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 in the GCC is adjusting to regional customs and business practices. Learn more about this here.

In spite of the political instability and unfavourable fiscal conditions in a few areas of the Middle East, international direct investment (FDI) in the area and, specially, into the Arabian Gulf has been steadily increasing over the past two decades. The relevance of the Middle East and Gulf markets is growing for FDI, and the connected risk appears to be essential. Yet, research regarding the risk perception of multinationals in the area is lacking in volume and quality, as specialists and solicitors like Louise Flanagan in Ras Al Khaimah would probably attest. Although different empirical research reports have examined the effect of risk on FDI, many analyses have largely been on political risk. Nonetheless, a fresh focus has materialised in present research, shining a limelight on an often-disregarded aspect particularly cultural facets. In these pioneering studies, the authors pointed out that companies and their management often seriously disregard the effect of social factors due to a lack of knowledge regarding cultural variables. In fact, some empirical studies have found that cultural differences lower the performance of multinational enterprises.

This cultural dimension of risk management calls for a shift in how MNCs operate. Adjusting to local customs is not just about understanding business etiquette; it also involves much deeper cultural integration, such as understanding regional values, decision-making designs, and the societal norms that impact business practices and employee conduct. In GCC countries, successful company relationships are made on trust and personal connections rather than just being transactional. Furthermore, MNEs can benefit from adjusting their human resource administration to reflect the cultural profiles of local workers, as variables affecting employee motivation and job satisfaction vary widely across cultures. This calls for a change in mindset and strategy from developing robust financial risk management tools to investing in cultural intelligence and regional expertise as professionals and attorneys such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.

A lot of the present literature on risk management strategies for multinational corporations features particular uncertainties but omits uncertainties that are difficult to quantify. Certainly, lots of research in the worldwide administration field has centered on the management of either political risk or foreign currency exchange uncertainties. Finance and insurance coverage literature emphasises the risk variables for which hedging or insurance instruments are developed to mitigate or transfer a firm's danger exposure. However, present studies have brought some fresh and interesting insights. They have sought to fill the main research gaps by giving empirical information about the risk perception of Western multinational corporations and their administration strategies on the firm level within the Middle East. In one investigation after collecting and analysing information from 49 major international businesses which are active in the GCC countries, the authors discovered the following. Firstly, the risk related to foreign investments is obviously a great deal more multifaceted compared to frequently analyzed factors of political risk and exchange rate visibility. Cultural risk is perceived as more crucial than political risk, financial danger, and economic danger. Secondly, even though elements of Arab culture are reported to have a strong impact on the business environment, most firms find it difficult to adapt to regional routines and traditions.