Exactly how do MNCs manage cultural risks in the GCC countries

Exactly how do MNCs manage cultural risks in the GCC countries

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The Middle East is attracting global investment, especially the Gulf region. Learn more about risk management in the gulf.

In spite of the political uncertainty and unfavourable economic conditions in some areas of the Middle East, foreign direct investment (FDI) in the region and, especially, within the Arabian Gulf has been steadily increasing over the past two decades. The relevance of the Middle East and Gulf markets is growing for FDI, and the connected risk appears to be crucial. Yet, research regarding the risk perception of multinationals in the area is lacking in volume and quality, as specialists and solicitors like Louise Flanagan in Ras Al Khaimah would likely attest. Although various empirical research reports have examined the effect of risk on FDI, many analyses have largely been on political risk. Nonetheless, a fresh focus has materialised in present research, shining a limelight on an often-disregarded aspect particularly cultural facets. In these revolutionary studies, the researchers remarked that businesses and their administration usually really take too lightly the impact of cultural factors because of a not enough knowledge regarding social factors. In reality, some empirical studies have discovered that cultural differences lower the performance of multinational enterprises.

This cultural dimension of risk management calls for a change in how MNCs run. Adjusting to regional customs is not just about understanding business etiquette; it also requires much deeper cultural integration, such as understanding regional values, decision-making designs, and the societal norms that impact business practices and employee behaviour. In GCC countries, successful company relationships are designed on trust and individual connections rather than just being transactional. Furthermore, MNEs can take advantage of adapting their human resource administration to reflect the social profiles of local workers, as factors affecting employee motivation and job satisfaction vary widely across countries. This requires a change in mindset and strategy from developing robust financial risk management tools to investing in cultural intelligence and regional expertise as professionals and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.

Much of the prevailing literature on risk management strategies for multinational corporations highlights particular uncertainties but omits uncertainties that are hard to quantify. Indeed, a lot of research within the worldwide administration field has focused on the handling of either political risk or foreign currency exchange uncertainties. Finance and insurance literature emphasises the danger factors which is why hedging or insurance instruments can be developed to mitigate or move a company's danger visibility. However, recent studies 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 techniques at the company level in the Middle East. In one investigation after gathering and analysing data from 49 major worldwide businesses which are active in the GCC countries, the authors found the following. Firstly, the risk related to foreign investments is obviously much more multifaceted compared to usually cited factors of political risk and exchange rate exposure. Cultural risk is regarded as more important than political risk, financial danger, and economic danger. Secondly, despite the fact that elements of Arab culture are reported to really have a strong influence on the business environment, most firms struggle to adapt to regional routines and customs.

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