According to current research, a significant challenge for companies within the GCC is adjusting to regional customs and business practices. Discover more about this right here.
Despite the political instability and unfavourable fiscal conditions in certain elements of the Middle East, international direct investment (FDI) in the area and, specially, into the Arabian Gulf has been considerably increasing within the last two decades. 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 lacking in quantity and quality, as specialists and lawyers like Louise Flanagan in Ras Al Khaimah may likely attest. Although different empirical studies have investigated the effect of risk on FDI, most analyses have largely been on political risk. Nonetheless, a fresh focus has materialised in recent research, shining a spotlight on an often-overlooked aspect namely cultural factors. In these pioneering studies, the authors pointed out that businesses and their administration usually really overlook the effect of social facets as a result of not enough knowledge regarding social factors. In fact, some empirical studies have found that cultural differences lower the performance of multinational enterprises.
This cultural dimension of risk management demands a change in how MNCs do business. Adjusting 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 designs, and the societal norms that impact business practices and employee conduct. In GCC countries, successful company relationships are made on trust and individual connections instead of just being transactional. Also, MNEs can benefit from adjusting their human resource administration to reflect the social profiles of local workers, as factors affecting employee motivation and job satisfaction vary widely across cultures. This requires a change in mindset and strategy from developing robust monetary risk management tools to investing in social intelligence and local expertise as experts and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.
A lot of the present literature on risk management strategies for multinational corporations features particular uncertainties but omits uncertainties that are difficult to quantify. Certainly, lots of research within the international management field has been dedicated to the handling of either political risk or foreign exchange uncertainties. Finance and insurance literature emphasises the danger factors which is why hedging or insurance coverage instruments can be developed to mitigate or transfer a company's risk visibility. Nevertheless, recent 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 strategies on the firm level in the Middle East. In one research after collecting and analysing data from 49 major worldwide companies which are have extensive operations in the GCC countries, the authors discovered the following. Firstly, the risk related to foreign investments is clearly much more multifaceted compared to often cited variables of political risk and exchange rate exposure. Cultural danger is perceived as more crucial than political risk, financial danger, and economic danger. Secondly, despite the fact that elements of Arab culture are reported to have a strong impact on the business environment, most firms struggle to adapt to regional routines and traditions.