According to current research, a major challenge for businesses within the GCC is adapting to local customs and business practices. Discover more about this right here.
Much of the prevailing academic work on risk management strategies for multinational corporations features particular uncertainties but omits uncertainties that are tough to quantify. Indeed, plenty of research in the international administration field has focused on the handling of either political risk or foreign exchange uncertainties. Finance and insurance coverage literature emphasises the risk variables for which hedging or insurance coverage instruments can be developed to mitigate or move a firm's danger exposure. Nonetheless, recent research reports have brought some fresh and interesting insights. They have sought to fill part of the research gaps by giving empirical knowledge about the risk perception of Western multinational corporations and their administration strategies on the firm level in the Middle East. In one research after collecting and analysing information from 49 major international businesses which are active in the GCC countries, the authors discovered the following. Firstly, the risk associated with foreign investments is clearly far more multifaceted compared to the frequently analyzed variables of political risk and exchange rate exposure. Cultural risk is regarded as more important than political risk, economic danger, and economic danger. Secondly, even though aspects of Arab culture are reported to really have a strong influence on the business environment, most firms find it difficult to adapt to regional routines and customs.
In spite of the political instability and unfavourable fiscal conditions in certain parts of the Middle East, foreign direct investment (FDI) in the area and, particularly, within the Arabian Gulf has been considerably increasing in the last 20 years. The relevance of the Middle East and Gulf areas is growing for FDI, and the associated risk appears to be essential. Yet, research regarding the risk perception of multinationals in the region is limited in volume and quality, as consultants and lawyers like Louise Flanagan in Ras Al Khaimah may likely attest. Although different empirical studies 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 limelight on an often-overlooked aspect specifically cultural facets. In these pioneering studies, the writers noticed that businesses and their administration often seriously underestimate the impact of social facets because of a lack of 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 requires a change in how MNCs do business. Adjusting to local customs is not just about understanding company etiquette; it also requires much deeper social integration, such as for example appreciating regional values, decision-making styles, and the societal norms that impact business practices and employee behaviour. In GCC countries, successful business relationships are made on trust and individual connections instead of just being transactional. Additionally, MNEs can reap the benefits of adjusting their human resource administration to mirror the social profiles of local employees, as factors influencing employee motivation and job satisfaction vary 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 attorneys such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.