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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Find out more about how exactly Western multinational corporations perceive and manage risks in the Middle East.

A lot of the present academic work on risk management strategies for multinational corporations emphasises particular uncertainties but omits uncertainties that are tough to quantify. Certainly, plenty of research within the international administration field has been dedicated to the handling of either political risk or foreign currency exchange uncertainties. Finance and insurance coverage literature emphasises the danger variables which is why hedging or insurance instruments could be developed to mitigate or transfer a firm's risk visibility. But, present research reports have brought some fresh and interesting insights. They have sought to fill area of the research gaps by giving empirical understanding of the risk perception of Western multinational corporations and their administration techniques at the firm level within the Middle East. In one research after gathering and analysing data from 49 major international businesses which are have extensive operations in the GCC countries, the authors discovered the following. Firstly, the risk related to foreign investments is obviously much more multifaceted compared to the usually analyzed factors of political risk and exchange rate visibility. Cultural danger is regarded as more crucial than political risk, financial danger, and financial risk. Secondly, despite the fact that elements 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.

This social dimension of risk management requires a shift in how MNCs operate. Conforming to regional traditions is not just about being familiar with company etiquette; it also requires much deeper cultural integration, such as for instance understanding local values, decision-making styles, and the societal norms that influence business practices and employee conduct. In GCC countries, successful company relationships are built on trust and individual connections rather than just being transactional. Moreover, MNEs can benefit from adjusting their human resource management to mirror the cultural profiles of local workers, as factors affecting employee motivation and job satisfaction vary widely across countries. This involves a shift in mind-set and strategy from developing robust financial risk management tools to investing in social intelligence and local expertise as consultants and attorneys such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.

Regardless of the political uncertainty and unfavourable fiscal conditions in some elements of the Middle East, foreign direct investment (FDI) in the area and, especially, into the Arabian Gulf has been progressively 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 essential. Yet, research on the risk perception of multinationals in the region is lacking in amount and quality, as specialists and lawyers like Louise Flanagan in Ras Al Khaimah would probably attest. Although various empirical studies have investigated the effect of risk on FDI, most analyses have largely been on political risk. Nevertheless, a fresh focus has surfaced in current research, shining a spotlight on an often-ignored aspect specifically cultural variables. In these pioneering studies, the authors noticed that businesses and their administration often really take too lightly the impact of social facets as a result of lack of knowledge regarding cultural factors. In reality, some empirical research reports have found that cultural differences lower the performance of multinational enterprises.