Find out more exactly how Western multinational corporations perceive and handle risks in the Middle East.
Regardless of the political instability and unfavourable fiscal conditions in certain areas of the Middle East, international direct investment (FDI) in the area and, particularly, within the Arabian Gulf has been considerably increasing within the last 20 years. The relevance of the Middle East and Gulf markets is growing for FDI, and the associated risk appears to be essential. Yet, research regarding the risk perception of multinationals in the area is limited in quantity and quality, as professionals 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. Nevertheless, a new focus has come forth in current research, shining a spotlight on an often-overlooked aspect namely cultural factors. In these pioneering studies, the researchers noticed that businesses and their management usually really brush aside the effect of cultural factors because of a not enough knowledge regarding cultural variables. In reality, some empirical research reports have discovered that cultural differences lower the performance of multinational enterprises.
This social dimension of risk management demands a change in how MNCs do business. Conforming to regional traditions is not only about understanding business etiquette; it also involves much deeper social integration, such as for example understanding local values, decision-making styles, and the societal norms that influence company practices and worker behaviour. In GCC countries, successful business relationships are made on trust and personal connections rather than just being transactional. Additionally, MNEs can reap the benefits of adjusting their human resource administration to reflect the cultural profiles of regional workers, as variables influencing employee motivation and job satisfaction vary widely across countries. This calls for a shift in mindset and strategy from developing robust monetary risk management tools to investing in social intelligence and regional expertise as experts and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.
A lot of the prevailing academic work on risk management strategies for multinational corporations illustrates particular uncertainties but omits uncertainties that are hard to quantify. Indeed, plenty of research in the international management field has been dedicated to the handling of either political risk or foreign currency exchange uncertainties. Finance and insurance literature emphasises the danger variables for which hedging or insurance coverage instruments could be developed to mitigate or transfer a company's danger exposure. But, current studies have brought some fresh and interesting insights. They have sought to fill an element of the research gaps by giving empirical understanding of the risk perception of Western multinational corporations and their management methods at the firm level within the Middle East. In one investigation after collecting and analysing information from 49 major worldwide companies which are have extensive operations in the GCC countries, the authors found the following. Firstly, the risk connected with foreign investments is obviously much 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 really have a strong influence on the business environment, most firms battle to adapt to local routines and traditions.