Find out more on how Western multinational corporations perceive and handle risks in the Middle East.
A lot of the present literature on risk management strategies for multinational corporations features particular uncertainties but omits uncertainties that are difficult to quantify. Certainly, plenty of research within the international management field has focused on the handling of either political risk or foreign currency exchange uncertainties. Finance and insurance literature emphasises the risk factors which is why hedging or insurance coverage instruments could be developed to mitigate or transfer a company's danger exposure. However, present research reports have brought some fresh and interesting insights. They have sought to fill area of the research gaps by providing empirical knowledge about the risk perception of Western multinational corporations and their administration techniques at the company level within the Middle East. In one investigation after gathering and analysing information from 49 major international businesses which are active in the GCC countries, the authors discovered the following. Firstly, the risk related to foreign investments is obviously much more multifaceted compared to the often examined variables of political risk and exchange rate exposure. Cultural danger is regarded as more important than political risk, monetary risk, and economic danger. Secondly, even though elements of Arab culture are reported to have a strong impact on the business environment, most firms find it difficult to adapt to local routines and traditions.
This cultural dimension of risk management demands a shift in how MNCs do business. Adapting 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 styles, and the societal norms that influence company practices and employee conduct. In GCC countries, successful company relationships are built on trust and individual connections instead of just being transactional. Additionally, MNEs can reap the benefits of adapting their human resource management to mirror the cultural profiles of local workers, as factors affecting employee motivation and job satisfaction differ widely across cultures. This requires a change in mind-set and strategy from developing robust financial risk management tools to investing in social intelligence and local expertise as experts and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.
In spite of the political instability and unfavourable economic climates in a few parts of the Middle East, foreign direct investment (FDI) in the area and, especially, in the Arabian Gulf has been gradually increasing over the past 20 years. The relevance of the Middle East and Gulf areas is growing for FDI, and the associated risk seems to be crucial. Yet, research on the risk perception of multinationals in the area is limited in quantity and quality, as consultants and lawyers 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. Nevertheless, a brand new focus has surfaced in present research, shining a spotlight on an often-disregarded aspect specifically cultural facets. In these groundbreaking studies, the researchers noticed that businesses and their management usually seriously brush aside the impact of social factors due to a not enough knowledge regarding cultural factors. In reality, some empirical studies have discovered that cultural differences lower the performance of international enterprises.