational corporations (MNCs) are constantly enlarging their presence in many countries and are being exposed to diverse local influences and requirements (Saner & Yiu, 2003, 2005). They need to compete within a largely unregulated global market economy with high levels of financial and political risks (Muldoon, 2005). Furthermore, it can be rather expensive for them to enter the markets of developing countries because of their weaker institutions and cultural dissimilarity (Creusen & Lejour, 2013). In this regard, Muldoon (2005) posits that MNCs can only survive as global actors if they successfully develop their own representational mechanisms to manage “complex interactions with governments, multilateral institutions, and global social movements” (p. 355). One opportunity to succeed as a business and to ensure economic vitality is to make use of competencies that build upon long-term relationships with stakeholders, such as governmental bodies, as well as non-governmental organizations (NGOs) (Muldoon, 2005; Saner & Yiu, 2005). Schuler, Rehbein, and Cramer (2002) state that companies that have access to these opportunities can enjoy a competitive advantage. From a network perspective, Goerzen (2007) confirmed that companies could improve their competitive position by establishing nonredundant ties with other international network actors. All of these suggestions fit the concept of acting within the framework of international business diplomacy, which imposes the commitment on MNCs to establish long-term relationships with all different kinds of stakeholders. Since the development of diplomatic ties can be time-consuming and costly, it is important for MNCs to know whether their efforts will pay off. The literature has so far failed to research the positive effect of international business diplomacy on firm performance. Thus, this chapter aims at closing this research gap by answering the following research question:

Can the international business diplomatic activities of MNCs affect their performance?

The structure of the chapter is as follows: First of all, an extensive literature review is provided, focusing on the definition and relevance of business diplomacy and firm performance. Second, the conceptualization of firm performance and international business diplomacy is elaborated further by separating the activities into three main areas: (1) MNC–NGO relations, (2) MNC–Host Government relations, and (3) MNC–Local Community relations. Thereafter, the results are tested by analyzing five semistructured interviews with large MNCs in order to reach a consensus on the positive outcomes on firm performance. The conclusion summarizes the main findings, the practical and theoretical implications, as well as the limitations of the chapter.

Literature Review

This research was conducted in order to identify the effects business diplomacy can have on firm performance if properly applied. Part of the research will be in the form of a critical qualitative literature review as a starting point for the analysis. A web search of scientific databases (Scopus, ScienceDirect, and Google Scholar) was conducted using keywords such as: Business Diplomacy, Firm Performance, Public Diplomacy, NGOs, MNC–Host Government Relationships, Corporate Political Activity (CPA), and Corruption. Special emphasis was laid on academic literature that has been peer-reviewed, was recently published, and has been frequently cited.

Definition of Business Diplomacy

Authors like Muldoon (2005) posit that MNCs can only survive as global actors if they successfully develop their own representational mechanisms to manage “complex interactions with governments, multilateral institutions, and global social movement” (p. 355). One opportunity to succeed as a business and to ensure economic vitality is to make use of competencies in order to build long-term relationships with stakeholders, such as governmental bodies and NGOs (Muldoon, 2005; Saner & Yiu, 2005). Thus, the concept of business diplomacy adds valuable knowledge enabling MNCs to decrease the international complexities they face in an increasingly connected worldwide business environment, and it has been evolving over the past few years (Melissen, 2011). In this regard, Muldoon (2005) states that organizations are being held accountable for their activities more and more and need to build long-term relationships with stakeholders and to develop cooperative strategies accordingly. The existing body of knowledge about business diplomacy is scarce, however, and little empirical evidence exists. Therefore, it is essential for the this chapter to develop a clear, uniform, and understandable definition of the concept, in order to be able to identify the positive effects that international business diplomacy can have on firm performance.

Different Types of Business Diplomacy When reading about business diplomacy, it becomes clear that several authors have been using the term for different concepts. Thus, it is essential to distinguish different meanings of Business Diplomacy in the hope of finding an exhaustive definition. This chapter suggests four distinctive categories of business diplomacy: (1) Intrafirm Business Diplomacy, (2) Interfirm Diplomacy, (3) Home-Country Government Diplomacy, and (4) International Business Diplomacy.

Intrafirm Business Diplomacy. This specific type of business diplomacy has been advocated by London (1999), who suggests that business diplomacy is a method of cooperating with people in a way that gets things done efficiently. Managers and executives can thus also be encouraged to exert diplomatic activities inside a company, creating a specific management style that is based on “treating people with respect, being honest, recognizing and valuing differences, voicing agreement when appropriate and accomplishing goals” (London, 1999, p. 171). Saner, Yiu, and Søndergaard (2000) posit that the attributes of diplomatic managers are comparable to those of political diplomats who need to take responsibility for themselves and others and treat everyone with respect.

Interfirm Diplomacy. The second type of diplomacy focuses on the interaction between businesses within their sector. A large body of research exists in the field of interorganizational network relations (Hagedoorn & Duysters, 2002; Osarenkhoe, 2010), but this has not yet been related to the field of diplomatic activities. Nevertheless, it is clear that nurturing nonredundant ties with other international network actors should have a diplomatic basis. Positive effects of network relations can increase a company’s competitive position by granting access to valuable information through the sharing of relevant knowledge (Goerzen, 2007; Hagedoorn & Duysters, 2002; Osarenkhoe, 2010).

Home-Country Government Diplomacy. The third type of diplomacy involves governments as the main actors making use of representatives who promote their home country abroad (Ruël, 2013) and is probably the most popular one. Naray (2008) postulates that countries exercise activities such as business promotion and facilitation in the interest of advocating business developments so that jobs can be created and economic growth triggered. Furthermore, these actions can aid local business to operate in different countries by reducing the risk of entering new markets (Naray, 2008).

International MNC Diplomacy. The last type of diplomacy that will be discussed is international business diplomacy, including activities by global companies themselves. As Saner and Yiu (2005) suggest, business diplomacy “pertains to the management of interfaces between the global company and its multiple non-business counterparts (such as NGOs, government, political parties, media and other representatives of civil societies) and external constituencies” (p. 302). MNCs are global actors that have their own set of responsibilities toward various groups of stakeholders and need to develop their own representational mechanisms within the global markets (Muldoon, 2005).

International Business Diplomacy The concept of diplomacy that will be discussed throughout this chapter is based on the view of international MNC diplomacy. Goodman (2006) posits that an agreement now exists that global businesses need to act on their own in order to solve problems that have usually been dealt with by governments. Globalization has resulted in complex international relations that enabled nonstate actors such as NGOs and transnational companies to enter state-to-state diplomacy relations (Bayne & Woolcock, 2011; Saner & Yiu, 2003). Thus, globally acting businesses cannot further extenuate their political influence as well as downplay the consequences of their activities affecting a broader range of stakeholders (Muldoon, 2005). Global markets are still largely unregulated, implying that the business and political environment can change rapidly, which stresses the importance to MNCs of “surviving” through building bridges with various stakeholders and starting diplomatic offensives on their own (Muldoon, 2005; Ruël, 2013; Saner et al., 2000). Saner et al. (2000) state that transnational companies increasingly form cross-national alliances to strengthen their position and to effectively interact with different stakeholder groups. Muldoon (2005) adds that these interactions need to be based on building long-term relationships that encourage the development of cooperative strategies. It has further been argued by Ruël (2013) as well as by Saner et al. (2000) that MNCs should set up business diplomacy management functions that deal with “scanning the business environment, interacting with multiple stakeholders and engaging in diplomatic missions, under the supervision of the CEO” (Ruël, 2013, p. 38). Yet a recent study of eight Dutch MNCs by Ruël, Wolters, and van der Kaap (2013) revealed that none of the companies applied diplomacy activities at the headquarters level.

The definition that will be used here was suggested by Ruël et al. (2013) and Ruёl and Wolter (2016):

Business diplomacy involves establishing and sustaining positive relationships (by top executives or their representatives) with foreign government representatives and non-governmental stakeholders (economi...

Table of contents

• Cover
• Title Page
• Part I Conceptualizing Business Diplomacy
• Part II Topical Business Diplomacy
• Part III Business Diplomacy
• Index