Talking about the risk perception of MNCs in the Middle East

Talking about the risk perception of MNCs in the Middle East

Blog Article

According to current research, a major challenge for firms within the GCC is adjusting to local customs and business practices. Find out more about this here.

Much of the prevailing literature on risk management strategies for multinational corporations highlights particular uncertainties but omits uncertainties that are hard to quantify. Certainly, lots of research within 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 for which hedging or insurance coverage instruments can be developed to mitigate or transfer a firm's danger exposure. But, recent research reports have brought some fresh and interesting insights. They have sought to fill an element of the research gaps by giving empirical knowledge about the risk perception of Western multinational corporations and their administration techniques on the firm level within the Middle East. In one investigation after collecting and analysing data 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 clearly a great deal more multifaceted compared to usually cited variables of political risk and exchange rate exposure. Cultural risk is regarded as more essential than political risk, monetary risk, and financial danger. Secondly, even though elements of Arab culture are reported to really have a strong impact on the business environment, most firms struggle to adapt to local routines and traditions.

In spite of the political instability and unfavourable economic conditions in some areas of the Middle East, international direct investment (FDI) in the area and, specially, in the Arabian Gulf has been gradually increasing in the last 20 years. The relevance of the Middle East and Gulf areas is growing for FDI, and the associated risk seems to be crucial. Yet, research regarding the risk perception of multinationals in the region is lacking in quantity and quality, as experts and solicitors like Louise Flanagan in Ras Al Khaimah would probably attest. Although various empirical studies have examined the effect of risk on FDI, many analyses have largely been on political risk. Nonetheless, a fresh focus has surfaced in current research, shining a limelight on an often-disregarded aspect namely cultural factors. In these groundbreaking studies, the writers noticed that businesses and their administration usually really underestimate the impact of cultural factors because of a lack of knowledge regarding cultural variables. In fact, some empirical studies have found that cultural differences lower the performance of multinational enterprises.

This cultural dimension of risk management calls for a shift in how MNCs run. Adjusting to local customs is not just about understanding company etiquette; it also requires much deeper social integration, such as for example understanding local values, decision-making styles, and the societal norms that influence business practices and worker conduct. In GCC countries, successful company relationships are made on trust and personal connections instead of just being transactional. Also, MNEs can reap the benefits of adjusting their human resource management to reflect the cultural profiles of regional workers, as variables influencing employee motivation and job satisfaction vary widely across cultures. This calls for a shift in mind-set and strategy from developing robust economic 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 likely suggest.