Discussing the risk perception of MNCs in the Middle East

Discussing the risk perception of MNCs in the Middle East

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According to recent research, a major challenge for businesses in the GCC is adjusting to local customs and business practices. Learn more about this here.

Much of the existing academic work on risk management strategies for multinational corporations features particular uncertainties but omits uncertainties that are hard to quantify. Indeed, a lot of research in the international administration field has focused on the management of either political risk or foreign exchange uncertainties. Finance and insurance coverage literature emphasises the danger variables for which hedging or insurance instruments can be developed to mitigate or move a company's danger exposure. Nevertheless, current 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 strategies at the firm level within the Middle East. In one investigation after gathering and analysing information from 49 major international businesses which are active in the GCC countries, the authors discovered the following. Firstly, the risk connected with foreign investments is obviously far more multifaceted compared to frequently analyzed variables of political risk and exchange rate visibility. Cultural danger is perceived as more essential than political risk, financial risk, and economic risk. Secondly, despite the fact that elements of Arab culture are reported to really have a strong impact on the business environment, most firms find it difficult to adapt to regional routines and customs.

Regardless of the political instability and unfavourable fiscal conditions in certain parts of the Middle East, foreign direct investment (FDI) in the area and, specially, into the Arabian Gulf has been steadily increasing within the last 20 years. The relevance of the Middle East and Gulf areas is growing for FDI, and the associated risk seems to be crucial. Yet, research on the risk perception of multinationals in the area is limited in quantity and quality, as professionals and attorneys like Louise Flanagan in Ras Al Khaimah would probably attest. Although different empirical research reports have examined the effect of risk on FDI, most analyses have been on political risk. Nevertheless, a new focus has surfaced in current research, shining a limelight on an often-neglected aspect namely cultural variables. In these groundbreaking studies, the writers noticed that businesses and their administration frequently seriously brush aside the impact of social facets as a result of not enough knowledge regarding social factors. In reality, 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 operate. Adjusting to regional traditions is not just about understanding business etiquette; it also requires much deeper cultural integration, such as for example understanding regional values, decision-making designs, and the societal norms that impact business practices and employee conduct. In GCC countries, successful company relationships are designed on trust and personal connections rather than just being transactional. Furthermore, MNEs can benefit from adapting their human resource administration to mirror the social profiles of local employees, as variables affecting employee motivation and job satisfaction differ widely across cultures. This requires a shift in mind-set and strategy from developing robust monetary risk management tools to investing in social intelligence and local expertise as consultants and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.