Business diplomacy in multinational corporations: An exploratory qualitative study

This exploratory qualitative study examines how multinational corporations (MNCs) conduct business diplomacy in practice. Based on our extensive literature review, we developed the following working definition of business diplomacy: “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”. Several researchers have emphasized the importance of business diplomacy in nowadays complex business environment. In order to survive, MNCs need the ability to manage complex interactions with governments and at the same time they should be sensitive to the wishes and demands of the increasing number of local and international NGOs. Although the relevance of business diplomacy is evident, it is not clear how MNCs actually conduct business diplomacy. This research contributes to scientific literature by reducing this knowledge gap. The following central research question was formulated: “How is business diplomacy enacted by and embedded in the organization of MNCs? ” By the in-depth measuring of six dimensions of business diplomacy (intensity, policy clarity, broadness, responsibility, means deployment and resource availability), a complete picture of how business diplomacy is enacted by and embedded in the organization of MNCs could be created. By using single semi-structured interviews in eight Dutch MNCs, the six business diplomacy dimensions were measured. Our research findings suggest that in seven out of eight MNCs, business diplomacy is executed intensively. Three of those MNCs lean for a certain part on the home government in establishing and sustaining positive relationships with foreign government representatives. None of the eight MNCs applies a clear and organizational wide business diplomacy policy. Instead, general business diplomacy guidelines exist in five MNCs. In the other three MNCs, business diplomacy is carried by the business values and principles. The research findings also suggest that in none of the eight MNCs, all employees are involved in establishing and sustaining positive relationships with foreign government representatives and non-governmental stakeholders. Yet, all MNC respondents indicated that all employees need to consider themselves as representatives of the organization when they are in contact with external stakeholders. In all eight MNCs the responsibility for business diplomacy is largely decentralized to the foreign subsidiaries. Although the foreign subsidiaries have freedom in adapting business diplomacy to the specific institutional characteristics of their local business market, the general business diplomacy guidelines and business codes of conduct need to be adhered. All eight MNCs deploy a wide range of business diplomacy means: direct stakeholder dialogues, events, forums, meetings, industry associations, social projects and social partnerships. The research findings furthermore suggest that in all eight MNCs time and financial resources are available for business diplomacy. Although in none of the MNCs specific business diplomacy training programs exist, general training programs are available that teach employees how to deal with the external stakeholders of the business. The research findings of this study suggest that industry specific factors determine the degree of business diplomacy intensity in MNCs. It has been found that Philips, Wolters Kluwer and Randstad execute business diplomacy intensively since these MNCs operate in industries in which the business is strongly influenced by governmental policies (rules and regulations). It was also found that Royal Dutch Shell and Financial Services Industries conduct business diplomacy intensively since these MNCs are active in sensitive industries in which the business operations directly affect populations. The research findings of this study also suggest that the institutional setting of a country affects the intensity, policy clarity and responsibility of business diplomacy. It seems that companies operating in countries in which the institutional development is weak, will recognize the importance of business diplomacy better and hence execute it more intensively. All MNC respondents indicated that a universal business diplomacy policy will not suffice since the execution of business diplomacy depends on the country concerned and its institutional situation. The respondents agreed that business diplomacy should be adapted to the institutional setting of the respective country. The respondents emphatically indicated that precisely for that reason, the responsibility for business diplomacy is largely decentralized to the foreign subsidiaries. Furthermore, the findings of this research are compared with the study results of a colleague student (Betlem, 2012) who conducted research into the determinants of business diplomacy. The studies show significant similarities in the research findings relating to the intensity, broadness, means deployment, responsibility and resource availability of business diplomacy.