Author: Muharem Rusiti
In a time characterized by intricate global connections and multifaceted challenges, corporations are compelled to extend their role and influence beyond conventional business operations in order to succeed. Today, companies face a complex tapestry of political, economic, social, and cultural dynamics that transcend national borders. In this context, corporate diplomacy has emerged as a new strategic tool for businesses to effectively manage their international engagements, forge fruitful relationships with diverse stakeholders, and foster sustainable growth. This article explores the concept of corporate diplomacy and highlights its different dynamics and benefits.
Defining and Understanding Corporate Diplomacy
Corporate diplomacy embodies the art of employing diplomatic strategies and approaches in the realm of international business to build and manage relationships with a range of diverse external stakeholders, including governments, supranational organizations, regulators, civil society and local communities, NGOs, non-profits, trade unions, the media, and other corporations and key influencers. The goal is to promote positive and mutually beneficial bonds, creating favorable business environments that facilitate the achievement and safeguarding of corporate objectives and interests while considering the concerns and perspectives of the parties involved, both at the local and international level.
As Béatrice Collin, a renowned Professor of International Strategy and Management, defines it: “Corporate diplomacy consists in developing the company’s political, relational and social capacity so that it can interact positively and build with all the stakeholders in the countries or regions in which it is active; the goal is to ensure long-term sustainability and economic performance. Conceptually, this form of diplomacy is an emerging domain that crosses two fields that seem a priori distinct: international relations, geopolitics, social and societal analysis with the strategic vision of the company and its management.” [1]
Moreover, as Jean-Luc Meier, Professor of Finance at the Wharton School at the University of Pennsylvania, states: “Corporate diplomacy is the ability to develop business interests through the creation of strategically important alliances with key external stakeholders (governments, analysts, media, NGOs, interest groups and stakeholders) thereby enabling effective implementation and accomplishment of the company’s objectives.” [2]
While Juan Luis Manfredi, International Relations Professor at Georgetown University, describes it as: “Corporate diplomacy is a young professional activity that integrates the ability to influence with the management of reputation, and good reputation is the path to influence. In addition to reputation and influence, corporate diplomacy is also aimed at highlighting the legitimacy of the existence and activity of business, which is derived from the exercise of social responsibility.” [3]
The new emerging field of diplomacy and corporate function should usually be practiced by the senior-level management of companies, as suggested by Witold Henisz, Professor of Management at Wharton School: “Corporate diplomacy is the senior-level capability to build and maintain relationships with external stakeholders and deliver on the greatest needs or the greatest objectives of those stakeholders in a way that delivers shareholder value.” [4]
A concept this, reiterated by Michael D. Watkins, a renowned Professor of Leadership and Organizational Change: “The role senior executives play in advancing the corporate interest by negotiating and creating alliances with key external players including governments, analysts, the media and non-governmental organizations (NGOs).” [5]
While, to some extent, this novel field of practice may be perceived as being akin to the more traditional governmental and public affairs operations of a corporation, corporate diplomacy should be considered as a more innovative and all-encompassing practice. It takes a 360-degree approach, foreseeing a greater involvement of diverse stakeholders, more direct participation of senior-level managers in conducting these activities, and a thorough deployment of diplomatic techniques in conducting these affairs, as stated by the previously mentioned Professor Witold Henisz: “We have a government affairs team. We have a community affairs team. We have a sustainability team. We are really thinking from a strategic perspective about how to integrate those. And who is more responsible for integration than senior management, whether it be the country manager or the general manager or the C-suite, if we’re in a multinational corporation?” [6]
Main Benefits of Corporate Diplomacy
So, what are the concrete benefits brought by corporate diplomacy, and why should companies and senior executives consider incorporating it into their overall business strategy and managerial activities?
1. More Fruitful Stakeholder Relations
Nowadays, corporations must adeptly manage relationships with a myriad of diverse stakeholders, and corporate diplomacy provides an effective framework for precisely this purpose. By engaging in constructive dialogue and consultation, companies can more effectively address concerns, foster consensus, and forge mutually beneficial partnerships more easily and swiftly. Consequently, this inclusive approach fosters sustainable development, mitigates conflicts, and ensures the enduring support and cooperation of key actors.
2. Mitigation of Political Risks
Corporate diplomacy enables businesses not only to play a more active role in the so-called global governance system but also to engage with local governments and policymakers proactively, promoting dialogue, building relationships, and networks based on trust and mutual understanding. By doing so, companies can gain early warning of potential issues and take the necessary steps to secure fairer and more favorable treatments, anticipate and mitigate potential risks such as regulatory changes, trade barriers, and geopolitical tensions, thereby protecting their investments and enhancing their long-term viability.
3. Facilitation of Market Access and Expansion
Corporate diplomacy can be instrumental in opening doors to new markets and facilitating business expansion. A diplomatic approach and engagement when conducting corporate affairs, allows companies to gain insights into local cultures, customs, and business practices, which are vital for successful market entry. Furthermore, by establishing strong relationships with local stakeholders, companies can more easily navigate complex regulatory frameworks, solicit the adoption of favorable trade agreements, access crucial networks and resources, and create a solid foundation for sustained growth and market success.
4. Enhancement of Reputation and Brand Value
A positive business reputation is essential for competitiveness and sustainable and long-term growth. Through corporate diplomacy, companies can engage in responsible business practices, demonstrate commitment to corporate social responsibility, and match their values with those of local communities and societies. By addressing societal concerns, corporations can enhance their reputation, build trust, and develop a favorable brand image, ultimately gaining a competitive edge in the global market.
5. Promotion of Economic and Public Diplomacy
Economic diplomacy entails leveraging economic tools and strategies to accomplish foreign policy objectives, and corporate diplomacy can play a pivotal role in bolstering and complementing government-led economic diplomacy initiatives. By aligning their business schemes with national strategies and priorities, corporations can become key players in fostering economic growth and cooperation between countries. Additionally, by leveraging their corporate diplomacy capabilities and enhancing their international activities, companies can further expand their role in serving as public diplomacy actors representing their respective states of origin, as it is a known fact that corporations can affect the overall image and soft power of the nation with which they are associated.
Conclusion
Corporate diplomacy has emerged as a strategic imperative for companies operating in today’s global marketplace if they wish to achieve their goals and ultimately succeed. By integrating diplomatic principles and practices into their business strategies, corporations can more effectively manage the complexities of international affairs, mitigate risks, and seize opportunities.
The overall benefits of corporate diplomacy extend beyond mere short-term financial gains, encompassing better stakeholder engagement, enhanced reputation, and long-term sustainability. As businesses continue to navigate an interconnected, dynamic, and continuously evolving world, the importance of corporate diplomacy in promoting responsible and successful international engagements cannot be overstated.
Companies need thus not only to integrate corporate diplomacy in their business and management strategy but also provide their leaders with the necessary diplomatic training and skills needed to perform these tasks at their best.
[1] EPEE. 2019. What is Corporate Diplomacy? Experts Partenaires pour l’Entreprise à l’Étranger. https://www.epee.fr/concept-2/what-is-corporate-diplomacy/?lang=en [2] EPEE. 2019. What is Corporate Diplomacy? Experts Partenaires pour l’Entreprise à l’Étranger. https://www.epee.fr/concept-2/what-is-corporate-diplomacy/?lang=en [3] Blasco, Emili. 2022. Corporate Diplomacy, the Foreign Policy of the Business. Global Affairs and Strategic Studies, University of Navarra. https://en.unav.edu/web/global-affairs/diplomacia-corporativa-la-politica-exterior-de-la-empresa [4] Henisz, Witold. 2014. Corporate Diplomacy: Why Firms Need to Build Ties With External Stakeholders. Knowledge at Wharton. https://knowledge.wharton.upenn.edu/article/building-relationships-external-stakeholders-2/ [5] Watkins, Michael. 2007. The Rise of Corporate Diplomacy (Finally!). Harvard Business Review. https://hbr.org/2007/05/the-rise-of-corporate-diplomac [6] Henisz, Witold. 2014. Corporate Diplomacy: Why Firms Need to Build Ties With External Stakeholders. Knowledge at Wharton. https://knowledge.wharton.upenn.edu/article/building-relationships-external-stakeholders-2/