The Middle East is attracting global investment, especially the Gulf region. Find out more about risk management in the gulf.
Much of the existing academic work on risk management strategies for multinational corporations demonstrates particular uncertainties but omits uncertainties that are difficult to quantify. Indeed, lots of research in the international administration field has focused on the handling of either political risk or foreign exchange uncertainties. Finance and insurance coverage literature emphasises the danger factors which is why hedging or insurance coverage instruments can be developed to mitigate or move a firm's danger exposure. Nevertheless, present studies have brought some fresh and interesting insights. They have sought to fill an element of the research gaps by providing empirical knowledge about the risk perception of Western multinational corporations and their administration strategies at the firm level within the Middle East. In one investigation after collecting and analysing data from 49 major worldwide companies that are have extensive operations in the GCC countries, the authors found the following. Firstly, the risk related to foreign investments is obviously a great deal more multifaceted compared to usually cited factors of political risk and exchange rate visibility. Cultural danger is perceived as more crucial than political risk, monetary risk, and financial danger. Secondly, despite the fact that aspects of Arab culture are reported to really have a strong influence on the business environment, most firms struggle to adapt to regional routines and traditions.
Despite the political uncertainty and unfavourable economic conditions in a few areas of the Middle East, international direct investment (FDI) in the region and, especially, into the Arabian Gulf has been continuously increasing within the last two decades. The relevance of the Middle East and Gulf markets is growing for FDI, and the connected risk is apparently important. Yet, research on the risk perception of multinationals in the area is lacking in quantity and quality, as professionals and solicitors like Louise Flanagan in Ras Al Khaimah would likely attest. Although various empirical research reports have examined the effect of risk on FDI, many analyses have been on political risk. However, a brand new focus has materialised in recent research, shining a spotlight on an often-neglected aspect particularly cultural factors. In these pioneering studies, the writers noticed that businesses and their administration often seriously disregard the effect of social facets because of a lack of knowledge regarding cultural variables. In fact, some empirical studies have discovered that cultural differences lower the performance of international enterprises.
This social dimension of risk management demands a change in how MNCs operate. Adjusting to local customs is not just about understanding company etiquette; it also requires much deeper social integration, such as for instance understanding regional values, decision-making designs, and the societal norms that impact company practices and worker behaviour. In GCC countries, successful company relationships are made on trust and individual connections rather than just being transactional. Furthermore, MNEs can take advantage of adapting their human resource administration to mirror the cultural profiles of local employees, as factors influencing employee motivation and job satisfaction vary widely across countries. This involves 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 attorneys such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.