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, particularly the Gulf region. Learn more about risk management in the gulf.

A lot of the present literature on risk management strategies for multinational corporations illustrates particular uncertainties but omits uncertainties that are hard to quantify. Certainly, a lot of research within the worldwide management field has been dedicated to the handling of either political risk or foreign exchange uncertainties. Finance and insurance literature emphasises the danger variables which is why hedging or insurance instruments can be developed to mitigate or transfer a company's danger visibility. Nevertheless, recent research reports have brought some fresh and interesting insights. They have sought to fill an element of the research gaps by giving empirical understanding of the risk perception of Western multinational corporations and their management techniques at the company level in the Middle East. In one investigation after collecting and analysing data from 49 major worldwide businesses that are active in the GCC countries, the authors discovered the following. Firstly, the risk related to foreign investments is obviously more multifaceted compared to the often examined variables of political risk and exchange rate visibility. Cultural risk is regarded as more crucial than political risk, financial danger, and financial danger. Secondly, despite the fact that aspects of Arab culture are reported to really have a strong influence on the business environment, most firms struggle to adapt to local routines and traditions.

This cultural dimension of risk management calls for a shift in how MNCs operate. Conforming to local customs is not only about understanding business etiquette; it also requires much deeper cultural integration, such as for example appreciating regional values, decision-making styles, and the societal norms that affect business practices and worker behaviour. In GCC countries, successful company relationships are made on trust and individual connections rather than just being transactional. Additionally, MNEs can take advantage of adapting their human resource administration to reflect the cultural profiles of regional employees, as variables influencing employee motivation and job satisfaction differ widely across cultures. This calls for a shift in mind-set and strategy from developing robust financial risk management tools to investing in cultural intelligence and regional expertise as experts and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.

Despite the political uncertainty and unfavourable economic conditions in a few elements of the Middle East, foreign direct investment (FDI) in the area and, particularly, within the Arabian Gulf has been steadily increasing in the last 20 years. The relevance of the Middle East and Gulf markets is growing for FDI, and the connected risk seems to be important. Yet, research regarding the risk perception of multinationals in the area is limited in amount and quality, as specialists and lawyers like Louise Flanagan in Ras Al Khaimah may likely attest. Although different empirical research reports have investigated the effect of risk on FDI, most analyses have largely been on political risk. Nonetheless, a new focus has appeared in present research, shining a spotlight on an often-neglected aspect namely cultural variables. In these groundbreaking studies, the authors pointed out that businesses and their management frequently really take too lightly the impact of social facets as a result of lack of knowledge regarding cultural variables. In reality, some empirical research reports have unearthed that cultural differences lower the performance of international enterprises.