Discussing the risk perception of MNCs in the Middle East

Discussing the risk perception of MNCs in the Middle East

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Studies claim that the success of international companies in the Middle East hinges not just on financial acumen, but also on understanding and integrating into local cultures.

In spite of the political uncertainty and unfavourable fiscal conditions in some parts of the Middle East, international direct investment (FDI) in the region and, particularly, in the Arabian Gulf has been progressively increasing within the last 20 years. The relevance of the Middle East and Gulf areas is growing for FDI, and the linked risk appears to be important. Yet, research on the risk perception of multinationals in the area is lacking in volume and quality, as professionals 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 largely been on political risk. Nonetheless, a brand new focus has come forth in current research, shining a spotlight on an often-disregarded aspect specifically cultural factors. In these revolutionary studies, the researchers noticed that companies and their administration frequently seriously take too lightly the impact of social facets due to a lack of knowledge regarding cultural factors. In fact, some empirical research reports have discovered that cultural differences lower the performance of multinational enterprises.

A lot of the prevailing literature on risk management strategies for multinational corporations highlights particular uncertainties but omits uncertainties that are tough to quantify. Indeed, plenty of research in the worldwide administration field has focused on the handling of either political risk or foreign exchange uncertainties. Finance and insurance coverage literature emphasises the risk variables for which hedging or insurance coverage instruments can be developed to mitigate or transfer a firm's risk visibility. Nevertheless, current 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 methods at the firm level within the Middle East. In one investigation after gathering and analysing data from 49 major international companies which are have extensive operations in the GCC countries, the authors found the following. Firstly, the risk connected with foreign investments is actually a lot more multifaceted than the often analyzed variables of political risk and exchange rate visibility. Cultural risk is perceived as more essential than political risk, financial risk, and economic danger. Secondly, despite the fact that 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 social dimension of risk management calls for a change in how MNCs do business. Adjusting to regional traditions is not just about being familiar with business etiquette; it also involves much deeper social integration, such as appreciating local values, decision-making designs, and the societal norms that affect company practices and employee conduct. In GCC countries, successful company relationships are made on trust and individual connections rather than just being transactional. Moreover, MNEs can benefit from adapting their human resource management to reflect the cultural profiles of local employees, as factors affecting employee motivation and job satisfaction vary widely across countries. This requires a shift in mind-set and strategy from developing robust financial risk management tools to investing in cultural intelligence and local expertise as specialists and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah may likely suggest.