Exactly how do MNCs manage cultural risks in the GCC countries

Exactly how do MNCs manage cultural risks in the GCC countries

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The Middle East is attracting global investment, particularly the Gulf area. Learn more about risk management in the gulf.

Much of the prevailing academic work on risk management strategies for multinational corporations illustrates particular uncertainties but omits uncertainties that are hard to quantify. Indeed, lots of research in the international administration field has been dedicated to the handling of either political risk or foreign currency exchange uncertainties. Finance and insurance coverage literature emphasises the risk factors for which hedging or insurance coverage instruments are developed to mitigate or move a firm's risk visibility. But, current studies have brought some fresh and interesting insights. They have sought to fill the main research gaps by providing empirical information about the risk perception of Western multinational corporations and their administration techniques at the firm level within the Middle East. In one research after collecting and analysing data from 49 major worldwide businesses that are active in the GCC countries, the authors discovered the following. Firstly, the risk related to foreign investments is obviously far more multifaceted compared to the usually analyzed factors of political risk and exchange rate visibility. Cultural risk is perceived as more essential than political risk, economic risk, and financial danger. Secondly, even though elements 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.

This social dimension of risk management requires a shift in how MNCs function. Adapting to local traditions is not just about being familiar with company etiquette; it also involves much deeper social integration, such as for instance understanding regional values, decision-making styles, and the societal norms that affect business practices and worker behaviour. In GCC countries, successful company relationships are made on trust and personal connections instead of just being transactional. Moreover, MNEs can reap the benefits of adjusting their human resource management to mirror the cultural profiles of regional employees, as variables influencing employee motivation and job satisfaction differ 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 consultants and attorneys such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.

Regardless of the political uncertainty and unfavourable fiscal conditions in certain areas of the Middle East, international direct investment (FDI) in the region and, particularly, within the Arabian Gulf has been steadily increasing within the last two decades. The relevance of the Middle East and Gulf areas is growing for FDI, and the linked risk appears to be essential. Yet, research on the risk perception of multinationals in the area is limited in amount and quality, as specialists and lawyers like Louise Flanagan in Ras Al Khaimah would probably attest. Although various empirical studies have examined the effect of risk on FDI, most analyses have largely been on political risk. Nonetheless, a new focus has come forth in recent research, shining a spotlight on an often-disregarded aspect namely cultural variables. In these revolutionary studies, the authors noticed that businesses and their management frequently really take too lightly the effect of social facets because of a not enough knowledge regarding social variables. In fact, some empirical studies have unearthed that cultural differences lower the performance of international enterprises.