Exactly how do MNCs manage cultural risks in the GCC countries

Exactly how do MNCs manage cultural risks in the GCC countries

Blog Article

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

Despite the political uncertainty and unfavourable fiscal conditions in some parts of the Middle East, foreign direct investment (FDI) in the area and, particularly, into 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 connected risk seems to be essential. Yet, research on the risk perception of multinationals in the area is limited in quantity and quality, as consultants and attorneys like Louise Flanagan in Ras Al Khaimah would likely attest. Although different empirical studies have investigated the effect of risk on FDI, many analyses have been on political risk. Nevertheless, a new focus has emerged in current research, shining a limelight on an often-neglected aspect particularly cultural variables. In these pioneering studies, the authors remarked that companies and their management often really brush aside the effect of social factors because of a lack of knowledge regarding social variables. In fact, some empirical research reports have unearthed that cultural differences lower the performance of international enterprises.

Much of the prevailing literature on risk management strategies for multinational corporations highlights particular uncertainties but omits uncertainties that are tough to quantify. Certainly, plenty of research within the international management field has centered on the handling of either political risk or foreign exchange uncertainties. Finance and insurance coverage literature emphasises the risk variables which is why hedging or insurance instruments are developed to mitigate or move a company's risk exposure. Nevertheless, recent research reports have brought some fresh and interesting insights. They have sought to fill an element of the research gaps by providing empirical information 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 information from 49 major worldwide businesses that are active in the GCC countries, the authors found the following. Firstly, the risk associated with foreign investments is clearly a lot more multifaceted than the often analyzed factors of political risk and exchange rate exposure. Cultural risk is regarded as more important than political risk, monetary risk, and financial danger. Secondly, even though aspects of Arab culture are reported to really have a strong impact on the business environment, most firms find it difficult to adapt to local routines and customs.

This cultural dimension of risk management demands a change in how MNCs function. Adapting to regional traditions is not just about understanding company etiquette; it also involves much deeper social integration, such as understanding regional values, decision-making designs, and the societal norms that impact company practices and worker conduct. In GCC countries, successful company relationships are designed on trust and individual connections instead of just being transactional. Additionally, MNEs can reap the benefits of adjusting their human resource administration to mirror the cultural profiles of local employees, as factors influencing employee motivation and job satisfaction differ widely across countries. This calls for a change in mind-set and strategy from developing robust economic risk management tools to investing in cultural intelligence and local expertise as consultants and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.