The Middle East is attracting global investment, especially the Gulf area. Discover more about risk management within the gulf.
In spite of the political instability and unfavourable fiscal conditions in some elements of the Middle East, international direct investment (FDI) in the region and, specially, in the Arabian Gulf has been gradually increasing within the last 20 years. The relevance of the Middle East and Gulf markets is growing for FDI, and the associated risk seems to be essential. Yet, research on the risk perception of multinationals in the region is lacking in amount and quality, as professionals and attorneys like Louise Flanagan in Ras Al Khaimah would probably attest. Although different empirical studies have examined the effect of risk on FDI, most analyses have largely been on political risk. Nevertheless, a fresh focus has come forth in recent research, shining a limelight on an often-ignored aspect namely cultural variables. In these pioneering studies, the writers pointed out that businesses and their management frequently seriously brush aside the impact of social facets due to a not enough knowledge regarding cultural factors. In fact, some empirical studies have unearthed that cultural differences lower the performance of multinational enterprises.
A lot of the present literature on risk management strategies for multinational corporations emphasises particular uncertainties but omits uncertainties that are hard to quantify. Indeed, plenty of research in the worldwide administration field has focused 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 are developed to mitigate or transfer a company's risk visibility. Nevertheless, recent research reports have brought some fresh and interesting insights. They have sought to fill the main research gaps by providing empirical information about the risk perception of Western multinational corporations and their administration strategies on the company level within 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 connected with foreign investments is obviously a lot more multifaceted than the often examined factors of political risk and exchange rate visibility. Cultural risk is regarded as more essential than political risk, financial risk, and economic risk. Secondly, despite the fact that aspects of Arab culture are reported to really have a strong influence on the business environment, most firms struggle to adapt to local routines and customs.
This social dimension of risk management demands a shift in how MNCs work. Adjusting to regional traditions is not just about understanding business etiquette; it also requires much deeper social integration, such as appreciating regional values, decision-making designs, and the societal norms that influence business practices and employee 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 administration to mirror the cultural profiles of local employees, as variables affecting employee motivation and job satisfaction differ widely across countries. This requires a shift in mindset and strategy from developing robust economic risk management tools to investing in social intelligence and regional expertise as consultants and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.