How do MNCs manage cultural risks in the Arab gulf countries

How do MNCs manage cultural risks in the Arab gulf countries

Blog Article

The Middle East is attracting global investment, especially the Gulf region. Find out more about risk management in the gulf.

In spite of the political uncertainty and unfavourable economic conditions in some parts of the Middle East, foreign direct investment (FDI) in the region and, especially, within the Arabian Gulf has been progressively increasing within the last 20 years. The relevance of the Middle East and Gulf areas is growing for FDI, and the linked risk is apparently essential. Yet, research regarding the risk perception of multinationals in the area is lacking in volume and quality, as specialists and solicitors like Louise Flanagan in Ras Al Khaimah would probably attest. Although different empirical research reports have examined the effect of risk on FDI, many analyses have largely been on political risk. However, a brand new focus has appeared in current research, shining a spotlight on an often-ignored aspect specifically cultural variables. In these pioneering studies, the authors pointed out that businesses and their administration usually really brush aside the effect of cultural factors because of a lack of knowledge regarding social factors. In reality, some empirical studies have found that cultural differences lower the performance of multinational enterprises.

This social dimension of risk management demands a change in how MNCs work. Adjusting to local traditions is not only about understanding business etiquette; it also involves much deeper social integration, such as for instance appreciating local values, decision-making designs, and the societal norms that affect company practices and employee conduct. In GCC countries, successful company relationships are made on trust and personal connections instead of just being transactional. Additionally, MNEs can take advantage of adapting their human resource management to mirror the social profiles of local workers, as variables affecting employee motivation and job satisfaction vary widely across cultures. This calls for a shift in mindset and strategy from developing robust monetary risk management tools to investing in social intelligence and local expertise as consultants and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah may likely suggest.

Much of the prevailing literature on risk management strategies for multinational corporations highlights particular uncertainties but omits uncertainties that are tough to quantify. Indeed, a lot 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 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 company level in the Middle East. In one research after collecting and analysing information from 49 major international companies which are have extensive operations in the GCC countries, the authors found the following. Firstly, the risk connected with foreign investments is clearly a great deal more multifaceted compared to frequently cited factors of political risk and exchange rate visibility. Cultural risk is regarded as more important than political risk, economic risk, and economic danger. Secondly, even though elements of Arab culture are reported to have a strong impact on the business environment, most firms struggle to adapt to regional routines and customs.