Economy and International Relations are getting more intertwined. International Business and diplomacy will have to rebalance. From economic diplomacy to commercial diplomacy in a shifting global economy.

1. Huub Ruël – Professor of International BusinessHjm.ruel@windesheim.nl
SHAPING THE COMMERCIAL DIPLOMACY OF THE
FUTURE: redefining policies, actors and practices

2. 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

3. SEVEN OBSERVATIONS

4. 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

5. 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
© H.J.M. Ruël 2013

6. 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

7. DEFINITIONS

8. 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)
© H.J.M. Ruël 2013

9. 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
© H.J.M. Ruël 2013

10. 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).
© H.J.M. Ruël 2013

11. Commercial Diplomacy:
© H.J.M. Ruël 2013

12. 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).
© H.J.M. Ruël 2013

13. 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).
© H.J.M. Ruël 2013

14. THE FUTURE OF
COMMERCIAL DIPLOMACY

15. 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
© H.J.M. Ruël 2013

16. 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?
© H.J.M. Ruël 2013

17. 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.
© H.J.M. Ruël 2013

18. 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

19. 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.
© H.J.M. Ruël 2013

20. 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.
© H.J.M. Ruël 2013

21. 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.
© H.J.M. Ruël 2013

22. SHAPING COMMERCIAL
DIPLOMACY OF THE
FUTURE: 10 guidelines

23. 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.
© H.J.M. Ruël 2013

24. 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.
© H.J.M. Ruël 2013

25. 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.
© H.J.M. Ruël 2013

26. 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
© H.J.M. Ruël 2013

27. Economic, commercial and business diplomacy
© H.J.M. Ruël 2013

28. CONCLUSION: from
economic diplomacy to
commercial diplomay

29. 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

30. THANK YOU! Q&A

31. 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