How do MNCs manage cultural risks in the Arab gulf countries

How do MNCs manage cultural risks in the Arab gulf countries

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The Middle East is attracting global investment, particularly the Gulf area. Learn more about risk management within the gulf.

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

Despite the political instability and unfavourable fiscal conditions in a few elements of the Middle East, international direct investment (FDI) in the area and, particularly, in 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 associated risk seems to be important. Yet, research on the risk perception of multinationals in the region is limited in quantity and quality, as experts and attorneys like Louise Flanagan in Ras Al Khaimah may likely attest. Although different empirical research reports have examined the effect of risk on FDI, most analyses have largely been on political risk. However, a brand new focus has come forth in current research, shining a limelight on an often-neglected aspect particularly cultural variables. In these groundbreaking studies, the writers noticed that companies and their management often seriously take too lightly the impact of cultural facets as a result of not enough knowledge regarding social factors. In fact, 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. Certainly, lots of research in 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 which is why hedging or insurance coverage instruments could be developed to mitigate or transfer a firm's risk visibility. Nonetheless, current studies have brought some fresh and interesting insights. They have sought to fill part of the research gaps by providing empirical information about the risk perception of Western multinational corporations and their administration techniques at the company level within the Middle East. In one research after collecting and analysing data from 49 major international companies which are have extensive operations in the GCC countries, the authors discovered the following. Firstly, the risk connected with foreign investments is clearly even more multifaceted compared to the often analyzed factors of political risk and exchange rate exposure. Cultural danger is regarded as more essential than political risk, economic risk, and financial danger. Secondly, even though aspects of Arab culture are reported to really have a strong impact on the business environment, most firms find it difficult to adapt to local routines and customs.