Cultural diplomacy, as defined by political scientist Milton C Cummings, is “the exchange of ideas, information, values, systems, traditions, beliefs, and other aspects of culture, with the intention of fostering mutual understanding”. While its place in statesmanship is now a given, its role in business is still being defined.

Corporate cultural diplomacy isn’t cultural management, says Mark Donfried, the 32-year-old who in 1999 founded the Institute for Cultural Diplomacy (ICD) in New York from a fax machine in his college dorm. “Cultural management is getting to know the culture you’re going to deal with. It focuses only on rules for behaviour. For example, always presenting your business card using both hands in Japan, or knowing that at French business dinners, business isn’t discussed until coffee’s being served.”

Cultural diplomacy is subtler, requiring an involvement with foreign cultures that goes beyond hiring bilingual executives to feet on the ground plus an understanding of, and respect for, other countries that goes beyond the business partnership. The rule book’s still being written. Karan Singh, president of the Indian Council for Cultural Relations (ICCR), says: “Culture deals with intangibles. How do you quantify it? You can quantify the scholarships we give to foreign students, the troupes that go abroad. But their impact can’t be quantified. There is a growing interest in our culture as India emerges in the great global game. People are more interested in India than before.” The ICCR now has three centres in Europe – in Moscow, Berlin and London.

“The most important reason for diplomacy for businesses,” says Donfried, “is the same as for states: trust. Whether with a national or international partner, a company needs trust. Diplomacy is the key to building that trust. Cultural diplomacy also assists in market research.” The institute, now based in Berlin, has an advisory board that includes current and former leaders and ministers from nations such as Morocco, Namibia, Afghanistan, the US, Ireland and Australia, and sponsors ranging from Deutsche Bank to NPR and Toyota. It presents programmes and panels on topics as diverse as nation branding, the rise of Africa and hard versus soft power.

The classic example of a company failing to know its market is Disney, which opened EuroDisney, its theme park near Paris, in 1992. Demonstrating a spectacular disregard for market research, its restaurants did not serve wine. Meanwhile, its French workers viewed Disney’s strict appearance code as an infringement on individual liberties and the English-only requirement at meetings as insensitive. And everyone hated the name. Michael Eisner, Disney CEO at the time, later noted: “As Americans, the word ‘Euro’ is believed to mean glamorous.

It turned out to be a term Europeans associated with business, currency, and commerce.” The renamed Disneyland Paris showed its first quarter profit in 1995.

Companies looking for help in developing their cultural diplomacy expertise will find more organisations and trade ministries willing to help them. In South Korea, the foreign ministry has a plan (involving the Federation of Korean Industries) to put senior diplomats between posts to work at private firms that need diplomatic expertise, so ‘business diplomacy’ can boost economic interests at home and abroad.

The US Department of State has recognised corporate diplomacy since 1999 with its Awards for Corporate Excellence (ACE). The companies that won in 2010 did so for textbook examples of cultural diplomacy: Mars for its sustainable cocoa farming in Ghana; Cisco for developing economic and social initiatives in Israel and Palestine; and Denimatrix, a fabric factory in Texas that supplies clothing to Gap and Banana Republic, for supporting free medical clinics in Guatemala.

A more innovative approach was that of 2009 ACE recipient TOMS Shoes, of Santa Monica, California. Now available online in 30 countries, TOMS credits its success to its One For One programme, an example of corporate cultural diplomacy at its most involving. For every pair of shoes purchased, a pair is given to a child in need. In 2006, the first year, employee volunteers handed out 10,000 pairs of shoes in Argentina, the main manufacturing site. By autumn 2010, that number had risen to more than a million.

TOMS is notable for incorporating cultural diplomacy into the company with its first business plan and for getting employees involved, a strong human resources asset. Founder Blake Mycoskie calls himself “chief shoe giver”; when he took those first 10,000 pairs to South America, he says: “I took my interns and my family and we didn’t just give away those shoes, we had placed them all. My mom was putting shoes on kids’ feet, but she was also washing their feet.” The team effort has also saved on ad costs: the passion of his staff and customers convinced him that “if you incorporate giving into your [business] model, your customers become your best marketers”.

Coca-Cola, a long-time exponent of cultural diplomacy, continues to pump up the volume. Ingrid Saunders Jones, who leads the company’s global community engagement team, explains: “Sustainability and social responsibility are the fundamental building blocks to the success and longevity of any business in today’s 21st-century competitive global market. Given Coca-Cola’s strong international presence, we strive to create an environment in which our employees are engaged with the communities in which we operate and maintain a strong understanding of global cultural diversity.”

So is corporate cultural diplomacy nothing more than ‘cause PR’? Donfried says that while it’s a great way to get the name out, “cultural diplomacy isn’t just logo or product placement. It requires involvement because the most important part of it is relationships.”

One of the greatest cultural-diplomacy failures of recent times – the BP oil rig explosion – was relationship-based and is proof, says Donfried, that “you can’t have bullshit cultural diplomacy”. Americans affected by the Deepwater spill didn’t look at Tony Hayward and see a man so successful his 2009 bonus approached £3m. They saw an English toff treating them with contempt even as he failed to mention the BP shares he’d recently sold off. “Closed-door diplomacy is now a thing of the past,” Donfried points out. And so is Tony Hayward’s job at BP.

Years ago, former US ambassador to the UN Andrew Young supposedly said: “Once the Xerox copier was invented, diplomacy died.” Today, it’s the copiers that are going the way of the horse and buggy, while diplomacy, whether in statehood or business, seems to be here to stay.

But surely the scope of internet communication makes corporate cultural diplomacy unnecessary? On the contrary. In just a few days in February, its role in the digital age was illustrated by two very different incidents.

Firstly, in what was quickly declared to have been the most offensive commercial ever during the Super Bowl, 111 million viewers watched as online discount site Groupon showed footage of Tibet and its impoverished people while actor Timothy Hutton gravely intoned: “The people of Tibet are in trouble – their very culture is in jeopardy.” Then he added gaily: “But they still whip up an amazing fish curry.” Cut to Hutton chowing down in a Tibetan restaurant in Chicago, thanks to a hefty Groupon coupon discount. The Twitterverse was immediately abuzz.

After an overwhelming amount of free publicity was unleashed, all of it bad, Greenpeace finally stepped in to say Groupon’s motives were laudatory even though it neglected to mention onscreen that the function of Groupon’s Save the Money campaign, intended as a parody of celebrity charity ads, was raising money for the causes it seemed to mock (other commercials featured Cuba Gooding discussing the endangerment of whales while flogging a discount coupon for a whale-watching boat ride and Elizabeth Hurley comparing a cut-rate bikini wax to deforestation in Brazil).

Groupon CEO Andrew Mason insisted the ads were misconstrued, but five days later he killed the campaign, the only sane move for a company prepping for a public offering. As Michael J de la Merced mused in The New York Times: “One has to wonder how Groupon’s backers, including Andreessen Horowitz, Kleiner Perkins Caulfield & Byers, the Mail.ru Group and Morgan Stanley, feel about the controversy after having pumped $950m into the company at a $15bn valuation.”

Stefan Schultz, who comments on the internet and communications for the German media, says: “Viral videos all have a certain thing in common. They somehow cross a line – no matter if it is culturally, morally or whatever – to gain attention. And in a lot of cases, they seem to have a counterproductive effect, such as damaging the brand. Cultural diplomacy does not help in this case, since the provocation was intentional.” Still, cultural diplomacy before the fact might have convinced Mason that showing emigrants forced to offer Groupon discounts to make a living says as much about the success of couponeers with $350m in revenues as it does about poor Tibetans.

The next bad move came just days later, and was on Twitter. Kenneth Cole, head of fashion house KPC, personally tweeted the cringe-making text: “Millions are in an uproar in #Cairo. Rumour is they heard our new spring collection is now available online at http:77bit.ly7KCairo.” Within a few hours, Cole had deleted the tweet and apologised on Facebook (where Mason had shared his Groupon views). But even minutes would have been too late to prevent the creation of @ FakeKennethCole, featuring tweets such as: “We stand with the people of Egypt. President Mubarak – step down NOW, and I’ll give you 15% off any non-sale item in our stores.” Cole soon issued a second statement to reiterate “that my use of levity with regard to this momentous occasion was extremely inappropriate. My thoughts are with the courageous people of Egypt.”

As Schultz sees it: “One of cultural diplomacy’s core competences is something that might prevent such poorly considered and cynical jokes. You are fully aware of the fact that cultures have different values and different sensitivities. Even if you might find some of them abhorrent, you still learn to respect this difference – and you try to understand the reasons for the behaviour. This might prevent you from forgetting your empathy about the situation in Egypt when you type away on Twitter.”

Hillary Clinton even has a senior adviser for innovation, Alec Ross, who was instrumental in getting the department involved in social networking and who told the International Herald Tribune: “A lot of the 21st-century dynamics are less about, ‘Do you comport politically along traditional liberal- conservative ideological lines?’ Today it is – at least in the spaces we engage in – ‘Is it open or is it closed?’” The ‘it’ refers to freedom to connect.

In the six years he’s been writing about the internet, Schultz says he’s seen it “heighten the need” for cultural diplomacy. “In general the internet does not change the necessity for cultural diplomacy in global businesses. Especially in Germany, there are a lot of so-called hidden champions. Those are relatively small companies such as Delo, Baader, 3B Scientific, tetra or Wanzl. Those companies are highly focused on a very special market niche – in order to raise their revenue, they expanded globally. Most of them are world leaders in their business area. One of their success secrets is that they search for direct contact with their clients around the world; 25%-50% of their employees regularly get in touch with their clients. Internet communication can support this, but never replace it.”