How do MNCs manage cultural risks in the GCC countries

How do MNCs manage cultural risks in the GCC countries

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

Regardless of the political uncertainty and unfavourable economic climates in some parts of the Middle East, foreign direct investment (FDI) in the region and, especially, within the Arabian Gulf has been considerably increasing within the last two decades. The relevance of the Middle East and Gulf markets is growing for FDI, and the associated risk seems to be crucial. Yet, research on the risk perception of multinationals in the area is lacking in volume and quality, as consultants and lawyers like Louise Flanagan in Ras Al Khaimah may likely attest. Although different empirical research reports have examined the effect of risk on FDI, many analyses have largely been on political risk. Nonetheless, a fresh focus has emerged in recent research, shining a spotlight on an often-overlooked aspect particularly cultural factors. In these pioneering studies, the writers noticed that companies and their management often really take too lightly the impact of social facets due to a lack of knowledge regarding cultural variables. In reality, some empirical research reports have discovered that cultural differences lower the performance of multinational enterprises.

This cultural dimension of risk management calls for a shift in how MNCs work. Adapting 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 styles, and the societal norms that impact business practices and employee conduct. In GCC countries, successful business relationships are built on trust and individual connections rather than just being transactional. Furthermore, MNEs can reap the benefits of adapting their human resource management to mirror the cultural profiles of regional employees, as variables affecting employee motivation and job satisfaction vary widely across countries. This involves a shift in mind-set and strategy from developing robust economic risk management tools to investing in cultural intelligence and regional expertise as experts and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah may likely suggest.

Much of the present academic work on risk management strategies for multinational corporations emphasises particular uncertainties but omits uncertainties that are hard to quantify. Certainly, a lot of research within the international management field has been dedicated to the management of either political risk or foreign currency 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 company's risk visibility. Nonetheless, recent research reports have brought some fresh and interesting insights. They have sought to fill area of the research gaps by giving empirical information about the risk perception of Western multinational corporations and their management methods at the company level in the Middle East. In one research after collecting and analysing information from 49 major international businesses that are have extensive operations in the GCC countries, the authors found the following. Firstly, the risk connected with foreign investments is obviously far more multifaceted compared to the frequently analyzed factors of political risk and exchange rate visibility. Cultural danger is perceived as more crucial than political risk, monetary risk, and economic danger. Secondly, even though elements of Arab culture are reported to really have a strong influence on the business environment, most firms struggle to adapt to regional routines and traditions.

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