Why Business Leaders Need Political Diplomacy Skills Now

ALISON BEARD: I’m Alison Beard.

ADI IGNATIUS: And I’m Adi Ignatius, and this is the HBR IdeaCast.

ALISON BEARD: Adi, 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.

ADI IGNATIUS: I like that. 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.

ALISON BEARD: Our guest today is Srividya Jandhyala, an associate professor at ESSEC 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.

She’s the author of the book, The Great Disruption: How Geopolitics is Changing Companies, Managers, and Work. That’s Srividya Jandhyala, Associate Professor at ESSEC Business School, and an author of the book, The Great Disruption: How Geopolitics is Changing Companies, Managers, and Work.

Politics and geopolitics have always had a really big impact on how businesses decide to invest and operate. So what is different now?

SRIVIDYA JANDHYALA: 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.

If 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 learn marketing, but there were very few courses, 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.

ALISON BEARD: What is changing about the world order from your perspective as a global citizen who’s been in all the different geographies?

SRIVIDYA JANDHYALA: Definitely in the past, there was clearly a single center of gravity. The 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. So 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’ve seen middle powers also becoming more salient in this context. And so I think there’s been a general shift in how 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. More I think, also everybody, all of these actors are becoming much more cognizant of their relative positioning, and that’s creating a lot of national security issues.

ALISON BEARD: Right. And protectionist policies.

SRIVIDYA JANDHYALA: 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’re generating those rents. I think that’s been a very big issue of contention for many countries.

ALISON BEARD: Can you give me a few examples of how this is playing out in maybe unexpected ways, not just for large global companies, but also for small to medium-sized businesses?

SRIVIDYA JANDHYALA: So, let’s say 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. So a shrimp farmer from Ecuador now faces different tariff rates than that of their competitors in India. And I think, what used to be, 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 companies is located or where 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.

ALISON BEARD: And how do you see this affecting how senior leaders are doing their jobs?

SRIVIDYA JANDHYALA: So for one thing, everybody’s scrambling to keep up right now. I 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. And so I think there’s a lot of, we have to keep up with what’s happening right now in terms of what is today’s startup 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. They 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.

And so the analogy I like to use is that of a game of Jenga. So if you have 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, right?. You take out a few more, it starts wobbling a little bit, but at some point the tower will collapse.

ALISON BEARD: You make the point in your book that it’s not just these large global businesses. It might be an importer of toys. 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 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. So is it even possible to  analyze the competitive landscape and make long-term strategy in this current environment?

SRIVIDYA JANDHYALA: So I would say I agree with you that 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, right? 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.

Why 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? I think companies have to, doesn’t matter if you’re big or small, if you’re in any way a global competitor, if you’re 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 fundamentally they’re really worried about those four things. So to what extent will we continue to have market access? To what extent are we competing on a level playing field? How secure are in 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. And 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 are also notoriously difficult to change.

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. So 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.

ALISON BEARD: Yeah. So it sounds like you’re saying that to plan for the long-term companies both need to sort of analyze the landscape, think about lots of future scenarios, and then be willing to adapt depending on what happens.

SRIVIDYA JANDHYALA: 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. And 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.

ALISON BEARD: Yeah. 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?

SRIVIDYA JANDHYALA: So one thing that I think diplomats really bring is just their 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. So I think what the 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, just for, decision makers to be able to have a good idea of, “I, 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., if 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 a pretty much a corporate diplomat. So I think that 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 pharma diplomats are one avenue or one source of information that can help them with what they need.

ALISON BEARD: Yeah. And lobbying does seem to be a big piece of this. We can’t talk about politics without talking about that. How do companies with smaller budgets curry favor? And then 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 sort of undue influence through campaign donations or investing in the business interests of political leaders?

SRIVIDYA JANDHYALA: I mean, I think 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. And 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-

ALISON BEARD: They get invited to the state dinners.

SRIVIDYA JANDHYALA: -in the room to influence the policy much more, the dinners. but I also, when I think about it, there’s, again, a second order effect, which is they’re spending so much time, energy and resources, managerial resources in trying to figure out this policy space and trying to advocate for their own interests.

And 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. The research kind of shows that when companies are distracted by other things, then their regular operations tends to be negatively impacted.

ALISON BEARD: What other new types of talent or skills do companies need in this new environment?

SRIVIDYA JANDHYALA: 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 they can … 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? And when they look at that information, looking at different scenarios, gaming out different scenarios, trying to understand the 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 certainly 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.

ALISON BEARD: Yeah. So if someone with sort of 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?

SRIVIDYA JANDHYALA: So one, we are seeing also a big growth in quantitative analysts, for example, who are able to collate big data, run different types of simulation models, try to understand game different scenarios. I. And thinking about the implications of geopolitics s, 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 usually 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.

And 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’re 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.

ALISON BEARD: Are there other structural changes that you think organizations will need to make or you see them making?

SRIVIDYA JANDHYALA: So there’s one big change in terms of organization. Global companies, companies are thinking about issues like where do I put my staff? 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 and 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 innovative, 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. So 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. As 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, that even if you can do it, you probably are not going to be allowed to do it. 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. So 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.

ALISON BEARD: We’ve had a lot of episodes on that, and that’s going to make some people sad. And you mentioned the rise of quant analysts. How are new technologies like LLMs helping companies do a better job of sort of estimating their political risks?

SRIVIDYA JANDHYALA: I think what we are seeing with the technology and the LLMs and the data revolution is a different way of thinking about or quantifying these types of risks. So we are going, I think, from deeply contextual knowledge of the process and 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, competitors.

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 pass 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.

ALISON BEARD: Yeah. Yeah. That’s so interesting. It’s like 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. Are there any particular companies that you would point to as doing this particularly well? And are there certain geographies or industries that tend to understand how to operate in this new environment better than others?

SRIVIDYA JANDHYALA: Certainly. I think 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 most sophisticated ways than other companies that never thought that they were going to be involved in these types of activities, right?

So 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 are 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. I mean, really, they were selling clothed fashion to teenagers. I mean, that’s their demographic.

ALISON BEARD: And this is a China based company.

SRIVIDYA JANDHYALA: 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 that order of magnitude higher than the traditional fast fashion companies like H&M or Zara. But their ability to collect that data is also exactly why they’re finding themselves in the middle of this type of geopolitical conflict.

And so there’s questions about where do they put their data? What do they do with their servers? Who heads their operations in different countries? And an important part is also where do they put their supply chains? This is a company that became really strong because of their consolidated supply chain in China that allowed them to turn around designs very, very quickly, but they’ve now seen the need. They have invested in supply chains in Brazil, as well as in India and Turkey and a few other places as an effort to try to navigate these geopolitical issues that they’re finding themselves in.

ALISON BEARD: So they’re making the right moves to protect their business for the long term?

SRIVIDYA JANDHYALA: They’re making several moves. Some of them are trying to address some immediate issues, and some of them are really addressing the very core of the issue. What I mean by that is from the way I see it, this is a company that understands that it’s their nationality that is the problem. It’s not that they don’t have good products or services. They are a very, very competitive company, but they understand that the main challenge is because of how others perceive the company’s nationality.

So one of the things that they did, for example, was move their headquarters from China to Singapore and That was a way of moving the diversifying the nationality of the company, if you will. And so now when they’re looking to thinking about their different locations for an IPO, they may have to make that decision again about where they will put their headquarters. So I think that’s an example of a company that I think has really honed in on the main issue that’s driving the challenges that they face.

ALISON BEARD: Great. Well, Srividya, thank you so much. I learned a lot from this conversation and the book.

SRIVIDYA JANDHYALA: Thank you very much for having me. It’s been a pleasure.

ALISON BEARD: That’s Srividya Jandhyala, Associate Professor at ESSEC Business School, and an author of the book, The Great Disruption: How Geopolitics is Changing Companies, Managers, and Work.

Next week, we’ll look at the state of nonprofit leadership with Darren Walker, the outgoing president of the Ford Foundation. If you found this episode helpful, please share it with a colleague. And be sure to subscribe and rate IdeaCast in Apple Podcasts, Spotify or wherever you listen.

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