Opinion: Why businesses need diplomacy

Thursday 22 June 2017
Diplomacy skills are becoming increasingly important as globalisation changes the international business landscape, says PhD candidate Fahad Alammar.
Opinion: Why businesses need diplomacy - image1
Last updated: Monday 28 March 2022

Global businesses need to be prepared to build relationships with multiple business and non-business stakeholders – not to sell goods and services, but to seek common ground and to identify alliances and opportunities.

By Fahad Alammar

Globalisation has changed the international business landscape; businesses now operate in different countries, deal with multiple jurisdictions, engage in negotiation and the development of trade standards and treaties and face increasing geopolitical risks and pressure.

This is coupled with decreasing government support for firms operating internationally; many embassies around the world, for example, do not offer their businesses the support they need. Firms are more likely to face cultural clashes, conflicts and disputes in host countries where there is reduced government support to solve these issues.

Accelerated by the internet, there is also mounting criticism from the public and the increasing power of stakeholders, which businesses are seldom prepared to handle. For example, while a crisis may spread across international media within an hour, it takes companies, on average, 21 hours to respond, making them vulnerable to rumours and speculation. Businesses now need to be able to deal with the pressure of multiple stakeholders and special interest groups.

This requires the building of relationships with multiple business and non-business stakeholders – not to sell goods and services, but to seek common ground and to identify alliances and opportunities.

Opinion: Why businesses need diplomacy - image2

Massey Business School PhD student Fahad Alammar

Diplomacy overcomes barriers

To survive in this complex and rapidly changing business environment, businesses need to develop competencies in what is termed business diplomacy – the adoption of the mindset and skills of diplomacy for businesses. In particular, business diplomacy is the ability to establish and maintain positive relationships with multiple stakeholders, locally and globally, to shape and influence the environment and ultimately create a favourable condition for the business and seize new opportunities.

It consists of many essential elements such as developing cultural and historical awareness and knowledge, positive communication and engagement, considering other perspectives and ethics, and the ability to identify possible alliances and trends.

Many New Zealand companies that wish to form partnerships or expand into emerging markets overseas are now encountering barriers. These include a lack of home and foreign government support, an inability to gain access to the market, language and cultural barriers and a lack of knowledge in management and international practice.

Business diplomacy can offer a way to overcome these barriers. Businesses equipped with diplomatic competencies and knowledge should be able to develop and discuss plans with companies, governments, and multiple stakeholders, look for commonality of interests, understand different laws and practices of various governments, and be familiar with the management style of various countries.

Fonterra’s active reaction to the milk powder scandal in China in 2008 is an example of business diplomacy in practice that helped the company maintain its external and internal legitimacy and reputation. Fonterra quickly distanced itself from Sanlu (its partner in China), made a one-off US$5 million donation to a charitable foundation in China and, most significantly, got the New Zealand’s government involved, which helped elevated the issue to a bilateral trade issue. In this case Fonterra demonstrated  competency in business diplomacy by engaging with non-business stakeholders, aligning its interest with its home government, and distancing itself from potential risk to its reputational capital.

Diplomacy is not the same as lobbying

As a part of my current PhD in exploring business diplomacy, I have conducted interviews with chief executives, diplomats and business executives from different nationalities and backgrounds. All participants recognise the value of business diplomacy and believe that it should be practiced and exercised by businesses, whether small or large, around the world. In particular, participants believe that there are a set of specific diplomatic knowledge and skills that businesses need to adopt in order to succeed in today’s global environment.

It is important, though, not to confuse business diplomacy with the political activity of corporations that is mostly concerned with power, lobbying, or influencing politicians and policymakers. Business diplomacy is focused on creating long-term positive relationships with both business and non-business stakeholders through communication and engagement.

It can enhance businesses’ reputation and legitimacy, identify new opportunities, mitigate potential risks and create new allies from around the world. For New Zealand businesses it should be part of being ready and prepared to handle today’s increasingly complex operating environment.

Fahad Alammar is a PhD candidate at Massey’s School of Management. His current PhD thesis is focused on empirically investigating the concept of business among diplomats and business people.