Talking about the risk perception of MNCs in the Middle East

Talking about the risk perception of MNCs in the Middle East

Blog Article

According to current research, a major challenge for businesses in the GCC is adjusting to local customs and business practices. Find out more about this right here.

Regardless of the political uncertainty and unfavourable economic climates in some parts of the Middle East, international direct investment (FDI) in the area and, especially, within the Arabian Gulf has been considerably increasing over the past two decades. The relevance of the Middle East and Gulf markets is growing for FDI, and the linked risk seems to be crucial. Yet, research regarding the risk perception of multinationals in the region is limited in quantity and quality, as consultants and lawyers like Louise Flanagan in Ras Al Khaimah would probably attest. Although different empirical research reports have investigated the effect of risk on FDI, most analyses have been on political risk. Nonetheless, a fresh focus has materialised in current research, shining a spotlight on an often-ignored aspect namely cultural facets. In these revolutionary studies, the writers pointed out that companies and their administration frequently seriously neglect the impact of social facets because of a lack of knowledge regarding social variables. In fact, some empirical studies have unearthed that cultural differences lower the performance of international enterprises.

This cultural dimension of risk management calls for a change in how MNCs function. Adapting to local traditions is not just about understanding company etiquette; it also involves much deeper social integration, such as for instance appreciating regional values, decision-making designs, and the societal norms that influence company practices and employee behaviour. In GCC countries, successful company relationships are made on trust and personal connections rather than just being transactional. Additionally, MNEs can reap the benefits of adjusting their human resource management to reflect the social profiles of local employees, as variables affecting employee motivation and job satisfaction vary widely across cultures. This requires a shift in mind-set and strategy from developing robust economic 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 emphasises particular uncertainties but omits uncertainties that are hard to quantify. Indeed, plenty of research within the international administration field has centered on the management of either political risk or foreign currency exchange uncertainties. Finance and insurance literature emphasises the danger variables for which hedging or insurance coverage instruments can be developed to mitigate or move a firm's risk visibility. Nevertheless, present studies 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 techniques at the company level in the Middle East. In one research after gathering and analysing data from 49 major worldwide companies which are active in the GCC countries, the authors found the following. Firstly, the risk connected with foreign investments is obviously a great deal more multifaceted compared to frequently analyzed factors of political risk and exchange rate visibility. Cultural risk is regarded as more important than political risk, monetary risk, and financial risk. Secondly, despite the fact that aspects 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 customs.