Involvement of ambassadors in commercial diplomacy An empirical study to identify the role of ambassadors in commercial diplomacy, and the results of their involvement in commercial diplomacy. G.J.M. (Han) Abbink University of Twente ([email protected]) First supervisor: dr. H.J.M. Ruël Second supervisor: dr. H.G. van der Kaap Date: 2014-01-26 Summary Because of a shift in economic power, a globalizing world and changing business practices, commercial diplomacy becomes more and more important for the support of businesses that do business abroad. Commercial diplomacy is a relatively new field in research. The present study contributes to the existing literature with the unexplored area of the role of ambassadors in commercial diplomacy. It investigates the involvement of ambassadors in commercial diplomacy, to what extent this involvement can explain the performance of the economic department of their embassy, and trade figures between the home and host country. The following central research question serves as the basis of this study: To what extent are ambassadors involved in the execution of commercial diplomacy and to what extent can ambassadors’ involvement explain commercial diplomacy outcomes? A research model is designed to explore the different areas in commercial diplomacy, and determinants in commercial diplomacy success. The areas in commercial diplomacy found by Naray (2008) will be used to conceptualize a model to measure the involvement of ambassadors in commercial diplomacy. According to existing literature, business knowledge and experience positively contributes to commercial diplomacy success of commercial diplomats. In this research we investigate if this is also a determinant in the role of the ambassador and the outcomes of his ‘’efforts’’. The ambassadors opinion about the performance of the economic department and the growth of trade figures between the Netherlands and the host country are measured, to search for relationships between the involvement, background and experience with the outcomes of the ambassadors ‘’efforts’’. The results indicate that the ambassadors in our sample are to a large extent involved in business promotion, to a moderate extent in the promotion of cooperation in science and technology, and to a low extent in the protection of intellectual rights. Ambassadors in our sample on average agree that commercially diplomacy is an important area in diplomacy. They spend about 43% of their time on commercial diplomacy. The years of experience in private firms is positively related to the time ambassadors spend on commercial diplomacy, whereas the number of years of experience in governmental organizations is negatively related to the time spent on commercial diplomacy. The time they spend on commercial diplomacy is together with their opinion about commercial diplomacy and their involvement in business promotion positively related to the performance of the economic department of their embassy in commercial diplomacy. We did not find any relationship between the background of the ambassador and the involvement in commercial diplomacy, or outcomes in commercial diplomacy. There was also no relationship between the involvement of the ambassador in commercial diplomacy, his background and experience with the growth of trade figures between the Netherlands and the home country. The years of experience in private firms is positively related to the time spent on commercial diplomacy. The time spent on commercial diplomacy is again positively related to the performance of the economic department of the embassy in commercial diplomacy. Current literature concludes that experience and background are directly related to the success of commercial diplomats (Hogan, Keesing, & Singer, 1991; Kostecki & Naray, 2007; Naray, 2008). Our findings are thus partly in line with these studies. As 2 mentioned before, we were not able to find a relationship between the background and the performance in commercial diplomacy. The results of this study can be generalized to ambassadors stationed in Western European countries, since the sample exists only out of foreign ambassadors located in the Netherlands. In other countries the involvement in the commercial diplomacy areas might be different, for example the involvement of the ambassador in the protection of intellectual rights of home country businesses. This empirical study lays a first basis in exploring the ambassadors role in commercial diplomacy and can serve as a good framework for further research. Future research may include a larger sample with different home and host countries, making it able to control for differences due to the context in which commercial diplomacy is executed. Research could then be generalized to a larger set of countries. Future research may for example include a model from other outcome studies like Rose (2007) or Yakop and Bergeijk (2009), who not only used the growth in trade, but also weighted for other factors. The most important managerial implication is that ambassadors might gain more business knowledge and experience which might lead to a larger amount of their time spent on commercial diplomacy and thus better performance in commercial diplomacy. Governments might also inform and convince the ambassadors about the importance of commercial diplomacy which, according to our study, will result in better performance in commercial diplomacy. 3 Acknowledgement This study is executed as my master thesis. It will be the end of my study Business Administration at the University of Twente. The courses of the master were really inspiring, and this thesis was a great opportunity to use all the gained knowledge. It helped me to gain more knowledge about doing research, and it expanded my knowledge about statistics. I would like to thank dr. H.J.M. Ruël for his support during this research. The feedback was always very helpful to improve my thesis. Next to his great help I would also like to thank dr. Ruël for the great courses Management in Emerging Economies and International management. With his enthusiasm about the topics, it was always very interesting to follow the lectures. During these lectures he also introduced me to the great topic of commercial diplomacy. I would like to thank dr. H.G. van der Kaap for his helpful support. Thanks to his knowledge he was able to really improve my skills in statistics. I already learned a lot from dr. Van der Kaap during the course Statistical Analysis of my pre-Master, but during my thesis he was able to improve my knowledge about statistical analysis even further. His knowledge about statistics and the great feedback on my data analysis were very helpful to my research. The cooperation of the ambassadors located in the Netherlands was very important for this study to succeed. Therefore I would like to thank the ambassadors who submitted a completed questionnaire. And last I would like to thank my family and friends for their support during my study, but especially my girlfriend Marije Meerdink, for her great advice, support and positivity. Also I would like to thank her colleague dr. C.L. Poortman for the good feedback on my questionnaire. Han Abbink 4 Table of contents SUMMARY ............................................................................................................................................................. 2 ACKNOWLEDGEMENT ............................................................................................................................................ 4 TABLE OF CONTENTS .............................................................................................................................................. 5 LIST OF FIGURES AND TABLES ................................................................................................................................. 6 1 INTRODUCTION ................................................................................................................................................... 8 1.1 BACKGROUND .......................................................................................................................................................... 8 1.2 RESEARCH OBJECTIVE AND RESEARCH QUESTION .............................................................................................................. 9 1.3 NEED FOR THIS STUDY .............................................................................................................................................. 10 1.4 RESEARCH STRATEGY ............................................................................................................................................... 10 2 LITERATURE REVIEW ......................................................................................................................................... 11 2.1 INTRODUCTION ....................................................................................................................................................... 11 2.2 DIPLOMACY ........................................................................................................................................................... 11 2.3 COMMERCIAL DIPLOMACY ........................................................................................................................................ 11 2.4 AMBASSADORS AND DIPLOMACY ................................................................................................................................ 14 2.5 BACKGROUND AND EXPERIENCE ................................................................................................................................. 15 2.6 CONTEXT OF COMMERCIAL DIPLOMACY ....................................................................................................................... 16 2.7 OPINION ABOUT COMMERCIAL DIPLOMACY .................................................................................................................. 16 2.8 RESEARCH MODEL ................................................................................................................................................... 17 3 METHODOLOGY ................................................................................................................................................ 19 3.1 PROCEDURE AND SAMPLE ......................................................................................................................................... 19 3.2 QUESTIONNAIRE ..................................................................................................................................................... 19 3.3 MEASUREMENT ...................................................................................................................................................... 21 3.4 TESTING THE QUESTIONNAIRE .................................................................................................................................... 22 3.5 STATISTICAL ANALYSIS .............................................................................................................................................. 24 4 FINDINGS ........................................................................................................................................................... 25 4.1 DESCRIPTIVES ......................................................................................................................................................... 25 4.2 EXAMINING RELATIONSHIPS ...................................................................................................................................... 27 4.3 REGRESSION ANALYSIS ............................................................................................................................................. 33 4.4 CHAPTER OVERVIEW ................................................................................................................................................ 36 5 CONCLUSION AND DISCUSSION ......................................................................................................................... 39 5.1 INTRODUCTION ....................................................................................................................................................... 39 5.2 CONCLUSION .......................................................................................................................................................... 39 5.3 DISCUSSION ........................................................................................................................................................... 42 5.4 LIMITATIONS .......................................................................................................................................................... 44 5.5 FUTURE RESEARCH .................................................................................................................................................. 45 6 REFERENCES ...................................................................................................................................................... 47 7 APPENDIXES ...................................................................................................................................................... 53 5 List of figures and tables Figures Figure 1: Research model 16 Figure 2: Involvement of ambassadors in commercial diplomacy areas 26 Figure 3: Model overview for the bivariate analyses 42 Tables Table 1: Matrix of the areas and activities in commercial diplomacy 13 Table 2: Hypotheses based on the literature review 18 Table 3: Descriptives of the sample 26 Table 4: Fields of study from the ambassadors in the sample 26 Table 5: Pearson correlation coefficients between the background of the ambassador with the time spent on commercial diplomacy 28 Table 6: Pearsons correlation coefficients between the background of the ambassador with the involvement in the protection of intellectual property rights 28 Table 7: Pearsons correlation coefficients between the background of the ambassador with the involvement in the promotion of co-operation in science and technology 28 Table 8: Pearsons correlation coefficients between the background of the ambassador with the involvement in business promotion 28 Table 9: Pearsons correlation coefficients between the time spent on commercial diplomacy and the involvement in commercial diplomacy with the ambassador’s opinion about commercial diplomacy 29 Table 10: Pearsons correlation coefficients between the ambassadors involvement in, and time spent on commercial diplomacy with the performance of the embassy’s economic department in commercial diplomacy 30 Table 11: Pearsons correlation coefficients between the background of the ambassador with the performance of the economic department in commercial diplomacy 31 Table 12: Pearsons correlation coefficients between the ambassador’s opinion about commercial diplomacy with the performance of the economic department in commercial diplomacy 31 Table 13: Pearson correlation coefficients between the number of years the ambassador has worked in a private firm with import and export figures between the Netherlands and the home country 32 Table 14: Regression analysis for the years the ambassador has worked in private firms, years worked for governmental organizations and the time spent on commercial diplomacy 34 Table 15: Regression analysis for the ambassadors opinion about the importance of commercial diplomacy and the involvement in business promotion 34 6 Table 16: Regression analysis for the ambassadors involvement in business promotion, the time spent on commercial diplomacy and the performance of the embassy’s economic department in commercial diplomacy 36 Table 17: Support of hypothesis 38 7 1 Introduction 1.1 Background The global economy has a shift in power from the developed economies to China, Brazil, India Russia and South Africa (Bergeijk, 2012). These countries have had major economic growth last years while Western economies like the EU and United States decline in economic growth. Both companies and governments face enormous challenges arising from the diminishing importance of the traditional national borders due to globalization, technological change and developments in trading systems (Scholte, 2000; Friedman, 2005; Pisani, 2009; Rosentahl, 2011; Bergeijk, 2012). Trade patterns, and their variety, change in a more globalized world (Kostecki & Naray, 2007; Veenstra, Yakop & Bergeijk, 2010; Reuvers & Ruël, 2012). Trade barriers on the other hand often remain in place or even increase (Reuvers & Ruël, 2012). Because of the shift in economic power and globalization, commercial diplomacy becomes more and more important for nations (Kostecki & Naray, 2007). Commercial diplomacy is important for nations, because it is a key component of international trade and Foreign Direct Investment (FDI), which are key economic processes that create capital, products, services and jobs (Kotabe & Czinkota, 1992; Naray, 2010b; Reuvers & Ruël, 2012; Ruël, 2012). Commercial diplomacy is used to secure new export markets in emerging economies, new inward investments in new markets (Kostecki & Naray, 2007), and to expand trade and investment in the context of declining economic policy sovereignty (Ruël, 2012). Activities within the field of commercial diplomacy aim at: ‘’encouraging business development’’ (Naray 2010), ‘’the development of socially beneficial international business ventures’’ (Kostecki & Naray, 2007), and ‘’national economic development’’ (Saner & Yiu, 2003). As economies decline, effective commercial diplomacy becomes more important to create new trade and investment opportunities or rescue and nurture existing ones. This to prevent economies from declining growth. Increasing flows of capital, trade, services, people, ideas and information between states and businesses have increased the need for effective commercial diplomacy to help facilitate continued economic development and market integration as well as manage increased economic risks and opportunities. There are different studies that conclude that commercial diplomacy has a positive impact on trade between countries (Lederman et. al., 2006; Gil-Pareja et. al., 2007; Head and Ries, 2006; Nitch, 2007; Yakop & Bergeijk, 2009; Afman & Maurel, 2010; Veenstra, Yakop & Bergeijk, 2010). All these studies result to an estimated effect, that an increase in the ‘amount’ of economic diplomacy with 10% will increase bilateral trade flows by 1% (Veenstra, Yakop & Bergeijk, 2010). Research on commercial diplomacy is relatively new (Kostecki & Naray, 2007). Therefore there are relatively few academic publications on commercial diplomacy (Kostecki & Naray, 2007; Reuvers & Ruël, 2012). Most commercial diplomacy research focuses on trade shows and trade missions, export increase, and FDI. Further, there is little research on the role that individuals play in commercial diplomacy (Ruël, 2012; Reuvers & Ruël, 2012). Studies on effectiveness of commercial diplomacy and economic diplomacy as well as on outcomes and results of commercial diplomacy/economic diplomacy focus almost all on macro level, but tend to overlook or ignore the role of commercial diplomacy processes as the intermediating variable between commercial diplomacy resources (input) and commercial diplomacy outcomes and results (e.g. Rose, 2007; Veenstra, Yakop & Bergeijk, 2010). Kostecki and Naray (2007) 8 focus on the individual level of commercial diplomats. In their study they examined ‘’the allocation of Commercial Diplomat Time between Various Business-support Activities’’ and what variables determined the weight of those activities. In this study, we will focus on the involvement of ambassadors in commercial diplomacy, and if there is a link between their involvement and the trade figures between the Netherlands and their home country and if there is a link between their involvement and the performance of the economic department of their embassy in commercial diplomacy. It is also important to see if the background and experience might influence the activities of the ambassador and their outcomes. Different studies investigated if the background of commercial diplomats had an influence (Kostecki & Naray, 2007; Naray, 2008; Ruël & Zuidema, 2012), and concluded that the background and experience have influence on the results of the diplomats in commercial diplomacy. According to Lee and Hudson (2004), literature fails to identify, and hardly draws a complete picture of all the aspects of commercial diplomacy. As far as we know, there is no research on the role of the foreign post, and embassies in the changing importance of commercial diplomacy now-a-days. There is also no research on the ambassadors as head of the foreign post in commercial diplomacy. With this study on the involvement of ambassadors in commercial diplomacy, we will contribute to a more complete picture of all the aspects of commercial diplomacy. 1.2 Research objective and research question The aim of this study is to gather new empirical data to identify the involvement of ambassadors in commercial diplomacy, comparing it to the outcomes of commercial diplomacy. It will be an explanatory study, therefore will this study include a survey based on a questionnaire filled in by ambassadors. Data will also be gathered from secondary sources to compare the role of ambassadors in commercial diplomacy to the trade between home and host country. Our goal is to contribute to the commercial diplomacy literature with the first research on ambassadors in commercial diplomacy. Our research question therefore is: To what extent are ambassadors involved in the execution of commercial diplomacy and to what extent can ambassadors’ involvement explain commercial diplomacy outcomes? 9 1.3 Need for this study As mentioned before, commercial diplomacy is becoming more important for developed economies, to prevent their economies from declining growth. Commercial diplomacy is used to increase their export and increase investments in their home country. Different studies conclude that commercial diplomacy has a positive impact on trade between countries (Veenstra, Yakop, Bergeijk, 2010; Bergeijk, 2012). To get a better understanding of commercial diplomacy, it is important to broaden the academic literature on commercial diplomacy. This research will contribute to this literature with the unexplored area of the role of ambassadors as head of the foreign post in commercial diplomacy and the possible outcomes of their efforts. The only note on allocation of time from is ambassadors is from Rana (2004). Rana (2004) stated that German and French ambassadors spend 60% of their time on economic promotional work. However, he only got this information from a business meeting called ‘’Economic Diplomacy Today’’ on September 23 in 2002 in New Delhi, and not from an in-depth analysis. 1.4 Research strategy This study follows a deductive approach. The starting point is a thorough literature review to define the areas in which ambassadors can be involved, what the effects are of commercial diplomacy, and the role of experience and background in commercial diplomacy. The research model and hypotheses display and state the causal relationships that are empirically tested in this study. The empirical part is conducted in terms of a survey by using a questionnaire filled in by ambassadors in the Netherlands. This questionnaire consists mostly of quantitative data in order to obtain sufficient knowledge for answering the central research question and achieving the research objective. Next to the survey, we will also use trade figures between the Netherlands and the home country of the ambassadors. In chapter 2 we present a literature review that initially elaborates on the areas and activities in commercial diplomacy, the effect of commercial diplomacy, and the influence of background and experience in commercial diplomacy. This review aims to identify potential activities in different areas for the ambassadors, determinants for commercial diplomacy performance and proposes a set of hypotheses. The third chapter is used to describe the methodology, specifically data collection, samples and tests the questionnaire we designed. In chapter 4 we test our hypotheses. In chapter 5 we aim to conclude this study, and we will discuss the most important findings. 10