How do MNCs manage cultural risks in the GCC countries

How do MNCs manage cultural risks in the GCC countries

Blog Article

Studies claim that the success of international businesses in the Middle East hinges not merely on monetary acumen, but additionally on understanding and integrating into regional cultures.

Despite the political instability and unfavourable economic climates in certain areas of the Middle East, foreign direct investment (FDI) in the area and, especially, within the Arabian Gulf has been continuously increasing in the last two decades. 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 region is lacking in amount and quality, as experts and lawyers like Louise Flanagan in Ras Al Khaimah would probably attest. Although various empirical studies have examined the effect of risk on FDI, most analyses have been on political risk. However, a new focus has materialised in present research, shining a spotlight on an often-overlooked aspect particularly cultural variables. In these pioneering studies, the writers pointed out that businesses and their management often really neglect the effect of social factors as a result of lack of knowledge regarding social variables. In reality, some empirical studies have unearthed that cultural differences lower the performance of multinational enterprises.

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, a lot of research within the international administration field has focused on the handling of either political risk or foreign exchange uncertainties. Finance and insurance coverage literature emphasises the risk variables which is why hedging or insurance instruments are developed to mitigate or transfer a company's risk visibility. However, current research reports have brought some fresh and interesting insights. They have sought to fill the main research gaps by giving empirical understanding of the risk perception of Western multinational corporations and their administration strategies on the company level in the Middle East. In one research after collecting and analysing data from 49 major worldwide companies which are have extensive operations in the GCC countries, the authors found the following. Firstly, the risk connected with foreign investments is obviously a great deal more multifaceted than the usually examined factors of political risk and exchange rate visibility. Cultural risk is perceived as more essential than political risk, financial risk, and financial risk. Secondly, even though elements of Arab culture are reported to really have a strong influence on the business environment, most firms find it difficult to adapt to regional routines and customs.

This cultural dimension of risk management calls for a shift in how MNCs do business. Adjusting to local traditions is not only about understanding business etiquette; it also requires much deeper cultural integration, such as for example appreciating local values, decision-making designs, and the societal norms that affect business practices and employee conduct. In GCC countries, successful company relationships are made on trust and individual connections rather than just being transactional. Also, MNEs can reap the benefits of adjusting their human resource management to reflect the cultural profiles of regional workers, as factors affecting employee motivation and job satisfaction vary widely across cultures. This involves a change in mind-set and strategy from developing robust monetary risk management tools to investing in cultural intelligence and local expertise as professionals and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah may likely suggest.