Find out more about how Western multinational corporations perceive and handle dangers within the Middle East.
Regardless of the political instability and unfavourable economic conditions in a few elements of the Middle East, foreign direct investment (FDI) in the region and, particularly, into the Arabian Gulf has been considerably increasing within the last two decades. The relevance of the Middle East and Gulf areas is growing for FDI, and the linked risk is apparently crucial. Yet, research regarding 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 largely been on political risk. However, a new focus has emerged in present research, shining a spotlight on an often-ignored aspect namely cultural facets. In these groundbreaking studies, the authors noticed that companies and their administration frequently really brush aside the impact of social factors because of a not enough knowledge regarding cultural factors. In fact, some empirical research reports have discovered that cultural differences lower the performance of international enterprises.
Much of the existing literature on risk management strategies for multinational corporations features particular uncertainties but omits uncertainties that are tough to quantify. Indeed, plenty of research in the worldwide management field has centered on the management of either political risk or foreign currency exchange uncertainties. Finance and insurance literature emphasises the danger factors which is why hedging or insurance instruments could be developed to mitigate or transfer a company'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 information about the risk perception of Western multinational corporations and their administration strategies on the firm level in the Middle East. In one research after collecting and analysing information from 49 major international companies which are active in the GCC countries, the authors discovered the following. Firstly, the risk associated with foreign investments is actually more multifaceted compared to the frequently analyzed variables of political risk and exchange rate exposure. Cultural danger is regarded as more important than political risk, economic danger, and economic risk. Secondly, despite the fact that elements of Arab culture are reported to have a strong influence on the business environment, most firms battle to adapt to regional routines and customs.
This cultural dimension of risk management demands a change in how MNCs run. Adapting to regional traditions is not only about being familiar with business etiquette; it also requires much deeper social 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 made on trust and individual connections rather than just being transactional. Also, MNEs can reap the benefits of adapting their human resource administration to mirror the cultural profiles of local workers, as factors influencing employee motivation and job satisfaction differ widely across countries. This requires a change in mind-set and strategy from developing robust financial risk management tools to investing in cultural intelligence and regional expertise as specialists and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.