Exactly how do MNCs manage cultural risks in the GCC countries

Exactly how do MNCs manage cultural risks in the GCC countries

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

In spite of the political instability and unfavourable economic conditions in certain elements of the Middle East, foreign direct investment (FDI) in the region and, specially, into the Arabian Gulf has been progressively increasing in the last two decades. The relevance of the Middle East and Gulf areas is growing for FDI, and the connected risk appears to be important. Yet, research regarding the risk perception of multinationals in the region is lacking in volume and quality, as professionals and lawyers 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. Nonetheless, a brand new focus has surfaced in recent research, shining a limelight on an often-ignored aspect namely cultural facets. In these groundbreaking studies, the researchers noticed that companies and their administration frequently really disregard the impact 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 management field has focused on the handling of either political risk or foreign exchange uncertainties. Finance and insurance literature emphasises the danger factors which is why hedging or insurance instruments are developed to mitigate or transfer a company's danger exposure. But, current research reports have brought some fresh and interesting insights. They have sought to fill the main research gaps by giving empirical knowledge about the risk perception of Western multinational corporations and their administration strategies at the company level in the Middle East. In one research after collecting and analysing information from 49 major international companies which are active in the GCC countries, the authors discovered the following. Firstly, the risk connected with foreign investments is actually much more multifaceted compared to usually examined factors of political risk and exchange rate visibility. Cultural risk is perceived as more crucial than political risk, monetary risk, and financial danger. Secondly, even though aspects of Arab culture are reported to really have a strong impact on the business environment, most firms struggle to adapt to local routines and traditions.

This social dimension of risk management calls for a shift in how MNCs function. Conforming to local customs is not only about being familiar with business etiquette; it also involves much deeper cultural integration, such as for example understanding local values, decision-making styles, and the societal norms that impact company practices and worker behaviour. In GCC countries, successful business relationships are made on trust and individual connections instead of just being transactional. Furthermore, MNEs can benefit from adjusting their human resource administration to reflect the cultural profiles of local workers, as variables affecting employee motivation and job satisfaction vary widely across cultures. This calls for a change in mindset and strategy from developing robust economic risk management tools to investing in social intelligence and regional expertise as experts and attorneys such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.