Discussing the risk perception of MNCs in the Middle East

Discussing the risk perception of MNCs in the Middle East

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Studies suggest that the prosperity of multinational companies in the Middle East hinges not just on financial acumen, but also on understanding and integrating into regional cultures.

In spite of the political uncertainty and unfavourable economic conditions in some parts of the Middle East, foreign direct investment (FDI) in the region and, especially, within the Arabian Gulf has been progressively increasing within the last 20 years. The relevance of the Middle East and Gulf areas is growing for FDI, and the linked risk is apparently important. Yet, research on the risk perception of multinationals in the area is lacking in volume and quality, as consultants and lawyers like Louise Flanagan in Ras Al Khaimah would likely attest. Although various empirical studies have examined the effect of risk on FDI, many analyses have largely been on political risk. Nonetheless, a fresh focus has materialised in present research, shining a limelight on an often-disregarded aspect particularly cultural facets. In these revolutionary studies, the writers remarked that businesses and their administration usually seriously take too lightly the effect of social facets as a result of not enough knowledge regarding social factors. In reality, some empirical research reports have found that cultural differences lower the performance of multinational enterprises.

This cultural dimension of risk management calls for a shift in how MNCs run. Conforming to local traditions is not only about understanding company etiquette; it also requires much deeper cultural integration, such as for instance appreciating local values, decision-making styles, and the societal norms that affect business practices and employee conduct. In GCC countries, successful business relationships are designed on trust and individual connections rather than just being transactional. Furthermore, MNEs can benefit from adjusting their human resource administration to reflect the cultural profiles of regional workers, as variables influencing employee motivation and job satisfaction vary widely across countries. This involves a shift in mindset and strategy from developing robust financial risk management tools to investing in cultural intelligence and regional expertise as professionals and attorneys such Salem Al Kait and Ammar Haykal in Ras Al Khaimah may likely suggest.

Much of the prevailing academic work on risk management strategies for multinational corporations features particular uncertainties but omits uncertainties that are difficult to quantify. Certainly, lots of research in the worldwide management field has been dedicated to the handling of either political risk or foreign exchange uncertainties. Finance and insurance literature emphasises the risk factors for which hedging or insurance instruments can be developed to mitigate or move 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 providing empirical information about 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 data from 49 major worldwide companies which are active in the GCC countries, the authors discovered the following. Firstly, the risk associated with foreign investments is clearly a lot more multifaceted than the usually examined variables of political risk and exchange rate exposure. Cultural danger is perceived as more crucial than political risk, financial danger, and economic danger. Secondly, despite the fact that aspects of Arab culture are reported to really have a strong influence on the business environment, most firms battle to adapt to local routines and traditions.