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Friday, March 3, 2017

Do Indian Corporates Need a Foreign Policy?

Geopolitical changes did occur in the past but at appreciable intervals. It is with the fall of Soviet Union in 1991 that the Cold War era which came into existence immediately after World War II—after running for more than four decades—had collapsed. The post-Cold War era—the era of euphoria for the west engendered by the US-led ‘unipolar-moment’—which witnessed rapid economic development outside the west, such as in China and India, while the western economies suffered from slowing growth, rising inequality, falling employment and notably, deindustrialization, remained quiet considerably for a long period.
All this suddenly changed with Putin’s Russia invading Ukrainian peninsula of Crimea in 2014 followed by its annexation within a month—a beginning of the strategic crisis in Europe. Since then, global landscape turned highly volatile.  Middle-east is in turmoil. This caused mass migration to Europe threatening European stability. On the other side, China, a country that combined market economy with communist control suddenly became increasingly assertive: claiming territorial rights on east and south China seas, it started erecting defence installations in some of the islands. Then came the Brexit challenging the very continuity of the European Union. As these developments are challenging the global order, America exhibited growing unwillingness to intervene in these hotspots. Now with Donald Trump becoming the President of the US, the world appears to have come full circle: economically, the US-led globalization has come to an end, while geo-politically global disorder creeped in.
Cumulatively, these developments coupled with the increased proliferation of ‘economic sanctions’ have terribly heightened the geopolitical risks of multinational corporations. And Indian companies, particularly IT companies are no exception to this phenomenon. In fact, with the proposed legislation that the US intends to introduce to prevent IT firms hiring professionals on H-1B and L1 visas from India to work on site, the profit margins of IT companies are likely to be threatened. There being an acute shortage of STEM skills in the US, these companies might even find it difficult to replace Indians with locals and this may challenge their ability to provide uninterrupted services to the clients.
Amidst this growing geopolitical uncertainties, companies can no longer remain passive.
They need to adopt a new strategy to manage these political risks. It is perhaps time for corporates to define their own interests and accordingly collect and analyze external intelligence pertaining to the countries wherever their interests lie. In short, they should draft their own foreign policy by adopting elements of traditional statecraft. Prima facie, such a corporate foreign policy must take shape essentially driven by two elements: corporate due diligence and corporate diplomacy. The former must address issues such as assessment of transnational risk, local in-country risk, home and near-abroad risk and assessment of company’s sensitivity to regional political developments. Guided by these risk-assessment studies, company should draft its own diplomacy stance that facilitates its global business successfully.

John Chipman, Director-General of the International Institute for Strategic Studies, London suggests that to be effective, a corporate diplomacy strategy must operate on four principles: one, it must define its approach to foreign governments, rather than being manipulated by the home country policies; two, must cultivate a transnational character by publicly pronouncing its global character, by maintaining its reputation both in words and spirit; three, diversifying political relationships by building dynamic relationship with governments, business elite, and civil society; and four, not to sabotage its own interests by remaining inept  to the political and foreign policy interests of the host country.
In short, corporates must be vigilant to the growing global uncertainties and be resilient to the geopolitical shocks. It may initially sound strange but once expertise in international diplomacy built up internally, it is sure to prove as competitive advantage.

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