According to present research, a significant challenge for businesses within the GCC is adapting to regional customs and business practices. Find out more about this right here.
Regardless of the political instability and unfavourable economic climates in a few parts of the Middle East, international direct investment (FDI) in the region and, specially, in the Arabian Gulf has been steadily increasing in 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 area is limited in volume and quality, as experts and lawyers like Louise Flanagan in Ras Al Khaimah would likely attest. Although different empirical studies have examined the effect of risk on FDI, most analyses have largely been on political risk. Nevertheless, a brand new focus has surfaced in present research, shining a spotlight on an often-neglected aspect namely cultural variables. In these revolutionary studies, the authors remarked that companies and their management usually seriously brush aside the impact of cultural facets because of a not enough knowledge regarding social variables. In reality, some empirical research reports have found that cultural differences lower the performance of international enterprises.
A lot of the existing literature on risk management strategies for multinational corporations emphasises particular uncertainties but omits uncertainties that are hard to quantify. Certainly, lots 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 which is why hedging or insurance instruments are developed to mitigate or transfer a firm's danger exposure. Nonetheless, recent studies have brought some fresh and interesting insights. They have sought to fill part of the research gaps by providing empirical information about the risk perception of Western multinational corporations and their management techniques on the firm level within the Middle East. In one research after collecting and analysing information from 49 major worldwide companies which are active in the GCC countries, the authors found the following. Firstly, the risk connected with foreign investments is obviously even more multifaceted than the often cited variables of political risk and exchange rate exposure. Cultural danger is regarded as more important than political risk, economic danger, and financial risk. Secondly, even though elements of Arab culture are reported to really have a strong influence on the business environment, most firms find it difficult to adapt to regional routines and traditions.
This cultural dimension of risk management requires a change in how MNCs operate. Adapting to regional traditions is not only about understanding business etiquette; it also requires much deeper social integration, such as appreciating local values, decision-making designs, and the societal norms that impact company practices and worker behaviour. In GCC countries, successful business relationships are made on trust and individual connections instead of just being transactional. Furthermore, MNEs can take advantage of adjusting their human resource administration to mirror the social profiles of local employees, as factors influencing employee motivation and job satisfaction differ widely across countries. This calls for a change in mindset and strategy from developing robust financial risk management tools to investing in cultural intelligence and local expertise as professionals and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.