Why Business Leaders Need Political Diplomacy Skills Now

0:01Srividya Jandhyala:Legal teams face more data and more scrutiny than ever. They need AI built for both. Relativity is the AI platform for legal work, delivering defensible AI that handles the tedious tasks so judgment stays where it belongs with you. Learn more at relativity.com slash ideacast.

0:32I'm Alison Beard.

0:33Srividya Jandhyala:And I'm Adi Ignatius, and this is the HPR IdeaCast.

0:44Adi, there's a lot of fear and anxiety among corporate leaders right now over changing geopolitical dynamics and economic policies, particularly when it comes to trade and immigration. We see lots of opinions about how much it's going to affect different types of businesses and what executives should be doing about it. So today we're going to talk to a researcher who has lived all over the world and studied these issues and believes that the best way to navigate is with what she calls corporate diplomacy.

1:13Srividya Jandhyala:I like that. You know, we've written pieces in the past about how every company needs a foreign policy. And with all the uncertainty around trade, around supply chains, the market for talent, various policies, this level of uncertainty is making it tougher to lead. So if you've got somebody who understands this, who can identify high-level trends and tell us what to do about it, I am all ears. Our guest today is Srividya Jantyala, an associate professor at ESEC Business School, whose life and career have taken her from India to the U.S. and U.K., and now Singapore. She'll explain how geopolitics have gone from being a tailwind to a headwind for most companies, why even small and mid-sized businesses are affected, and how organizations should rethink their structures and talent strategies in this context.

1:57She's the author of the book The Great Disruption, How Geopolitics is Changing Companies, Managers, and Work.

2:09Politics and geopolitics have always had a really big impact on how businesses decide to invest and operate. So what is different now? It's always been true that politics and geopolitics plays an important role in how companies operate. I think what's different is 20 years ago for many companies, not all, but for many companies, geopolitics was actually a driving force, a tailwind, if you will. So it was opening new markets. It was creating new opportunities. Companies suddenly were finding new places that they could invest in and new ways of making money. I think what many companies are now discovering is that that's actually becoming a headwind in some ways.

2:52If you think about the largest companies and the people who are leading those companies, they came of age in a very different time. They probably went to business school 15, 20 years ago when they learned how to read a financial statement and learned marketing, but there were very few courses, if you will, on how to deal with politics or geopolitics. And nothing in their experience really set them up well to deal with the flux that we are seeing today. What is changing about the world order from your perspective as a global citizen who's been in all the different geographies? In the past, there was clearly a single center of gravity.

3:28The United States, with all its advantages for a lot of economic activity, was that center of gravity. What we have seen over the last 25 years or so is that that center of gravity has been shifting and there's more competition and there's more all kinds of resources. Whether it's people, technology, just traditional types of resources. And we've seen that more distributed across multiple places. We've seen the rise of China. We have seen middle powers also becoming more salient in this context. And so I think there's been a general shift in relative positioning of countries. But we've seen that center of gravity move a little bit towards the east in the last 25 years or so.

4:11So more, I think also, all of these actors are becoming much more cognizant of their relative positioning. And that's creating a lot of national security issues. Right. And protectionist policies. Protectionist policies for many reasons. So some of it is just nationalistic policies, but some of those are also really closely tied to national security to the extent that we don't want certain types of technologies or certain industries or sectors to be driven by foreign actors or that we don't want foreign companies to have control over certain segments of the domestic economy, their ability to repatriate rents and build advantages at home rather than in the countries where they are generating those rents.

4:56I think that's been a very big issue of contention for many countries. Can you give me, you know, a few examples of how this is playing out in maybe unexpected ways, you know, not just for large global companies, but also for small to medium sized businesses? So if you're a shrimp farmer in India, you had a huge market in the United States. What was a relative advantage for this small farmer or a small agricultural company in southern India has now, with the imposition of tariffs on a lot of Indian exports, has now become a massive disadvantage relative to their competitors in other countries.

5:41So a shrimp farmer from Ecuador now faces different tariff rates than that of their competitors in India. What we strive to in the past, a more level playing field, but we are seeing now that that's becoming more uneven based on where the company is located or what I call the corporate nationality of the company. And that in some sense is the defining feature of how geopolitics is impacting companies, whether you have an advantage or a disadvantage. And that corporate nationality can also quickly turn from a disadvantage to an advantage or the other way around. And how do you see this affecting how senior leaders are doing their jobs?

6:20So for one thing, everybody is crambling to keep up right now. Everybody is just trying to figure out what are the latest issues that I need to be aware of and how do I keep updated with what's going on in the business environment, in the competitive space. what's happening right now in terms of what is today's tariff rate? Or do I need to think about how I adjust my supply chain today, which a lot of companies are doing and they're doing it relatively well. But the second order effect, if you will, is thinking about what they need to compete in global markets. And what I mean by that is companies want to make sure that when they invest in a foreign market, that market access is something that they have a fair degree of confidence in, that they feel like they're competing on a level playing field, that they are facing the same set of conditions or similar constraints as their competitors do.

7:16They want to be sure that their investments are safe and secure, whether this is their physical investments, whether this is their financial investments, or whether this is their human capital and the employees that they have over there. And they also want to be sure that the cost of doing business in a different location is manageable. So if you end up having too many different balkanized systems, standards, institutions, that makes it really challenging for companies to expand and compete in international markets. So while companies are adjusting to the short-term tariffs or challenges to supply chains, there is this kind of second-order effects where they have to think about what is the kind of institutional infrastructure that I need to be able to invest in another market, to be able to compete in international markets.

8:07So the analogy I like to use is that of a game of Jenga. So if you have, you know, these little blocks and you build up a tower with those blocks, you can start knocking out blocks one by one and the tower still stands. You take out a few more, it starts wobbling a little bit. But at some point, the tower will collapse. You make the point in your book that it's not just these large global businesses. It might be an importer of toys. You know, it might be a European paint company that depends on a specific ingredient that is now part of a trade war. And also, I think that, you know, in certain countries like the United States, there's drastic policy changes that are also affecting the way companies can make decisions about where they're going to invest.

8:58So is it even possible to analyze the competitive landscape and make long term strategy in this current environment? I agree with you that, you know, there's lots of different types of companies. traditionally, we used to think of geopolitics as affecting companies in the defense sector, companies in the oil sector, what we thought of as critical industries. But what we are seeing today is a slightly different landscape, if you will, where toy companies or Hollywood movies or any kind of paint manufacturing, these types of things that we don't generally tend to associate with the classic industries that would be affected by geopolitics?

9:39Why is it that a teenager making a video on TikTok or somebody who's buying fast fashion clothing is suddenly in the midst of this kind of national security issues? And I think companies, it doesn't matter if you're big or small, if you're in any way a global competitor, if you're in any way looking at partners in other countries or investments in other locations, or even if you are a purely domestic company, but have supply chains that may be coming from other countries. And today, that's probably almost all companies, whether it's a direct supplier or an indirect supplier. Everybody is looking at the landscape.

10:17And I would argue, fundamentally, they're really worried about those four things, right? So will we continue to have market access? To what extent are we competing on a level playing field, how secure are any investments that we make, and what is the cost of doing business. And the reality is different companies look at the same landscape and they walk away with very different interpretations. For some companies, they see opportunities. They see ways of creating value. They are using the flux. And others look at this exact same landscape and see that more as a threat to their business model. And they have to adapt and they have to figure out how to change.

10:56And in some ways, large companies are an advantage because they are the ones who are able to scan the landscape. They can invest in political resources. They can figure out how they can allocate teams around the world. But on the other hand, large companies, those are also notoriously difficult to change. And so if they do decide that they need a different strategy or if they need to compete on different aspects of their business, it's exactly those large companies that are going to be really hard to pull that off. I do think there's space also for startups, small companies, SMEs that are going to find it much easier to shift the conversation or change their strategies or adapt their internal organization.

11:40Yeah. So it sounds like you're saying that to plan for the long-term companies, both need to analyze the landscape, think about lots of future scenarios, and then be willing to adapt depending on what happens? Certainly. I think scanning the environment is probably the first step. But a lot of the work comes after you scan the environment, which is how do you take that information that you get from the environment? How do you personalize it to your company? Take what is relevant. If there's a new policy or if there's a new tariff rate, companies have to personalize that and figure out to what extent it's relevant to their business, to what extent it's something that they need to adapt to.

12:24And they have to figure out a response. So they're gaming out different scenarios and trying to figure out what are the different scenarios in which I'm going to have large impact versus small impact. One step that you advocate for on the scanning front is actually hiring former diplomats. What do you think that they can teach C-suite leaders about how to navigate all of these changes? So one thing that I think diplomats really bring is just your ability to read the room and them having been in situations before. Maybe they were in the room when decisions were being made. Maybe they understand the policymaking process.

13:02The unique skills that they bring are their ability to break down the policy process, their ability to identify which way maybe the winds are blowing to figure out how they can use that information to advise their clients or top managers in terms of what they should be prepared for. I think they're also really good at potentially getting the right people in the room, making connections for the decision makers to be able to have a good idea of, I understand what's happening and I feel like I'm in a better position to make a decision for my company. And that's certainly very, very helpful for companies, especially those that haven't really been spending a lot of time thinking about these types of issues in the past.

13:46If you take a company like NVIDIA, Jensen Huang, the CEO, was famously not involved in politics before. He would rather hang out with the video gamers in California than spend time in DC. But Mr. Huang is kind of finding out that he actually is pretty much a corporate diplomat. They really have to retool, I think, the capabilities or what got them to the top is not necessarily the same set of skills that they need to have today. And I think former diplomats are one avenue or one source of information that can help them with what they need. And lobbying does seem to be a big piece of this. You know, we can't talk about politics without talking about that.

14:28How do companies with smaller budgets curry favor? Also, how do larger ones like the NVIDIAs or the Microsofts or the Facebooks of the world, how do they walk the line between legitimate lobbying and what might seem to the outside like exerting undue influence? through campaign donations or investing in the business interests of political leaders? That has been a tricky question for companies throughout time. Companies have always had to walk this fine line between how do we advocate for our interests while making sure that this is done in a fair way, that it doesn't create adverse consequences in other spaces.

15:20And so I think that's an ongoing challenge for many companies. What I would say is certainly I think some of the larger companies have much bigger budgets, a lot more people. They have access to the best diplomats. They have access to the best consulting firms. And they can be in the room to influence the policy much more. They get invited to the state dinners. The dinners. When I think about it, there's, again, a second-order effect, which is they're spending so much time, energy, and managerial resources in trying to figure out this policy space and trying to advocate for their own interests.

15:59And that used to be energy and managerial attention that used to be spent on something else. So when they weren't doing this, they were investing in products or they were fine-tuning their operations or their supply chains or paying more attention to their customers. So the research kind of shows that when companies are distracted by other things, then their regular operations tend to be negatively impacted.

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17:49Okay, so what other new types of talent or skills do companies need in this new environment? In some ways, the scanning part is the easy part. That's the part that outsiders can help you, whether it's diplomats, whether it is consulting companies, analysts, the scanning part is the part that you can get some support. You can rely on other actors to help you with that. I think the internal part is the one that is more complicated. Companies having to figure out what to do with that information. How is it going to impact their different businesses? How is it going to change the way they operate?

18:22And when they look at that information, looking at different scenarios, gaming out different scenarios, trying to understand risk management strategies, the scenario planning, all of that stuff. And so I think really being imaginative and trying to understand the different aspects of what is going on is a skill that companies will need to invest more in and really breaking down what we see on the outside into interpreting how is this going to impact my operations in the long run or the way I compete, my basic competitive advantage into the future. I think those are the kinds of challenges that companies would have to invest in.

19:01Yeah. So if someone with the diplomatic scanning networking skills is sort of one type of new person you need in the company, are there other types of new people that you need? We're seeing a big growth in quantitative analysts, for example, analysts who are able to collate big data, run different types of simulation models, try to understand game different scenarios. And thinking about the implications of geopolitics, even the companies that used to think about politics really didn't think about politics in a way that was central to their business. It was, you know, like you had the government affairs team that used to run off and do their own thing, but that was never really well integrated into the company's strategy making.

19:48And so I think that's another change that companies are probably going to have to think about because this conduit, government affairs is well positioned to bring you the information and understand how it's impacting your company. But if they're not at the table, that's a lost opportunity. So if they are not part of the strategy making, if you don't have like an integrated strategy making within the firm that's bringing in these types of information, that's, I think, also a way to look at this. Are there other structural changes that you think organizations will need to make or you see them making?

20:25So there's one big change in terms of organization. Global companies are thinking about issues like where do I put my stuff? Which offices? Which locations? What type of work are these people going to do? And I think there's a big element of trying to figure out what am I competing on and how am I organized to compete on those aspects? So if you think about companies like Microsoft, for example, they had a challenging time trying to figure out what to do with, for example, their research center in China. So a lot of companies invested lots of money investing in R &D labs and research centers around the world.

21:07and they're now kind of taking a step back or trying to ask, well, should they be as internationalized as they used to be in the past? Are we going to put them in some countries and not in other countries? Do they all have to be at home? How do we balance and navigate this trade-off between having access to the diverse knowledge that really gives us truly innovative products versus having a tighter control, having more oversight of the types of activities that different teams are doing. And then the last part I think is really, this is impacting the nature of work itself. The idea of, for example, remote work or work from anywhere, the promise was that it would democratize work, that anybody anywhere with the right kind of skills would be able to tap into the system.

21:56As long as you had a laptop and Wi-Fi, you should be good. That was the promise. And I think the technology might allow it, but the geopolitics is increasingly showing that that's probably not the case. Even if you can do it, you probably are not going to be allowed to do it. And we're seeing increasing restrictions on where people can work from or what types of databases they can access even within their own company, depending on which geographic location you're in. There's more restrictions on where data can be stored, who can access that data, where the servers are going to be installed. And the cross-border transfer of data is now a huge concern for many countries.

22:34So the idea of what is work itself, the promise of you can work from anywhere, be a digital nomad, go sit in Bali. I think the technology might allow it, but the geopolitics probably won't. We've had a lot of episodes on that. That's going to make some people sad. You mentioned the rise of quant analysts. How are these new technologies like LLMs helping companies do a better job of estimating their political risks? I think what we are seeing with the technology and the LLMs and the data revolution is a different way of quantifying these types of risks. So we are going, I think, from deeply contextual knowledge of the process, being embedded in the system to really understand what is going on, to a way of thinking about risk, which is much more quantifiable, which is using data from non-traditional sources, looking at, for example, narratives on social media or trying to understand how a company's operations are being interpreted by different types of audiences, whether that is individuals, customers, policymakers.

23:41competitors. I think it's these types of innovations that we are seeing with our ability to use either large language models or even other types of data analysis that uses really large data sets and other techniques like machine learning that will help you parse through those really huge volumes of data that we now have access to. For example, satellite images now is like a big thing in terms of trying to figure out factors such as risk for companies. Yeah, yeah. That's so interesting. You know, it's the ability to scrape social media and analyze millions of satellite images to figure out exactly the problems that your company is going to face in a particular geography.

24:25Are there any particular companies that you would point to as doing this particularly well? Are there certain geographies or industries that tend to understand how to operate in this new environment better than others? Certainly. I think, you know, if you think about the traditional industries where geopolitics was always an important factor, those would be defense, mining, oil. These types of companies have had a long history of trying to figure out exactly these types of events. They have had a long history of trying to understand how to navigate these types of changes. And they have built the tools and capabilities to do this in more sophisticated ways than other companies that never thought that they were going to be involved in these types of activities.

25:14So, you know, again, it's like fast fashion or paint or toys or TV and movies. I think these are the industries where it seems like now we're suddenly slammed with something that we never had the experience for. We never anticipated that we would be in this situation. I think there's a couple of companies, I think, in sectors such as e-commerce that are really in the middle of this and navigating this space. So if you think about companies like Shein, for example, the fast fashion company. So that's a company I think they have tried to navigate this world and they suddenly found themselves in the middle of geopolitics.

25:54I mean, really, they were selling fashion to teenagers. I mean, that's their demographic. And this is a China-based company. So it's a company that was founded in China, but they never actually sold their products within China. So they were actually shipping it to all around the world. They have been slammed by all kinds of changes, including shipping, including the data collection that they do, which allows them to be very responsive and create new fashions at order of magnitude higher than the traditional fast fashion companies like H &M or Zara. their ability to collect that data is also exactly why they are finding themselves in the middle of this type of geopolitical conflict, right?