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, an important challenge for businesses within the GCC is adapting to local customs and business practices. Find out more about this right here.

Regardless of the political instability and unfavourable economic conditions in some elements of the Middle East, international direct investment (FDI) in the region and, particularly, into the Arabian Gulf has been considerably increasing within the last 20 years. The relevance of the Middle East and Gulf markets is growing for FDI, and the associated risk is apparently crucial. Yet, research on the risk perception of multinationals in the region is lacking in amount and quality, as experts and solicitors like Louise Flanagan in Ras Al Khaimah would probably attest. Although various empirical research reports have examined the effect of risk on FDI, most analyses have been on political risk. Nonetheless, a brand new focus has surfaced in recent research, shining a limelight on an often-ignored aspect particularly cultural facets. In these pioneering studies, the researchers noticed that companies and their administration frequently seriously overlook the impact of social factors because of a not enough knowledge regarding cultural factors. In fact, some empirical research reports have discovered that cultural differences lower the performance of multinational enterprises.

Much of the existing academic work on risk management strategies for multinational corporations illustrates particular uncertainties but omits uncertainties that are hard to quantify. Certainly, lots of research within the international administration field has centered on the handling of either political risk or foreign exchange uncertainties. Finance and insurance coverage literature emphasises the risk variables for which hedging or insurance coverage instruments can be developed to mitigate or move a firm's risk visibility. Nevertheless, present studies have brought some fresh and interesting insights. They have sought to fill an element of the research gaps by providing empirical information about the risk perception of Western multinational corporations and their management methods at the company level in the Middle East. In one investigation after gathering and analysing data from 49 major worldwide businesses that 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 compared to the frequently analyzed variables of political risk and exchange rate exposure. Cultural risk is regarded as more important than political risk, economic danger, and economic 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 local routines and traditions.

This cultural dimension of risk management requires a change in how MNCs operate. Adapting to regional customs is not just about being familiar with business etiquette; it also requires much deeper social integration, such as understanding regional values, decision-making styles, and the societal norms that affect business practices and worker 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 reflect the social profiles of local employees, as variables affecting employee motivation and job satisfaction vary widely across countries. This calls for a shift in mindset and strategy from developing robust monetary risk management tools to investing in social intelligence and local expertise as specialists and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah may likely suggest.