Exactly how do MNCs manage cultural risks in the GCC countries

Exactly how do MNCs manage cultural risks in the GCC countries

Blog Article

According to recent research, a significant challenge for businesses within the GCC is adjusting to local customs and business practices. Learn more about this here.

In spite of the political uncertainty and unfavourable economic climates in some areas of the Middle East, foreign direct investment (FDI) in the area 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 connected risk seems to be essential. Yet, research regarding the risk perception of multinationals in the area is limited in quantity and quality, as experts and lawyers like Louise Flanagan in Ras Al Khaimah would probably attest. Although various empirical research reports have investigated the effect of risk on FDI, many analyses have largely been on political risk. However, a new focus has appeared in recent research, shining a limelight on an often-neglected aspect specifically cultural factors. In these revolutionary studies, the authors remarked that businesses and their administration usually really brush aside the effect of social facets due to a lack of knowledge regarding cultural factors. In reality, some empirical studies have discovered that cultural differences lower the performance of multinational enterprises.

Much of the existing academic work on risk management strategies for multinational corporations emphasises particular uncertainties but omits uncertainties that are tough to quantify. Indeed, a lot of research within the worldwide management field has focused on the handling of either political risk or foreign currency exchange uncertainties. Finance and insurance literature emphasises the risk variables for which hedging or insurance coverage instruments could be developed to mitigate or transfer a company's risk visibility. However, present studies have brought some fresh and interesting insights. They have sought to fill an element of the research gaps by providing empirical knowledge about the risk perception of Western multinational corporations and their administration techniques on the firm level within the Middle East. In one investigation after gathering 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 often cited factors of political risk and exchange rate visibility. Cultural risk is regarded as more crucial than political risk, monetary risk, and financial danger. Secondly, even though elements of Arab culture are reported to have a strong influence on the business environment, most firms battle to adapt to local routines and traditions.

This cultural dimension of risk management requires a change in how MNCs run. Adapting to regional customs is not only about understanding business etiquette; it also involves much deeper cultural integration, such as for example appreciating regional values, decision-making designs, and the societal norms that influence company practices and worker conduct. In GCC countries, successful business relationships are built on trust and personal connections instead of just being transactional. Additionally, MNEs can benefit from adapting their human resource administration to mirror the cultural profiles of local employees, as factors affecting employee motivation and job satisfaction differ widely across countries. This requires a change in mind-set and strategy from developing robust financial risk management tools to investing in social intelligence and regional expertise as professionals and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.