International Business and Trade Marketing Assignment

International Business and Trade: Business Diplomacy
Name
Institutional Affiliation
International Business and Trade: Business Diplomacy
Introduction
The approach to the management of multinational corporations (MNCs) has changed significantly due to the current globalization of markets. In the backdrop of increasing foreign direct investments (FDIs), MNCs experience a variety of local requirements and pressures as they continue expanding to foreign countries. Additionally, MNCs are subject to a number of multilateral agreements and national laws, which are negotiated through various international bodies, including the World Trade Organization (WTO) and the International Labor Organization (ILO) (Christian, 2014). The survival of MNCs is largely dependent on their ability to manage their multifaceted relationships with both non-governmental organizations (NGOs) and governments. Particularly, foreign governments play a key role in affording MNCs with the requisite opportunities for their survival. As a consequence, MNCs with access to such opportunities have a competitive edge over their rivals in the industry. Thus, MNCs need legitimacy or ‘license to operate’ in the foreign markets. According to Brink (2011, p. 217), legitimacy refers to the generalized assumption or the perception that a particular entity’s actions are appropriate, proper, and desirable in a given socially constructed systems of definitions, beliefs, values, and norms. A firm that adheres to the legitimacy constructs will gain social acceptance in a particular social context. In the same sense, business diplomacy is critically important in today’s complex and increasingly globalized business environment (Saner et al., 2000, as cited in Wolters, 2012, p. 1). It is important for business diplomats to negotiate with their respective local authorities while being sensitive to both the demands and wishes of international and local NGOs responsible for monitoring the global firms’ business conduct. They should put into consideration the employment practices, environmental standards, and working conditions in order to avoid the potential conflicts that could destroy their reputation of their respective MNCs. In other words, building diplomatic competency is of great importance to global companies. Business diplomats can enhance the legitimacy and power of their companies through active involvement in business diplomatic activities. This research paper seeks to define the concept of business diplomacy while evaluating the factors that compel global companies to participate in diplomatic activity.
The Concept of Business Diplomacy
Business diplomacy is integral to the international business management field, although the concept is largely in its infancy. It entails creating as well as sustaining positive interactions between a company’s executive management or its representatives with non-governmental stakeholders and government representatives in the foreign countries (Christian, 2014). Business diplomacy is mainly aimed at building and sustaining the legitimacy of a given global firm. In other words, it is aimed at safeguarding the firm’s reputation and corporate image within the context of a foreign business environment. Wolters (2012, p. 2) argues that business diplomacy entails influencing both social and economic actors to seize and establish new opportunities for the business; reducing political risks and preventing possible conflicting situations with international stakeholders; and working with the relevant international bodies that regulate international business. Additionally, business diplomacy also entails the use of various international media channels and forums to enhance the global firm’s corporate reputation and image.
According to Saner and Yiu (2005, as cited in Wolters, 2012, p. 2), business diplomacy is characterized by the management of the interactions between a given global firm and its respective non-business counterparts, including the media, political parties, governments, NGOs, as well as other civil societies’ representatives. It is a technique of creating positive relations with international actors in order to ensure the consistency of the firm’s business conduct with requirements in the socially constructed foreign business environment. It employs common understanding and tact in building trust and relationship. Particularly, business diplomacy comes in handy when interpersonal conflicts and disagreements arise.
Business diplomacy takes various dimensions. According to Saner and Yiu (2000, p. 85), there is a need for the global diplomacy managers to have competency of the firm, community, national, and international levels.The firm level competency will help them to in defining effective business policies and strategies in accordance with the stakeholders’ wishes and expectations. It will also assist them to gather and assess relevant data originating from international communities and host countries. Additionally, firm level competency will also help such managers to conduct public relations campaigns and conduct both multilateral and bilateral negotiations. At the international level, business diplomats are not only required to lobby effectively, but also comply with the local practices and customs’ protocol (Saner & Yiu, 200, p. 85). They need to manage multiple interfaces and create local relationships and connections. Their active participation in international forums is also important in influencing the public opinion and agenda. Moreover, business diplomats are also charged with the responsibility of scanning international business environments in order to identify the possible conflicting situations with the key stakeholder prior to the implementation of any project.
The concept of business diplomacy is used interchangeably with various other concepts, including strategic political management (SPM), corporate political strategy (CPS), and corporate political activity (CPA). However, there are some distinct differences between business diplomacy and other terms. SPM, CPS, and CPA focus on influencing both the foreign and home country’s public policy makers in favor of a global company. On the other hand, business diplomacy focuses on establishing positive long-term relations with non-economic and economic non-governmental stakeholders and foreign governments in an attempt to develop legitimacy within a given foreign business setting (Christian, 2014). Lobbying is an integral part of the CPA and it is construed as a mechanism used for influencing policy outcomes. It is noteworthy that corporate political activities including contributions to political causes in foreign countries are inconsistent with business diplomacy (Christian, 2014).
The similarity between corporate political activity and business diplomacy stems from the fact that both concepts focus on influencing various actors in the global firm’s external business environment. With regard to multinational corporations, both global governance and government relations are integral to business diplomacy. Business diplomats need to negotiate and commit themselves to various key stakeholders in the foreign countries on environmental and social issues. NMCs utilize business diplomacy as a tool for bridging the gap between the socio-political elements in foreign business environments and the firm’s core business activities. As companies become more and more global, they need to strengthen their relationships with both non-governmental and governmental actors in the foreign business settings. It is noteworthy that there is a lack of a universal approach to business diplomacy because it depends on the firm’s country of operation as well as its institutional situation. Additionally, regional issues also come into play when it comes to establishing and maintaining positive relations with foreign actors. Figure 1 below depicts the interrelationship between business diplomacy and other concepts.
Figure 1: Interrelationshipbetween diplomacy and other concepts. Source: Ruel and Loohuis (2012)
The concept of business diplomacy should not be confused with the concept of commercial diplomacy. While business diplomacy focuses on building relationships with non-business stakeholders and governments and reducing risks and uncertainties in foreign markets, commercial diplomacy focuses on structural cohesion and the continuation (Saner &Yiu, 2005, as cited in Ruel, n.d). Some of the factors that intervene with the concept of business diplomacy include corporate social responsibility and corporate citizenship. Though there are some similarities between corporate diplomacy and business diplomacy, the two concepts are quite different. To businesses, retaining their definitions as above, corporate diplomacy refers to the process involved in creating the legitimacy and power of a particular corporation (Ordeix-Rigo &Duarte, 2009, as cited in Ruel, n.d). With the definition of corporate diplomacy in mind, a corporation is perceived to be a member of multiple stakeholders’ network. As such, both the indirect and direct influence of the corporation depends on its status within such networks. In contrast, business diplomacy is concerned with the international business’s legitimacy rather than on its power. Moreover, business diplomacy focuses on relationships between the corporation and foreign non-governments and governments rather than between the corporation and its respective national government.
The responsibility of creating and maintaining such relationships is entrusted to the foreign subsidiaries.It other words, the executives at the firm’s foreign subsidiaries need to engage in diplomatic activity rather than relying on the parent company’s executives. The subsidiaries’ business diplomats are charged with the responsibility of adapting their diplomatic activities to the foreign country’s institutional situation. The foreign subsidiaries&rsquo...