Talking about the risk perception of MNCs in the Middle East

Talking about the risk perception of MNCs in the Middle East

Blog Article

Find out more about how Western multinational corporations perceive and handle dangers in the Middle East.

In spite of the political uncertainty and unfavourable fiscal conditions in some elements of the Middle East, international direct investment (FDI) in the region and, particularly, into the Arabian Gulf has been progressively increasing in 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 lawyers like Louise Flanagan in Ras Al Khaimah would probably attest. Although different empirical studies have investigated the effect of risk on FDI, many analyses have largely been on political risk. Nonetheless, a new focus has materialised in present research, shining a limelight on an often-ignored aspect specifically cultural factors. In these revolutionary studies, the authors remarked that companies and their administration frequently seriously overlook the effect of cultural facets because of a not enough knowledge regarding cultural variables. In fact, some empirical research reports have found that cultural differences lower the performance of international enterprises.

Much of the prevailing literature on risk management strategies for multinational corporations highlights particular uncertainties but omits uncertainties that are hard to quantify. Indeed, lots 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 variables for which hedging or insurance coverage instruments can be developed to mitigate or move a firm's danger exposure. Nonetheless, present research reports have brought some fresh and interesting insights. They have sought to fill part of the research gaps by providing empirical information about the risk perception of Western multinational corporations and their management methods on the firm level within the Middle East. In one investigation after collecting and analysing information from 49 major international businesses which are active in the GCC countries, the authors discovered the following. Firstly, the risk associated with foreign investments is actually much more multifaceted compared to usually examined factors of political risk and exchange rate visibility. Cultural danger is perceived as more crucial than political risk, monetary risk, and economic danger. Secondly, despite the fact that aspects of Arab culture are reported to have a strong influence on the business environment, most firms find it difficult to adapt to regional routines and customs.

This cultural dimension of risk management demands a shift in how MNCs function. Adjusting to local customs is not only about being familiar with business etiquette; it also involves much deeper cultural integration, such as for example understanding local values, decision-making styles, and the societal norms that affect company practices and employee behaviour. In GCC countries, successful business relationships are designed on trust and personal connections rather than just being transactional. Also, MNEs can reap the benefits of adapting their human resource management to reflect the social profiles of regional employees, as factors affecting employee motivation and job satisfaction differ widely across cultures. This requires a shift in mind-set and strategy from developing robust economic risk management tools to investing in social intelligence and regional expertise as consultants and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.