Find out more exactly how Western multinational corporations perceive and handle risks in the Middle East.
In spite of the political instability and unfavourable economic conditions in a few areas of the Middle East, international direct investment (FDI) in the area and, particularly, 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 associated risk seems to be important. Yet, research on the risk perception of multinationals in the region is limited in amount and quality, as professionals and solicitors like Louise Flanagan in Ras Al Khaimah would probably attest. Although different empirical research reports have investigated the effect of risk on FDI, most analyses have been on political risk. Nevertheless, a new focus has appeared in current research, shining a limelight on an often-neglected aspect particularly cultural facets. In these revolutionary studies, the researchers pointed out that companies and their management often seriously underestimate the impact of cultural facets as a result of not enough knowledge regarding social factors. In fact, some empirical studies have found that cultural differences lower the performance of multinational enterprises.
This social dimension of risk management demands a change in how MNCs work. Adapting to local customs is not only about being familiar with company etiquette; it also involves much deeper cultural integration, such as for example understanding local values, decision-making styles, and the societal norms that influence company practices and worker behaviour. In GCC countries, successful business relationships are designed on trust and individual connections rather than just being transactional. Moreover, MNEs can benefit from adjusting their human resource administration to reflect the cultural profiles of regional employees, as factors affecting employee motivation and job satisfaction differ widely across cultures. This requires a change in mind-set and strategy from developing robust economic risk management tools to investing in cultural intelligence and regional expertise as professionals and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.
A lot of the present literature on risk management strategies for multinational corporations emphasises particular uncertainties but omits uncertainties that are hard to quantify. Indeed, plenty of research within the international administration field has centered on the management of either political risk or foreign currency 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 visibility. Nonetheless, recent research reports have brought some fresh and interesting insights. They have sought to fill the main research gaps by giving empirical understanding of the risk perception of Western multinational corporations and their management methods at the company level in the Middle East. In one research after collecting and analysing information from 49 major international businesses that are active in the GCC countries, the authors discovered the following. Firstly, the risk associated with foreign investments is actually more multifaceted compared to the often cited factors of political risk and exchange rate visibility. Cultural risk is regarded as more important than political risk, monetary risk, and financial risk. 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 regional routines and customs.