Find out more about how exactly Western multinational corporations perceive and manage dangers within the Middle East.
Regardless of the political instability and unfavourable economic climates in a few areas of the Middle East, foreign direct investment (FDI) in the area and, especially, in the Arabian Gulf has been steadily increasing within the last 20 years. The relevance of the Middle East and Gulf markets is growing for FDI, and the associated risk is apparently crucial. Yet, research on the risk perception of multinationals in the area is limited in quantity and quality, as specialists and attorneys like Louise Flanagan in Ras Al Khaimah would likely attest. Although different empirical studies have investigated the effect of risk on FDI, many analyses have been on political risk. Nonetheless, a brand new focus has surfaced in present research, shining a spotlight on an often-overlooked aspect particularly cultural factors. In these revolutionary studies, the writers pointed out that businesses and their management usually seriously overlook the impact of social factors because of a not enough knowledge regarding cultural factors. In reality, some empirical studies have unearthed that cultural differences lower the performance of multinational enterprises.
A lot of the present academic work on risk management strategies for multinational corporations illustrates particular uncertainties but omits uncertainties that are difficult to quantify. Certainly, a lot of research within the international administration field has centered on the handling of either political risk or foreign exchange uncertainties. Finance and insurance coverage literature emphasises the risk variables for which hedging or insurance coverage instruments can be developed to mitigate or transfer a company's risk visibility. However, current research reports have brought some fresh and interesting insights. They have sought to fill the main research gaps by giving empirical understanding of the risk perception of Western multinational corporations and their administration techniques on the firm level in the Middle East. In one research after collecting and analysing data from 49 major worldwide businesses that are have extensive operations in the GCC countries, the authors discovered the following. Firstly, the risk related to foreign investments is clearly even more multifaceted than the usually examined variables of political risk and exchange rate exposure. Cultural risk is regarded as more crucial than political risk, monetary risk, and financial danger. Secondly, despite the fact that aspects of Arab culture are reported to really have a strong influence on the business environment, most firms battle to adapt to local routines and traditions.
This cultural dimension of risk management demands a change in how MNCs work. Adjusting to regional traditions is not just about being familiar with business etiquette; it also requires much deeper cultural integration, such as for instance understanding local values, decision-making styles, and the societal norms that affect business practices and employee conduct. In GCC countries, successful business relationships are designed on trust and personal connections instead of just being transactional. Additionally, MNEs can benefit from adapting their human resource management to reflect the cultural profiles of regional workers, as variables influencing employee motivation and job satisfaction differ widely across countries. This calls for a change in mind-set and strategy from developing robust financial risk management tools to investing in cultural intelligence and local expertise as professionals and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah may likely suggest.