Discussing the risk perception of MNCs into the Middle East

Discussing the risk perception of MNCs into the Middle East

Blog Article

According to present research, a significant challenge for companies within the GCC is adjusting to local customs and business practices. Learn more about this here.

Despite the political uncertainty and unfavourable economic climates in a few parts of the Middle East, international direct investment (FDI) in the area and, especially, within the Arabian Gulf has been continuously increasing over the past two decades. The relevance of the Middle East and Gulf areas is growing for FDI, and the connected risk seems to be essential. Yet, research regarding the risk perception of multinationals in the region is limited in volume and quality, as specialists and attorneys like Louise Flanagan in Ras Al Khaimah may likely attest. Although various empirical research reports have examined the effect of risk on FDI, most analyses have been on political risk. However, a new focus has materialised in present research, shining a limelight on an often-neglected aspect specifically cultural factors. In these revolutionary studies, the writers remarked that businesses and their administration frequently seriously neglect the impact of cultural factors because of a not enough knowledge regarding social variables. In reality, some empirical studies have discovered that cultural differences lower the performance of multinational enterprises.

A lot of the existing academic work on risk management strategies for multinational corporations features particular uncertainties but omits uncertainties that are tough to quantify. Indeed, a lot of research within the international administration field has focused on the handling of either political risk or foreign exchange uncertainties. Finance and insurance literature emphasises the danger factors which is why hedging or insurance instruments are developed to mitigate or transfer a company's danger exposure. But, recent research reports have brought some fresh and interesting insights. They have sought to fill part of the research gaps by giving empirical knowledge about the risk perception of Western multinational corporations and their administration methods at the company level in the Middle East. In one investigation after gathering and analysing data from 49 major international businesses that are active in the GCC countries, the authors discovered the following. Firstly, the risk associated with foreign investments is actually far more multifaceted compared to frequently cited factors of political risk and exchange rate visibility. Cultural danger is perceived as more crucial than political risk, financial risk, and financial danger. Secondly, even though aspects of Arab culture are reported to really have a strong impact on the business environment, most firms struggle to adapt to local routines and traditions.

This social dimension of risk management calls for a change in how MNCs do business. Adjusting to local traditions is not just about understanding business etiquette; it also involves much deeper cultural integration, such as for instance understanding regional values, decision-making designs, and the societal norms that impact company practices and worker behaviour. In GCC countries, successful company relationships are made on trust and personal connections instead of just being transactional. Additionally, MNEs can benefit from adapting their human resource management to mirror the social profiles of regional employees, as factors influencing employee motivation and job satisfaction differ widely across countries. This calls for a change in mindset and strategy from developing robust monetary risk management tools to investing in cultural intelligence and local expertise as specialists and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.