Find out more about how exactly Western multinational corporations perceive and handle dangers in the Middle East.
Regardless of the political instability and unfavourable economic climates in certain areas of the Middle East, international direct investment (FDI) in the region and, particularly, into the Arabian Gulf has been considerably increasing within the last 20 years. The relevance of the Middle East and Gulf markets is growing for FDI, and the associated risk seems to be crucial. Yet, research on the risk perception of multinationals in the region is lacking in volume and quality, as specialists and solicitors like Louise Flanagan in Ras Al Khaimah would probably attest. Although various empirical research reports have examined the effect of risk on FDI, most analyses have been on political risk. Nevertheless, a brand new focus has emerged in present research, shining a limelight on an often-disregarded aspect particularly cultural factors. In these revolutionary studies, the researchers pointed out that businesses and their management usually really neglect the effect of cultural factors as a result of not enough knowledge regarding social variables. In fact, some empirical studies have found that cultural differences lower the performance of multinational enterprises.
A lot of the present literature on risk management strategies for multinational corporations illustrates particular uncertainties but omits uncertainties that are hard to quantify. Indeed, plenty of research within the international administration field has focused on the handling of either political risk or foreign 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 company's risk visibility. However, present studies 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 management strategies on the firm level in the Middle East. In one research after collecting and analysing information from 49 major international businesses that are active in the GCC countries, the authors discovered the following. Firstly, the risk associated with foreign investments is clearly even more multifaceted compared to frequently analyzed factors of political risk and exchange rate visibility. Cultural risk is regarded as more important than political risk, monetary 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 calls for a change in how MNCs work. Adjusting to regional customs is not only about being familiar with business etiquette; it also requires much deeper cultural integration, such as understanding local values, decision-making designs, and the societal norms that impact business practices and worker behaviour. In GCC countries, successful company relationships are made on trust and personal connections instead of just being transactional. Furthermore, MNEs can reap the benefits of adapting their human resource administration to reflect the social profiles of local workers, as variables influencing employee motivation and job satisfaction differ widely across cultures. This calls for a shift in mindset and strategy from developing robust economic risk management tools to investing in social intelligence and regional expertise as professionals and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah may likely suggest.