Business diplomacy in international firms : an extensive literature review and results from a survey

Betlem, F. (2012) Business diplomacy in international firms : an extensive literature review and results from a survey.

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Abstract:This master thesis research examines the influence of firm characteristics, the type of industry and institutional development on the approach advancedness and organization of business diplomacy within multinationals (MNCs). Based on the definition of Saner et al. (2000), we constructed the following 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”. Interaction with governments and being sensitive to the demands and expectations of non-governmental organizations (NGOs) is becoming more important nowadays in the international business environment. However, little is known about business diplomacy, as most conducted research only stresses the importance of business diplomacy. Our research fills the quantitative gap by measuring business diplomacy using the dimensions approach and looking at its organization and by identifying the determinants related to business diplomacy. We argue that business diplomacy can be measured with six sub-dimensions, of which intensity, policy clarity, breadth, means deployments and resource availability identify the level of approach advancedness of business diplomacy. And how business diplomacy is organized, on the headquarters level or more on a subsidiary level, can be measured with business diplomacy responsibility. The business diplomacy level of firms is measured for foreign government representatives as well as for non-governmental stakeholders. The central research question of this master thesis is: To what extent do firm characteristics, the type of industry and institutional development determine the approach and organization of business diplomacy within MNCs? Saner and Yiu (2005) and Muldoon (2005) argue that establishing and sustaining relations with today’s business environment is becomingly more important for creating business opportunities, as firms cannot solely depend on their competitiveness and efficiency. Our findings suggest that firms do understand the need for business diplomacy, as they have a moderately high level, clear and organization-wide business diplomacy policy for establishing and sustaining relationships with foreign government representatives (FGreps) and non-governmental (NONg) stakeholders. Also, they are moderately active in seeking contacts and use diverse means to establish and sustain these relations. Their medium score on the scale for business diplomacy breadth and resource availability implies that establishing and sustaining relationships with FGreps and NONg stakeholders is done by every employee within the company to some extent. Saner et al. (2000) argued that business diplomacy knowledge should be shared throughout the entire company, but firms use a medium amount of multiple firm resources to establish and sustain these relationships. Firms do acknowledge that establishing and sustaining relationships with FGreps and NONg stakeholders is an activity that takes time, but investing in knowledge transfers through training or a learning system to enable employees to establish and sustain relationships is an activity rarely conducted by the firms in our sample. Our findings show that firms could invest more in business diplomacy knowledge transfer. Decision-making regarding business diplomacy is neither completely decentralized (subsidiary level) nor fully centralized (headquarters) for Fgreps as well as for NONg stakeholders as the scores of our sample suggest. The approach and organization of business diplomacy that firms employ with Fgreps and NONg stakeholders do differ, though the differences in and between firms are relatively small. Firms are more intense and have clearer policies for establishing and sustaining relations towards FGreps than towards NONg stakeholders. The difference in the approach advancedness, intensity and policy clarity is greater for business diplomacy targetting FGreps than NONg stakeholders. We tested firm characteristics, the type of industry and institutional development (a total of nine independent variables) with the (sub)dimensions for establishing and sustaining relations towards FGreps and NONg stakeholders. A total of 126 relations were tested, of which 20 were found to be significant. The antecedents tested on the level of business diplomacy, approach and organization were derived from related theories such as CPA and international business theories. The extent to which a firm is globally integrated is the independent variable most related to business diplomacy as it influences the approach advancedness and four sub-dimensions of the business diplomacy approach (Intensity, breadth, means deployment and resource availability) for FGreps. The extent to which a firm is globally integrated is positively related, suggesting that globally integrated firms are more active in business diplomacy, have a broader approach, are deploying more means and have more resources available for business diplomacy. The level of local responsiveness of firms influences the business diplomacy responsibility, where a firm’s level of local responsiveness is positively related to central (headquarters) business diplomacy responsibility. The other measured variables show various significant relations with the sub-dimensions of business diplomacy. Our findings suggest relations between the size of a firm and policy clarity (FGreps and NONg), the country of origin with means deployment (NONg) and responsibility (FGreps), the host country with intensity (FGreps) and clarity (FGreps), and the type of industry with policy clarity and breadth (FGreps and NONg). Only firm size has an impact (positive) on a business diplomacy dimension, as it affects policy clarity. However, we have found no significant relation between the age of a firm and the level of business diplomacy, suggesting firm age does not influence the level of business diplomacy approach or of responsibility. Also, the institutional development of the host country (measured with the human development and democracy index) was not significantly related to the organization nor approach of business diplomacy.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:85 business administration, organizational science
Programme:Business Administration MSc (60644)
Link to this item:http://purl.utwente.nl/essays/62492
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