business diplomacy in multinational corporations

BUSINESS DIPLOMACY IN MNCs: AN EXPLORATORY STUDY

HUUB RUEL – WINDESHEIM UNIVERSITY – The Netherlands

TIM WOLTERS – UNIVERSITY OF TWENTE – The Netherlands

RAYMOND LOOHUIS – UNIVERSITY OF TWENTE – The Netherlands

CONTACT: [email protected]

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Content

o Presentation overview

o Business diplomacy: tracking its roots

o Business diplomacy: positioning within the literature and research question

o Business diplomacy operationalization

o Method

o Results

o Discussion, conclusion, future research

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Business Diplomacy in MNCs: An Exploratory Study Huub Ruel, Tim Wolters, Raymond Loohuis

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Presentation overview

• Today’s complex international business environment requests from multinational corporations to be able to manage interactions with foreign governments and local and international NGO’s.

• Business diplomacy is of major importance

• Key question: How is business diplomacy enacted by and embedded in MNCs?

• Method: qualitative, semi-structured interviews with 8 MNCs using a multi-dimensional operationalization of business diplomacy

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The business diplomacy project so

far

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The business diplomacy project so far

- November 2012, The Hague (The Netherlands): international research seminar on Business Diplomacy inviting scholars from the IB side and the IR side

- Cfp was distributed via AIB listserv as well

- Selection of about 10 papers/authors to The Hague

- Upcoming special issue for The Hague Journal of Diplomacy (Spring 2014)

- The current paper is part of project with a qual and a quant part

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Business diplomacy: tracking its roots

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Business diplomacy: tracking its roots (1)

• Concept of business diplomacy not widely used in the literature

• Saner, Yiu, Sondergaard (2000) in Academy of Management Perspectives

• “Business diplomacy management involves influencing economic and

social actors to create and seize new business opportunities; working with rule-making international bodies whose decisions affect international business; forestalling potential conflicts with stakeholders and minimizing political risks; and using multiple international forums and media channels to safeguard corporate image and reputation”(Saner et al. p. 85).

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• Saner & Yiu (2005): “Business diplomacy pertains to the management of interfaces between the global company and its multiple non-business counterparts (such as NGOs, governments, political parties, media and other representatives of civil societies) and external constituencies” (p. 302).

• London (1999): business diplomacy is a method of cooperating with people in an effective way to get things done. Business diplomacy uses tact and understanding to build up relationships and trust:

• “Business diplomacy is most important when there are disagreements, interpersonal conflicts, and a lot at stake” (London, 1999, p. 171).

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• Our observation:

Business diplomacy is considered to be important in today’s international business environment

Lack of empirical research on how business diplomacy is executed by MNCs

No clear definition and operationalization of business diplomacy

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Business diplomacy: positioning and

definition

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Business diplomacy: positioning and definition

Related concepts:

• Corporate diplomacy (Ordeix-Rigo & Duarte, 2009),

• Corporate political activity (CPA) (Hillman et al., 2004; Hansen and Mitchell, 2000),

• Corporate political strategy (CPS) (Baron, 1997; Hillman, 2003; Hillman et al., 1999; Keim & Baysinger, 1988),

• Strategic political management (SPM) (Oliver & Holzinger, 2008),

• MNC global governance (Detomasi, 2007; Muldoon, 2005; Kourula & Laasonen, 2010),

• MNC-Host government relations (Boddewyn & Brewer, 1994; Luo, 2001).

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• Literature review

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Business diplomacy definition:

“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”.

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Business diplomacy: positioning and definition (3)

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Business diplomacy: positioning and definition (4)

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• Short-term focused • Aimed at influencing public policy outcomes in favor of the firm (in the home country, and increasingly in foreign countries) • Lobbying as mechanism (short-term, specific purpose)

• Long-term focused •Aimed at building long-term positive relationships with foreign governments and all other stakeholders of the business (e.g. NGOs) • Creating legitimacy (safeguarding corporate image and reputation) for long-term business opportunities

Corporate political activity (CPA)

Business Diplomacy

Research direction and question

• Business Diplomacy is a relatively under-explored topic

• Existing publications stress the importance of business diplomacy, but limited empirical evidence

• It is not clear how corporations conduct business diplomacy in practice

• Therefore: more empirical, exploratory work is needed.

How is business diplomacy enacted by and embedded in MNCs?

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Business diplomacy operationalization

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Business diplomacy operationalization (1)

Business diplomacy dimensions (6):

• Intensity: the extent to which a company actively establishes and sustains positive relationships with foreign government representatives and non-governmental stakeholders

• Policy clarity: the extent to which a company has a clear and organization –wide policy on how to establish and sustain relationships

• Breadth: the extent to which establishing and sustaining these relationships is done by every company representative

• Responsibility: the extent to which the company’s responsibility for BD lies with the HQ level or at the local foreign subsidiary.

• Means deployment: the extent to which the company deploys a diversity of means for establishing and sustaining positive relationships

• Resource availability: the extent a company uses multiple firm resources

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Method

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Method (1)

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Business Diplomacy in MNCs: An Exploratory Study

Huub Ruel, Tim Wolters, Raymond Loohuis [email protected]

• Exploratory study

• Qualitative (but we did a survey-based explanatory study

as well in parallel)

• Semi-structured interviews with CEO’s, Heads of government relations, public affairs, corporate communications

Method (2)

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Method (3)

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Results

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Business diplomacy as defined by interviewees

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• In none of the eight MNCs the term business diplomacy is actually used

• Yet, all MNCs recognized the concept and its importance

• 7/8 MNCs provided definitions that showed much resemblance with our definition of business diplomacy

• For example, Vopak: The more global you get as a firm, 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.”

Business diplomacy (BD) intensity (1/2)

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• All MNCs understand the importance of business diplomacy

• Vopak, DSM, Randstad, Wolters Kluwer, Philips, Shell, and Finance Services firm conduct BD intensively

• DSM, Shell use home government and embassy network in its BD

Business diplomacy (BD) intensity (2/2)

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DSM:

Shell:

Business diplomacy policy clarity (1/2)

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• None of the eight MNCs applies a clear and organization-wide business diplomacy policy

• The execution of business diplomacy depends on the country and its institutional setting

• 5/8 MNCs (Randstad, Vopak, Philips, DSM and Royal Dutch Shell) have general business diplomacy guidelines

• In 3/8 MNCs (Wolters Kluwer, Financial Services Industries and KPN), business diplomacy is carried by the business values and business principles

Business diplomacy policy clarity (2/2)

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Vopak:

Business diplomacy breadth (1/2)

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• In none of the MNCs all employees are involved in business diplomacy

• Business diplomacy is generally perceived as a higher management activity

• Yet, all employees need to consider themselves as representatives of the organization when they are in contact with external stakeholders of the business

• For that purpose, all MNCs have set general business codes of conduct

Business diplomacy breadth (2/2)

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Vopak:

Business diplomacy responsibility (1/3)

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• Vopak, Shell, Randstad, Philips and DSM set guidelines for BD at the HQ.

• But the business diplomacy responsibility is largely decentralized to the foreign subsidiaries

• Why? - Business diplomacy should be adapted to the institutional context - Local subsidiary employees have the best insight in the institutional context in which they operate, and should therefore have the freedom to adapt business diplomacy to the specific characteristics of their local business environment

• The business diplomacy guidelines and codes of conduct need to be adhered at all times


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• Vopak:

• Wolters Kluwer:


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• Vopak:

• Royal Dutch Shell:

Business diplomacy means deployment (1/2)

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• All MNCs deploy a wide variety of business diplomacy means

• Examples: - direct stakeholder dialogues - events - forums/meetings - social projects and partnerships


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Royal Dutch Shell:

Wolters Kluwer:


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Vopak:

Business diplomacy resource availability (1/3)

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• In all MNCs time and financial resources are available for business diplomacy

• The CEO is often intensively involved in business diplomacy

• In none of the MNCs specific business diplomacy training programs are available , but general stakeholder management training was done in 7 out of the 8 MNCs involved


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Wolters Kluwer:

Randstad:


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Vopak:

Financial Services Firm:

Discussion & Conclusion

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Discussion and conclusion (1)

Key findings:

- Seven MNCs conduct business diplomacy intensively;

- None of the MNCs applied a clear and organization wide business diplomacy policy

- General guidelines existed in five MNCs

- The responsibility for business diplomacy was largely decentralized to subsidiaries

- All MNCs used a wide range of business diplomacy means

- Findings suggest that industry specific factors affect business diplomacy intensity

- MNCs operating in weak institutional environments recognize the importance of business diplomacy more

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Discussion and conclusion (2)

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Future research:

• Business diplomacy and different types of international firms

• Business diplomacy in different institutional contexts

• Business diplomacy language, longitudinal single case studies

• Different types of BD: international BD, national BD, interfirm BD, and intrafirm BD

• Explanatory studies: role of firm size, age, type of industry etc.

• Relationship BD and firm performance, emerging market success

Thank you! Questions

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business diplomacy in multinational corporations

Business

business diplomacy project

concept of business

roots o business diplomacy

new business opportunities

international ngos

international bodies

international research

clear definition