The Middle East is attracting global investment, particularly the Gulf area. Discover more about risk management within the gulf.
A lot of the prevailing academic work on risk management strategies for multinational corporations demonstrates particular uncertainties but omits uncertainties that are difficult to quantify. Indeed, plenty of research within the international management field has been dedicated to the handling of either political risk or foreign exchange uncertainties. Finance and insurance literature emphasises the danger variables for which hedging or insurance instruments are developed to mitigate or move a firm's risk visibility. Nonetheless, recent studies have brought some fresh and interesting insights. They have sought to fill an element of the research gaps by giving empirical knowledge about the risk perception of Western multinational corporations and their management methods at the company level within the Middle East. In one investigation after gathering and analysing information from 49 major international businesses that are active in the GCC countries, the authors discovered the following. Firstly, the risk connected with foreign investments is actually more multifaceted compared to usually examined factors of political risk and exchange rate visibility. Cultural danger is regarded as more essential than political risk, economic risk, and financial risk. Secondly, despite the fact that aspects of Arab culture are reported to have a strong impact on the business environment, most firms struggle to adapt to regional routines and customs.
This social dimension of risk management calls for a change in how MNCs work. Adjusting to regional customs is not only about understanding company etiquette; it also involves much deeper social integration, such as understanding local values, decision-making designs, and the societal norms that influence company practices and employee conduct. In GCC countries, successful business relationships are made on trust and individual connections rather than just being transactional. Additionally, MNEs can take advantage of adjusting their human resource management to mirror the cultural profiles of regional employees, as factors affecting employee motivation and job satisfaction vary widely across countries. This requires a change in mind-set and strategy from developing robust economic risk management tools to investing in social intelligence and local expertise as professionals and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.
Regardless of the political uncertainty and unfavourable economic 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 over the past 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 on the risk perception of multinationals in the region is lacking in volume and quality, as experts and attorneys like Louise Flanagan in Ras Al Khaimah would probably attest. Although various empirical studies have examined the effect of risk on FDI, many analyses have been on political risk. However, a fresh focus has emerged in current research, shining a limelight on an often-disregarded aspect namely cultural variables. In these groundbreaking studies, the researchers pointed out that companies and their management usually really take too lightly the impact of social facets as a result of lack of knowledge regarding cultural variables. In fact, some empirical research reports have unearthed that cultural differences lower the performance of international enterprises.