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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The Middle East is attracting global investment, especially the Gulf region. Find out more about risk management within the gulf.

A lot of the present academic work on risk management strategies for multinational corporations illustrates particular uncertainties but omits uncertainties that are difficult to quantify. Certainly, plenty of research within the worldwide administration field has focused on the management of either political risk or foreign exchange uncertainties. Finance and insurance literature emphasises the danger variables for which hedging or insurance instruments can be developed to mitigate or transfer a company's risk visibility. However, present research reports have brought some fresh and interesting insights. They have sought to fill part of the research gaps by giving empirical understanding of the risk perception of Western multinational corporations and their management strategies on the firm level within the Middle East. In one investigation after gathering and analysing information from 49 major worldwide companies which are have extensive operations in the GCC countries, the authors found the following. Firstly, the risk related to foreign investments is clearly a lot more multifaceted than the frequently cited factors of political risk and exchange rate visibility. Cultural risk is perceived as more essential than political risk, economic risk, and financial danger. Secondly, despite the fact that elements of Arab culture are reported to have a strong impact on the business environment, most firms find it difficult to adapt to regional routines and customs.

In spite of the political instability and unfavourable economic climates in some areas of the Middle East, foreign direct investment (FDI) in the region and, specially, in the Arabian Gulf has been steadily increasing in the last two decades. The relevance of the Middle East and Gulf markets is growing for FDI, and the associated risk is apparently important. Yet, research regarding the risk perception of multinationals in the area is limited in amount and quality, as consultants 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 surfaced in current research, shining a limelight on an often-ignored aspect specifically cultural factors. 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.

This social dimension of risk management calls for a shift in how MNCs operate. Adapting to regional traditions is not only about being familiar with business etiquette; it also involves much deeper social integration, such as appreciating local values, decision-making styles, and the societal norms that impact business practices and worker behaviour. In GCC countries, successful business relationships are made on trust and personal connections rather than just being transactional. Also, MNEs can reap the benefits of adjusting their human resource management to reflect the cultural profiles of local employees, as factors influencing employee motivation and job satisfaction vary widely across cultures. This requires a shift in mindset 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.