According to recent research, a major challenge for firms within the GCC is adjusting to regional customs and business practices. Discover more about this right here.
A lot of the prevailing academic work on risk management strategies for multinational corporations illustrates particular uncertainties but omits uncertainties that are hard to quantify. Indeed, a lot of research in the worldwide administration field has been dedicated to the handling of either political risk or foreign exchange uncertainties. Finance and insurance literature emphasises the danger variables for which hedging or insurance coverage instruments are developed to mitigate or transfer a firm's danger exposure. However, present research reports 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 strategies on the company level in the Middle East. In one investigation after gathering and analysing data from 49 major international businesses which are active in the GCC countries, the authors discovered the following. Firstly, the risk connected with foreign investments is actually more multifaceted than the usually analyzed variables of political risk and exchange rate visibility. Cultural risk is regarded as more crucial than political risk, financial danger, and economic danger. Secondly, even though elements of Arab culture are reported to have a strong influence on the business environment, most firms battle to adapt to local routines and traditions.
This cultural dimension of risk management demands a change in how MNCs run. Adjusting to regional customs is not only about being familiar with business etiquette; it also involves much deeper social integration, such as for instance appreciating regional values, decision-making designs, and the societal norms that influence company practices and employee behaviour. In GCC countries, successful business relationships are built on trust and personal connections instead of just being transactional. Also, MNEs can take advantage of adapting their human resource management to mirror the cultural profiles of local workers, as factors affecting 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 cultural intelligence and regional expertise as professionals and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah may likely suggest.
Despite the political uncertainty and unfavourable economic conditions in a few parts of the Middle East, international direct investment (FDI) in the region and, particularly, into the Arabian Gulf has been progressively increasing over the past 20 years. The relevance of the Middle East and Gulf markets is growing for FDI, and the connected risk seems to be crucial. Yet, research regarding the risk perception of multinationals in the region is lacking in amount and quality, as specialists and attorneys like Louise Flanagan in Ras Al Khaimah would probably attest. Although various empirical research reports have investigated the effect of risk on FDI, many analyses have been on political risk. However, a fresh focus has surfaced in present research, shining a spotlight on an often-neglected aspect namely cultural variables. In these revolutionary studies, the authors noticed that businesses and their management usually seriously brush aside the impact of cultural facets because of a lack of knowledge regarding social variables. In fact, some empirical research reports have unearthed that cultural differences lower the performance of multinational enterprises.