The Middle East is attracting global investment, particularly the Gulf region. Learn more about risk management in the gulf.
Much of the existing literature on risk management strategies for multinational corporations features particular uncertainties but omits uncertainties that are difficult to quantify. Indeed, lots of research in the worldwide management field has been dedicated to the management of either political risk or foreign currency exchange uncertainties. Finance and insurance literature emphasises the risk variables for which hedging or insurance coverage instruments can be developed to mitigate or move a company's danger visibility. Nonetheless, present research reports 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 on the firm level within the Middle East. In one investigation after gathering and analysing information from 49 major worldwide companies that 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 usually analyzed variables of political risk and exchange rate exposure. Cultural danger is perceived as more essential than political risk, financial danger, and economic 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 customs.
In spite of the political instability and unfavourable economic conditions in a few elements of the Middle East, foreign direct investment (FDI) in the area and, especially, into the Arabian Gulf has been gradually increasing in the last two decades. The relevance of the Middle East and Gulf markets is growing for FDI, and the connected risk is apparently important. Yet, research regarding the risk perception of multinationals in the region is limited in volume and quality, as experts and solicitors like Louise Flanagan in Ras Al Khaimah would probably attest. Although various empirical research reports have investigated the effect of risk on FDI, many analyses have been on political risk. However, a fresh focus has emerged in current research, shining a limelight on an often-overlooked aspect specifically cultural facets. In these revolutionary studies, the authors remarked that businesses and their management frequently really underestimate the impact of cultural facets as a result of lack of knowledge regarding cultural variables. In reality, some empirical research reports have unearthed that cultural differences lower the performance of multinational enterprises.
This cultural dimension of risk management requires a change in how MNCs function. Conforming to local customs is not just about understanding business etiquette; it also requires much deeper social integration, such as for example appreciating local values, decision-making styles, and the societal norms that impact business practices and worker conduct. In GCC countries, successful company relationships are built on trust and personal connections instead of just being transactional. Furthermore, MNEs can benefit from adjusting their human resource administration to mirror the cultural profiles of local workers, as factors influencing employee motivation and job satisfaction vary widely across cultures. This calls for a shift in mindset and strategy from developing robust financial risk management tools to investing in cultural intelligence and local expertise as experts and attorneys such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.