The Middle East is attracting global investment, especially the Gulf region. Discover more about risk management within the gulf.
Despite the political uncertainty and unfavourable fiscal conditions in some parts of the Middle East, international direct investment (FDI) in the region and, particularly, into the Arabian Gulf has been considerably 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 crucial. Yet, research on the risk perception of multinationals in the region is lacking in volume and quality, as professionals and attorneys like Louise Flanagan in Ras Al Khaimah may likely attest. Although various empirical studies have investigated the effect of risk on FDI, most analyses have been on political risk. Nevertheless, a fresh focus has materialised in present research, shining a limelight on an often-neglected aspect specifically cultural factors. In these pioneering studies, the researchers pointed out that companies and their administration usually seriously disregard the impact of cultural facets due to a lack of knowledge regarding social factors. In fact, some empirical studies have unearthed that cultural differences lower the performance of international enterprises.
Much of the prevailing academic work on risk management strategies for multinational corporations demonstrates particular uncertainties but omits uncertainties that are difficult to quantify. Certainly, lots of research in the international administration field has been dedicated to the handling of either political risk or foreign exchange uncertainties. Finance and insurance literature emphasises the risk variables for which hedging or insurance coverage instruments could be developed to mitigate or transfer a company's risk exposure. Nonetheless, recent research reports have brought some fresh and interesting insights. They have sought to fill area of the research gaps by providing empirical information about the risk perception of Western multinational corporations and their management methods on the firm level within the Middle East. In one investigation after gathering and analysing data from 49 major worldwide companies which are active in the GCC countries, the authors discovered the following. Firstly, the risk related to foreign investments is clearly even more multifaceted than the usually analyzed factors of political risk and exchange rate exposure. Cultural danger is perceived as more essential than political risk, financial danger, and economic danger. Secondly, even though aspects of Arab culture are reported to really have a strong influence on the business environment, most firms battle to adapt to local routines and traditions.
This cultural dimension of risk management requires a change in how MNCs work. Conforming to local traditions is not just about being familiar with business etiquette; it also involves much deeper social integration, such as appreciating regional values, decision-making styles, and the societal norms that impact business practices and employee conduct. In GCC countries, successful business relationships are designed on trust and personal connections rather than just being transactional. Additionally, MNEs can take advantage of adjusting their human resource management to mirror the social profiles of local workers, as factors influencing employee motivation and job satisfaction differ widely across countries. This involves a change in mindset and strategy from developing robust economic risk management tools to investing in social intelligence and local expertise as professionals and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.