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Commercial Diplomacy : A New Profession
 and a New Program of Study

Geza Feketekuty

The world of trade and international commerce is becoming more important and challenging every day. Global markets are far more integrated than ever before. Firms are expanding their multinational production networks. Governments are negotiating far-reaching trade agreements.

We live in a world where more and more business executives and government officials have to work and negotiate with people from other countries. These countries have different laws and institutions, follow different business practices, speak different languages, and are influenced by different cultural norms..…altogether different realities!

The new global economy has created a demand for business executives and government officials who can manage complex international economic relationships effectively. Corporations need executives who can negotiate joint ventures, contracts and sales agreements with foreign-based companies, as well as manage relationships with a wide range of governments around the world. Governments need officials who can negotiate agreements and who can help to resolve conflicts among nations in a wide range of commercial, social, environmental and other domestic issues related to trade.

Business executives and officials who deal with international commercial issues require a new kind of professional training in the public and private conduct of commercial diplomacy. This new breed of commercial diplomat combines the role of diplomat with the role of economic manager.

Many of the problems and opportunities that arise in international commerce inevitably have a political dimension. For this reason, success requires not only an ability to deal with economic issues but also an ability to navigate political and legal channels and to help mold public opinion globally.

Dealing with commercial issues across national borders effectively, requires special knowledge and skills. This is over and above the professional knowledge and managerial skills required of a competent business executive or government official. The commercial diplomat masters this new global dimension of commerce.

In the past, most professionals engaged in commercial diplomacy received no formal training. Instead, they had to acquire the required knowledge and skills in a piecemeal fashion while carrying out their duties as business executives or government officials. Aspiring trade negotiators learned the art by working with more experienced professionals and by making mistakes. This apprenticeship system was a "school of hard knocks".

Today, there are a few educational institutions and international organizations that offer training programs designed to provide the kind of skills and knowledge required of a commercial diplomat. The author of this article created one of the first graduate programs specifically designed to train commercial diplomats at the Monterey Institute of International Studies, in Monterey, California in the United States. The program awards Masters of Arts degrees in Commercial Diplomacy to students from around the world. .The content of the program is described below. The Ukraininan Academy of Foreign Trade also teaches many courses focused on the skills and knowledge required of a commercial diplomat.

This article is designed to describe the knowledge and skills required to achieve professional competence in the field of Commercial Diplomacy.

 

The article will be organized around four key aspects of commercial diplomacy :

  • the historical forces that are creating the need for commercial diplomats,
  • the professional skills and knowledge required of a commercial diplomat, particularly in the realm of negotiation,
  • the institutions and laws that guide international commercial transactions, and
  • the wide range of subjects a commercial diplomat may have to master.

Commercial diplomacy has become so important in recent years because:

  • trade and foreign investment have consistently grown faster than domestic output in most developed countries since World War II and therefore now constitute a significant share of the GNP of those countries
  • the more recent adoption of market-oriented economic reforms and export driven growth strategies by most developing and former communist countries has served to integrate these countries more effectively into the global economy
  • the globalization of production through the outsourcing of components and business services has multiplied the need to coordinate closely the activities of enterprises in many different countries.
  • The negotiation of new regional trade agreements to eliminate barriers to international trade and investment –agreements such as the European Union, Mercosur, and NAFTA has significantly expanded the role and impact of trade agreements..

In fact, in the aftermath of the Cold War , trade agreements have become the principal means of strengthening political relationships and security ties among countries. This is further accelerating international cooperation on a wide range of domestic policies and issues. Commercial diplomacy is therefore an increasingly important skill for government officials, issue advocates, and business managers who need to interact with their foreign counterparts on a day to day basis

 

Let me next turn to the professional skills and knowledge required of a commercial diplomat. One very important skill is the ability to negotiate. Learning how to negotiate requires the acquisition of a specific set of skills for analyzing the interests of the parties involved in a negotiation, for exploring alternative outcomes acceptable to the two parties, and for interactive bargaining.

While commercial diplomacy deals with commercial issues, there are many issues that arise that are not business-related, but which nevertheless influence the commercial outcome. Therefore, it becomes crucial in negotiations on international trade and investment issues to identify both the economic and non-economic interests of the parties. By learning to recognize the full range of interests of all parties to a negotiation, the negotiator can begin to work in partnership to develop creative options and solutions. By following certain key principles of negotiation, the commercial diplomat can successfully craft durable and mutually beneficial agreements.

Another obvious skill required of a commercial diplomat is the ability to speak foreign languages and to use interpreters effectively. Nuances in language can have major consequences for the interpretation of an agreement.

For non-English speakers, a fluent command of English is essential, since most international trade negotiations outside Latin America are carried out in English.

 

I find that one of the most important skills lacking in many managers today is the ability to write short, concise memoranda designed to convince the recipient of such a memorandum of a desired course of action. This involves a detailed understanding of institutional roles, the information needs of officials or executives in different positions, and what is likely to be persuasive in different situations.

In order to develop these skills effectively, simulations and role playing can be useful educational techniques. Rather than preparing term papers and other traditional academic exercises, students learn to master the preparation of letters, memoranda, and speeches, based on realistic scenarios drawn from current, real-life situations.

A commercial diplomat has to learn how to navigate through the administrative, legal, and political procedures of other countries. This requires learning how decisions regarding trade and investment issues are made in different countries, and how an outsider might be able to influence such decisions.

Whatever the country involved, a commercial diplomat may need to work with many different governments and individuals to change government regulations that impede trade or investment. These include:

  • officials responsible for regulatory decisions
  • legislators and politicians
  • the press
  • opinion leaders in research institutions and elsewhere
  • allies at home or abroad who could lend political support

Commercial diplomacy also requires some basic political and public relations skills. There are some important principles about getting your side of the story to the press. It must be done in a way the press can use for its own purposes -- which is to attract the interest of its readers. An effective press conference must also succeed in shaping the substantive issues in the public debate taking full account of the concerns and perceptions of public policy makers, legislators, and the public at large.

An effective commercial diplomat has to be able to develop a comprehensive and integrated negotiating strategy. Such a strategy needs to encompass all the various players who have an interest in the issue and who can have a bearing on the outcome..

In summary, the practice of commercial diplomacy requires the following set of professional skills:

  • knowledge of foreign languages and cultures
  • cross-cultural negotiation and consensus-building
  • legislative strategy and advocacy
  • media strategy and public relations
  • development of integrated negotiating strategies
  • investigation of issues and research into new areas of knowledge

 

A commercial diplomat needs to be able to acquire a working knowledge of many different subjects. In this case, the nature of agricultural pests in two different countries; the chemical, biological and environmental effects of fumigants; and the substantive provisions of international agreements.

The resolution of International trade disputes can touch on many different areas of specialized expertise. Resolving such disputes may require in-depth knowledge of the scientific facts underlying regulations in areas such as health, safety, environment, industrial engineering, telecommunications, or architecture. It may also require knowledge of the terms of international agreements covering the application of trade measures and domestic regulations to imported goods and services, or to foreign firms.

Commercial diplomacy may also be required to resolve purely commercial disputes between firms located in different countries. The dispute might be over whether the supplier met the agreed delivery schedules or quality standards. It might focus on whether damage to goods during shipment were the fault of the exporter or importer, and whether the importer met agreed marketing obligations.

Whether the dispute is a private commercial dispute, or a dispute with a foreign government an in depth knowledge of many issues may be needed. The commercial diplomat needs to be able to address issues or disputes that touch on a wide range of topics, requiring in-depth knowledge and expertise in diverse areas. Successful resolution of the dispute may require an in-depth knowledge of

  • the science underlying health, safety, environmental and other regulations
  • the content of national regulations affecting imports or foreign investors
  • the international commitments made by governments in applying their laws
  • the organization of the industry, including production and distribution
  • the revenues and costs associated with the commercial activities in question

Since no one can be expected to know all these subjects, the commercial diplomat has to be able to : [

  • identify experts and research material
  • ask the right questions in researching the issue
  • frame the facts obtained from experts in a coherent way to make a case

A commercial diplomat also has to acquire knowledge about dispute settlement proceedings. Such proceedings can take place in national courts or in international arbitration bodies such as the International Chamber of Commerce for purely commercial disputes between private parties, or the World Trade Organization for disputes involving government regulations.

In the case of disputes involving governments belonging to the World Trade Organization, member countries can decide to establish a dispute settlement panel made up of trade and scientific experts from third countries. Before an issue becomes a matter of discussion between governments, however, the company which faces a restrictive regulation in another country is first expected to make an effort to resolve the issue through direct contacts with the foreign officials involved. Government officials only have limited resources, and they are most inclined to help those businesses that have already made a significant effort to identify the regulatory issues involved and to solve the problem on their own.

Where the dispute is of a purely commercial nature, the parties can utilize a number of alternative method for the resolution of disputes. These methods include direct conciliation discussions between the parties, more formal mediation or arbitration proceedings, or the use of national courts. Other ITC video conferences have explored these approaches and techniques. They are an important part of the tool kit of the modern commercial diplomat.

In closing I want to reflect briefly on the cost of failure and the benefits of success in commercial diplomacy, and to explore whether the requisite skills can really be learned through training and education.

The cost of failure in most instances is wasted time, effort, and money. An opportunity may also be lost in reaching agreement on new export or investment possibilities.

Obvious failures due to a lack of skill in commercial diplomacy abound. Firms have wasted hundreds of millions, even billions of dollars. Investments have gone sour because companies failed to understand the local environment, and to build relationships with the right local leaders.

The cost of failure could be a great deal more than lost opportunities. Misunderstandings, and failed opportunities to resolve an issue amicably, could lead to a great deal of strife and friction between firms and countries. The parties involved could condemn themselves to allocate scarce human and financial resources to a prolonged dispute. They could also lose a great deal of good will to resolve other issues.

On the other hand, countries or corporations that have developed a well-trained group of commercial diplomats have been very successful in pursuing their international commercial objectives. The trade diplomats of Hong Kong, for example, stand out in their effectiveness and professionalism, as do those of Brazil. Among private corporations, organizations such as IBM stand out for the trained professionals that handle their relationships with governments around the world.

Firms and countries that employ better trained commercial diplomats will be more successful in promoting their exports or foreign investments, and therefore more successful in making the firm more profitable or the country more prosperous.

Can these skills be acquired through education and training? Innate personality traits certainly play an important role in successful commercial diplomacy. The right kind of training can help the aspiring international commercial diplomat the to become effective almost immediately upon entering the field. Such training can equip the commercial diplomat with the tools and knowledge otherwise acquired only through a long and costly apprenticeship.

As mentioned earlier, the author, a former senior U.S. trade official and now a trade consultant and professor. Developed a comprehensive course of study on commercial diplomacy at the Monterey Institute of International Studies. It includes both a two year masters degree in Commercial Diplomacy for recent university graduates, and a one year masters degree in Commercial Diplomacy for mid-career professionals who want to polish their skills and update their knowledge. The program covers

  • The required techniques of economic, political, and domestic policy analysis,
  • The trade laws and policies of the key developed and developing countries,
  • The international rules and procedures that apply to global trade and investment,
  • The skills required to manage the political dimension of internal commercial diplomacy, including the ability to build consensus, to handle relationships with the press, to interact with politicians at home and abroad, and more generally to shape public opinion,
  • The development of coherent and comprehensive negotiating strategies and knowledge of the negotiating tactics employed by different countries, and
  • The languages, cultures and customs of countries around the world.

The program hones the application of these skills in real world settings through case studies, simulated negotiations and press conferences, and a masters project in which each student demonstrates his or her ability to integrate the necessary skills and knowledge in the context of a real world issue.

Many international organizations such as the World Trade Organization, the United Nations Conference on Trade and Development, the World Bank and the Organization of American States also offer special training courses on international trade and investment rules, and on current negotiations. Other courses are offered by business organizations such as chambers of commerce, foreign trade institutes, and international trade centers.

The Internet itself is an extremely valuable source for acquiring much of the information and knowledge required to conduct effective commercial diplomacy. It enables any individual to pursue his or her own tailored self-study program.

All the major international organizations with a mandate for international trade and investment issues have web sites that offer information about international trade and investment rules and about the issues under current discussion in the organization. In most case they also include useful links to other relevant web sites and extensive bibliographies of books and articles that cover the issues in greater depth.

One of the most important international organizations which provides training and information for businesses in developing countries is the International Trade Center. The Center is jointly managed and supported by the WTO, the World Trade Organization, and UNCTAD, the United Nations Conference on Trade and Development. The ITC offers technical assistance in six areas:

  • product and market development,
  • development of trade support services,
  • trade information,
  • human resource development,
  • international purchasing and supply management, and
  • needs assessment and program design for trade promotion.

The International Trade Center organizes training courses and produces training materials which can be obtained through its web site. Its annual report for 1997, which is available at its web site, lists all of the technical assistance projects and publications recently completed or under way. The major substantive accomplishments of 1997 included the publication of a book on forward-looking strategies for trade in services, including product and market development. They also report that they are working on the development and testing of diagnostic tools and learning systems for small and medium-sized enterprises engaged in international business.

The WTO, the World Trade Organization, organizes Trade Policy courses for trade officials from developing countries and transition economies. The lectures and discussions focus on trade theory, the formulation and implementation of trade policy, the provisions of WTO legal instruments and Agreements and the structure, scope and functioning of the WTO system.

While these courses are open only to trade officials, the WTO has also developed an extensive list of publications and training materials which can be obtained through their web site, or from designated distributors in many countries. Some of these publications are free, other are sold on a commercial basis.

The WTO web site also has an extensive amount of information available on the rules of the organization, current trade issues, reviews of the trade policies of member countries, and the work program of the Organization. They also have a wealth of links to other sites with valuable information on trade matters. I have previously mentioned one of these linked sites, the International Trade Law Monitor.

UNCTAD. The United Nations Conference on Trade and Development, also has an extensive technical cooperation program for assisting developing countries and transition economies on trade and investment. These activities fall under five broad headings

  • international trade
  • sustainable development
  • financial resources
  • investment, technology and enterprise development, and
  • transport

In the area of international trade, UNCTAD offers access to information, training and policy advice. Three of the most important programs are

  • TRAINS, the Trade Information program,
  • The Trade Point Program, which provides assistance to small exporters in developing countries, and
  • The TRAINFORTRADE program, which offers training to officials, educators and industry association executives from developing countries and transition economies on trade rules, trade policy development and negotiations.

The Internet, of course, provides access to a vast number of web sites maintained by individual firms, countries, cities, educational institutions, and associations, covering every aspect of international commerce. Where information is not directly available on line, the sites offer references to books, articles and training manuals. These can often be obtained by sending an electronic order on line to the organization involved, or to any one of the cyber bookshops on the Internet, such as Amazon.com.

The Internet is a powerful tool that empowers anyone with the requisite interest and determination to acquire the knowledge and skills required for effective Commercial Diplomacy. The material you received for this program includes some useful contact points. With a little browsing of the Internet you should be able to expand this list significantly.

We live in a new era of unlimited potential. For those with the necessary computer skills, and access to the global information infrastructure, everything has become possible. What it takes is an individual drive for knowledge, self-improvement, innovation, and excellence. With these ingredients, even small businesses from developing countries can succeed in the new global market place.

Commercial diplomacy and effective international negotiation ultimately are the means for effective global cooperation. The mutual economic gain which comes from such cooperation will contribute to strengthened social and political ties around the world.


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