While business diplomacy shares some commonalities and boundaries with other related functions such as public relations and public affairs, it did emerge as a distinct field. The literature on business diplomacy discusses the rationale for its recent emergence due to several factors, including: globalisation, declining governmental support, mounting criticism from civil society, and the increasing power of stakeholders.
Globalisation is considered by far the biggest factor contributing to the rise of business diplomacy (Kesteleyn et al., 2014a; Saner & Yiu, 2014; Small, 2014). The changing landscape for businesses, where they must operate in different countries, deal with multiple jurisdictions and stakeholders, and face increasing geopolitical risks and pressure, means that businesses have no choice but to turn to diplomacy to help deal with and resolve these issues (Small, 2014). In addition, the global business environment of interacting with different states and non-state actors requires an organisation to know how to negotiate with different NGOs, governments, and international institutions on a growing host of environmental and social issues (Muldoon, 2005).
Businesses have increasingly committed themselves to signing new agreements and guidelines of good conduct and social initiatives. Businesses are involved with the development of new standards from the United Nations (UN Global Compact), Organisation for Economic Cooperation and Development (OECD), and Kimberly Process (Saner & Yiu, 2014). The UN Global Compact, for example, is an initiative to encourage businesses worldwide to address environment, social, and governance issues. Accordingly, businesses need a new set of competences that are not normally provided by the traditional business functions to negotiate and influence these agreements to ensure their objectives’ inclusion (Saner & Yiu, 2014).
There is also an increasing criticism from civil society and an increasing power for stakeholders, which businesses are seldom prepared to handle (Kesteleyn et al., 2014a). Civil society actors are being transformed by experience, technology, and education. They have become more vocal and critical of how business is being
conducted and their voices can have great influence on the business’s reputation (Ruël & Wolters, 2016). The business response to demands and challenges from these actors is no longer feasible with traditional defensive functions such as public relations (Haynal, 2014). For example, while a crisis may spread across international and social media within an hour, it takes companies, on average, 21 hours to respond, making them vulnerable to rumours and speculation (Kesteleyn et al., 2014a). Businesses need new proactive tools to cope and deal with the pressure of multiple stakeholders and special interest groups. This requires companies to establish relationships with multiple stakeholders – not to sell goods and services, but to seek common ground, identify alliances and opportunities, and anticipate and mitigate potential risks (Saner & Yiu, 2014).
The notion of firms acquiring a diplomatic mind-set, where they assume the roles and tasks of government diplomats, is not offered by previous concepts such as public relations and public affairs (Kesteleyn et al., 2014a). Decreasing governmental support for businesses means that they have to manage a wide range of issues that used to be managed by governments; many embassies around the world, for example, do not offer their businesses the support they need (Kesteleyn et al., 2014a). The rise of business diplomacy is fuelled by businesses increasingly realising that they have assumed an active role in influencing and managing multiple stakeholders, including governments and society (Watkins, 2007). According to the president and CEO of the world’s largest public relations firm, Richard Edelman:
If you think about it, private-sector diplomacy bespeaks a different kind of role for business in society … a kind of diplomatic role in speaking to multiple kinds of stakeholders. This is an ongoing conversation … we also have to be much more transparent about how we’re doing and what we’re doing. We are running for office, in a certain way (Kirkland, 2009, para. 6).
All these transformations gave rise to business diplomacy within the field of management and international business. Figure 1 summarises these factors.
Figure 1: Factors Contributing to the Emergence of Business Diplomacy (Alammar & Pauleen, 2016b, p. 15)
2.4 Chapter Summary
This chapter has provided a literature review of diplomacy and business diplomacy. In the first section, a review and the background of diplomacy and its key historical developments were presented. In the second section, an initial literature review of business diplomacy was presented in relation to its definitions and development. Business diplomacy was also discussed from an analytical perspective and was distinguished from other key related terms in the literature. Two case studies from the literature were presented to demonstrate the applicability of business diplomacy in practice. The rationale for the recent emergence of business diplomacy was also presented and explained. This initial literature review was once again revisited and updated when data analysis and interpretation were complete. This was done to account for new emerging literature and to determine the relevance of the literature as suggested by grounded theory.
Business diplomacy has been defined as the firm establishing and sustaining relationships with different stakeholders in order to create legitimacy and a social licence to operate. This is different from other related terms that are concerned with power, lobbying, and a one-way flow of communication. Furthermore, the literature on business diplomacy shows that both academics and practitioners do recognise the value and the relevance of business diplomacy in today’s complex business
environment. The literature also shows that some companies in different countries do recognise and practice business diplomacy.
However, these studies still lack empirical conceptualisation and a model of what business diplomacy is in practice and what constitutes its basic elements. Another crucial issue is the paucity of empirical studies on the concept of business diplomacy as perceived by professional diplomats. Therefore, this study attempts to bridge this gap in the body of knowledge by answering the following question:
How do professional diplomats, in businesses and governments, understand business diplomacy? And what are the key elements associated with business diplomacy in practice?
Despite the lack of literature and empirical studies, the field of business diplomacy is growing, and more researchers, organisations, and journals are recognising its value. Logically, we can expect that this recognition will lead to further development in the field of business diplomacy among practitioners and academics.
In the next chapter, and as the first chapter of ‘Part 2’, the research methodology and grounded theory are discussed.