Huub Ruël – Professor of International BusinessHjm.ruel@windesheim.nl

SHAPING THE COMMERCIAL DIPLOMACY OF THE FUTURE: redefining policies, actors and practices

Content

• Seven observations on today’s global economic environment

• Definitions

• Rising importance of economic and commercial diplomacy (scholars and governments)

• The future of commercial diplomacy: results of a Delphi-study

• Shaping commercial diplomacy of the future: 10 guidelines

© H.J.M. Ruël 2013

SEVEN OBSERVATIONS

Seven observations

1. Global economic power balance is shifting to ‘the East’

2. ‘State capitalism’ seems attractive to many emerging economies

3. Emerging economy governments claim their places in multilateral organisations

4. Emerging economy multinationals are of growing importance in the global economy

© H.J.M. Ruël 2013

Seven observations

5. New diplomatic actors such as multinational corporations (MNCs), multilateral organizations, NGO’s appeared on the ‘world stage’

6. Big challenges of the 21st century need business-government collaboration

7. Information technology challenges governments and traditional channels of diplomacy

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Consequences

Economy and International Relations are becoming more intertwined

Diplomacy and international

business need to rebalance:

From economic diplomacy to

commercial and business

diplomacy.

© H.J.M. Ruël 2013

DEFINITIONS

Diplomacy is:

The dialogue via representation and communication, without the use or reference to power, between parties (nation states, business, NGO’s, supra-national organizations, multilateral organizations, interest groups) that acknowledge each other’s existence and accept each others’ sovereignty and control over a territory (either in a physical sense or in non-material sense such as a knowledge domain, an interest domain or market) in order to achieve common objectives in a peaceful and sustainable way (Ruël, 2013)

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Economic and Commercial Diplomacy:

Economic diplomacy is:

‘‘The political means as leverage in international negotiations with the aim of enhancing national economic prosperity, and the use of economic leverage to increase the political stability of the nation’’ (Okano-Heijmans,

2010).

For example: the US-EU trade agreement negotiations

Commercial diplomacy is:

The work of a network of public and private actors who manage commercial relations and business support using diplomatic channels and processes, satisfying both public and private needs (Lee & Ruël, 2012)

For example: Chinese businesses in Africa

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Economic vs. Commercial Diplomacy:

Economic diplomacy and Commercial diplomacy often considered to be

same.

Economic diplomacy concerned with general economic policy issues and

trade agreements (Yiu & Saner, 2003).

Commercial diplomacy is much more specific, even though both have an

overarching economic objective (Potter, 2004).

The core of commercial diplomacy focuses on business support

(Berridge & James, 2001; Kostecki & Naray, 2007; Mercier, 2007; Naray, 2008; Okano-

Heijmans, 2010; Potter, 2004; Yiu & Saner, 2003).

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Commercial Diplomacy:

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Rising importance of economic and commercial diplomacy: scholarly sources (1)

• Diplomatic missions have been observed to undertake more and more specialised functions to assist business (Rose, 2006 and Rana, 2001).

• Partner search, investment promotion and technology transfer are commonly stated as primary tasks for diplomatic staff now (Kostecki, 2005).

• Developments in information technology (IT) take a number of responsibilities from the designation of diplomatic staff abroad and embed them in organisations in the home country (Kostecki & Naray, 2007).

• Commercial diplomats focus their activities on the promotion of services, science and technology and investment attraction to increase efficiency (Kostecki & Naray, 2007).

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Rising importance of economic and commercial diplomacy: government sources (2) • “We are [...] elevating economic diplomacy as an essential strand of our

foreign policy by expanding State’s role on geo-economic issues. This includes appointing a Chief Economist, who will create a new early-warning mechanism - coordinated with other similar systems throughout the U.S. government - to identify issues at the intersection of economics, security, and politics.” (Quadrennial Diplomacy and Development

Review, US Department of State, 2012)

• Diplomatic engagement in trade and commercial issues intensified in ‘key’ global forums like the Asia-Pacific Economic Cooperation Forum (APEC) (US Department of State, 2012)

• In the UK, Prime Minister David Cameron ‘putting commercial diplomacy first’;

• The Chinese government focuses strongly on using diplomacy to achieve commercial goals (Pei, 2011).

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TH E FUTURE OF COMMERCIAL DIPLOMACY

The future of commercial diplomacy

• A Delphi-study

• Thirteen experts (commercial diplomats based in Canada) from ten countries:

Argentina Germany United Kingdom

Australia Italy United States

Canada Mexico The Netherlands

France

• 1st round: individual interviews with open questions

• 2nd round: questionnaire to same experts asking them to rank answers given

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Five questions:

1. How will the field of commercial diplomacy develop in the coming 10

years (in your personal view)?

2. Which developments in commercial diplomacy will arise for the actors that are being employed to deliver it?

3. Which developments in commercial diplomacy will arise for the

activities that are done to deliver it?

4. Which developments in economic diplomacy policy will arise in the

spending/budgeting that is done for delivering commercial diplomacy?

5. What influence will the current global debt crisis have on commercial diplomacy?

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Q1. Commercial diplomacy developments in general most likely to occur in the coming 10 years (top 5 only) 1. Commercial diplomacy will have a more central role in diplomatic

policy and practice.

2. Asia as an interesting region for countries is becoming more important than before. This newer focus brings new challenges as well, i.e. for culture and language.

3. Government departments will cooperate more with each other in order to enhance the effectiveness of commercial diplomacy

4. The influence of emerging/developing countries, especially the BRICS, on the world economy will grow even larger and larger.

5. A trend that will gain more attention is that it is not only companies that invest, states are getting involved in business through large wealth funds. Of course this could mean that political interests are also involved, not just commercial.

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Q2. Developments as a result of the global debt crisis most likely to occur in the coming 10 years? (top 5 only) 1. The foreign services will move towards using more locally engaged staff

instead of diplomats as a cost-saving measure.

2. The crisis will push diplomatic missions towards an increasing focus on commercial activities, the degree depending on the severity of the crisis. Commercial diplomacy will therefore become a more important part of diplomacy.

3. The regional priorities that countries have will shift to other regions: currently, developed regions like Europe and North America are priorities for many countries, but they will not be growing as fast as other (emerging) regions (i.e. China, India in the foreseeable future, South-East Asia, South America).

4. Diversification of trading partners remains essential, as well as ‘buying from those that buy from us’.

5. More influence by governments could develop, governments will try to protect their economies. The prospects of a long recession may enhance protectionism of domestic markets everywhere.

© H.J.M. Ruël 2013

Q3. Developments concerning commercial diplomatic actors most likely to occur in the coming 10 years? (top 5 only) 1. Austerity measures are happening everywhere. A drive for more

efficiency, faster, more professionally and efficiently working actors will become very important.

2. Because companies will be charged for services, services are also expected to have higher standards.

3. The interest of foreign ministers in commercial diplomacy will increase, and more generally speaking, of all higher-up diplomats such as ambassadors, because of a perceived greater importance of commercial diplomacy.

4. Instead of having different clusters in embassies, the departments will be more integrated, commercial diplomacy will be a more embassy-wide activity.

5. The actors will need to work together more than ever to leverage each other to the best of their ability. Cooperation between ministries will therefore be sought more than before.

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Q4. Developments concerning commercial

diplomacy activities most likely to occur in the

coming 10 years? (top 5 only)

1. Trade missions to countries where governments have a strong

influence will be headed by prominent political figures (PM, Minister) more often, because of the perceived importance/priority given by the host country.

2. Some activities in diplomatic missions will be judged more in terms of their potential commercial benefit.

3. The same amount or more activities will have to be done with fewer staff because of lower budgets.

4. The question will rise more and more of how commercial diplomacy adds value, and its activities will have to prove again and again how the information that is offered is more valuable than what you can find through other sources.

5. Trade promotion will remain an important factor and basis of activities in commercial diplomacy.

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Q5. Developments concerning the

spending/budgeting for commercial diplomacy

most likely to occur in the coming 10 years? (top

5 only)

1. Smaller budgets will be a driver for innovation, efficiency and

improved productivity, and the budgets will be reallocated.

2. Creating employment in the home country will become the main goal of commercial diplomacy activities, and attracting investments and trade promotion activities will therefore become more important.

3. The budgetary constraints might lead to a stricter selection of businesses being assisted by commercial diplomats.

4. More and more of the work being done will be project-based, in order to keep better track of efficiency.

5. Commercial diplomacy has proven it is worth the effort and cost, and will be appreciated and may not be as affected as other areas.

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SHAPING COMMERCIAL DIPLOMACY OF THE FUTURE: 10 guidelines

10 guidelines for commercial diplomacy (1) 1. Keep on improving, shaping and innovating commercial diplomacy policy,

instruments, and organization; commercial diplomacy is most likely to grow in importance as part of foreign policies and as a main task for diplomatic missions.

2. Increase focus of commercial diplomacy on emerging economies, Asia in particular (but do not forget neighbouring countries). Commercial diplomacy seems more relevant in countries with weak institutions.

3. Efficiency and effectiveness will push commercial diplomacy most likely to incorporate more ‘market’- elements (charging fees) or hybrid structures, rather than Foreign Ministry (hierarchy) based structures. Likely more local staff, fewer home country diplomats.

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10 guidelines for commercial diplomacy (2)

4. More diplomats to be turned into ‘business supporters’, rather than ‘generalists’ or ‘civil cervants’. More proactive than reactive behavior.

5. Improve the quality of service to business of diplomatic missions and commercial diplomats. Foreign post experience of commercial diplomats and a large business network help to improve the service level.

6. Increase awareness among small and medium sized firms (SME’s) about commercial diplomacy.

The higher the service level, the more SME’s value commercial diplomacy. Especially newly internationalizing firms need commercial diplomacy, as well as firm with public organisations as customers.

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10 guidelines for commercial diplomacy (3) 7. Innovate strategies for commercial diplomacy online presence.

For example, embassy websites need to be 21st century-commercial diplomacy ready.

8. Get ambassadors focused on commercial diplomacy.

Private sector experience of ambassadors seems to be positivily related to trade volume with a host country.

9. Coordinate commercial diplomacy policies, efforts, instruments and organization in the European Union.

Many EU countries have similar commercial diplomacy policies interests and instruments. Competition between EU countries for business deals with countries outside the EU many times in not productive. Coordinate commercial diplomacy priorities at foreign post level.

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10 guidelines for commercial diplomacy (4)

10. Acknowledge MNCs as diplomatic actors and formulate a transparant strategy on how to collaborate with them. MNCs conduct business diplomacy more and more.

Business diplomacy is: “The representation and communication activities

deployed by international businesses with host government

representatives and non-governmental representatives in order to

establish and sustain a positive relationship to maintain legitimacy and

thus a ‘license to operate’ (Ruël, Wolters, Loohuis, 2013)

For example: Maersk in emerging economies

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Economic, commercial and business diplomacy

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CONCLUSION: from economic diplomacy to commercial diplomay

Conclusion

• Seven observations on today’s global economy: Economic emphasis in ‘the East’, MNCs as diplomatic actors, business-government collaboration needed to face 21st century challenges, and IT challenges traditional diplomacy.

• Diplomacy and International Business need to rebalance: moving from economic diplomacy to commercial diplomacy and business diplomacy.

• The coming decade commercial diplomacy will become a key part of foreign policy.

• 10 guidelines on how to reshape, improve, and innovate commercial diplomacy

© H.J.M. Ruël 2013

THANK YOU! Q&A

Contact:

Huub Ruël, Phd

Professor of International Business

Windesheim Business School

Windesheim University of Applied Sciences

Campus 2-6, 8000GB - Zwolle (The Netherlands)

Email; hjm.ruel@windesheim.nl