The Middle East is attracting global investment, particularly the Gulf region. Learn more about risk management in the gulf.
A lot of the existing literature on risk management strategies for multinational corporations features particular uncertainties but omits uncertainties that are difficult to quantify. Indeed, a lot of research in the international management field has centered on the management of either political risk or foreign exchange uncertainties. Finance and insurance literature emphasises the risk factors which is why hedging or insurance coverage instruments are developed to mitigate or transfer a company's danger exposure. Nevertheless, recent studies have brought some fresh and interesting insights. They have sought to fill the main research gaps by providing empirical knowledge about the risk perception of Western multinational corporations and their management strategies at the firm level within the Middle East. In one research after gathering and analysing data from 49 major international businesses which are have extensive operations in the GCC countries, the authors found the following. Firstly, the risk associated with foreign investments is obviously a great deal more multifaceted compared to the usually analyzed factors of political risk and exchange rate visibility. Cultural danger is perceived as more important than political risk, monetary danger, and economic danger. Secondly, despite the fact that 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.
This social dimension of risk management requires a shift in how MNCs do business. Conforming to local traditions is not only about understanding company etiquette; it also requires much deeper cultural integration, such as for example understanding local values, decision-making designs, and the societal norms that impact business practices and worker behaviour. In GCC countries, successful company relationships are designed on trust and personal connections instead of just being transactional. Also, MNEs can take advantage of adjusting their human resource administration to reflect the social profiles of regional employees, as variables influencing employee motivation and job satisfaction differ widely across cultures. This requires a change in mindset 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.
Regardless of the political instability and unfavourable economic climates in a few elements of the Middle East, international direct investment (FDI) in the region and, specially, within the Arabian Gulf has been steadily increasing within the last two decades. The relevance of the Middle East and Gulf areas is growing for FDI, and the connected risk seems to be crucial. Yet, research on the risk perception of multinationals in the area is limited in amount and quality, as consultants and solicitors like Louise Flanagan in Ras Al Khaimah would likely attest. Although different empirical studies have examined the effect of risk on FDI, most analyses have been on political risk. Nonetheless, a new focus has materialised in recent research, shining a limelight on an often-overlooked aspect specifically cultural facets. In these pioneering studies, the researchers pointed out that companies and their administration often really take too lightly the effect of social factors due to a not enough knowledge regarding cultural variables. In reality, some empirical studies have discovered that cultural differences lower the performance of international enterprises.