According to recent research, a major challenge for companies in the GCC is adapting to local customs and business practices. Find out more about this right here.
Much of the present literature on risk management strategies for multinational corporations illustrates particular uncertainties but omits uncertainties that are hard to quantify. Indeed, lots of research in the international management field has focused on the handling of either political risk or foreign currency exchange uncertainties. Finance and insurance coverage literature emphasises the risk variables which is why hedging or insurance coverage instruments could be developed to mitigate or transfer a firm's risk visibility. Nevertheless, recent studies have brought some fresh and interesting insights. They have sought to fill part of the research gaps by giving empirical understanding of the risk perception of Western multinational corporations and their management techniques on the company level within the Middle East. In one investigation after collecting and analysing information from 49 major worldwide companies that are have extensive operations in the GCC countries, the authors discovered the following. Firstly, the risk associated with foreign investments is obviously even more multifaceted compared to often cited variables of political risk and exchange rate exposure. Cultural risk is regarded as more crucial than political risk, financial danger, and financial risk. Secondly, even though elements of Arab culture are reported to really 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 calls for a change in how MNCs work. Adjusting to regional traditions is not only about being familiar with company etiquette; it also requires much deeper cultural integration, such as understanding local values, decision-making styles, and the societal norms that influence 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 benefit from adapting their human resource administration to mirror the social profiles of regional employees, as factors affecting employee motivation and job satisfaction differ widely across cultures. This involves a change in mind-set and strategy from developing robust financial risk management tools to investing in cultural intelligence and local expertise as experts and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.
Despite the political instability and unfavourable fiscal conditions in a few areas of the Middle East, international direct investment (FDI) in the area and, specially, within the Arabian Gulf has been considerably increasing over the past two decades. The relevance of the Middle East and Gulf areas is growing for FDI, and the linked risk seems to be important. Yet, research regarding the risk perception of multinationals in the region is limited in amount and quality, as consultants and attorneys 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. However, a new focus has materialised in current research, shining a spotlight on an often-disregarded aspect specifically cultural facets. In these groundbreaking studies, the authors noticed that businesses and their management usually seriously underestimate the impact of social factors as a result of lack of knowledge regarding social variables. In reality, some empirical studies have unearthed that cultural differences lower the performance of multinational enterprises.