According to current research, a significant challenge for firms in the GCC is adjusting to local customs and business practices. Learn more about this here.
Despite the political uncertainty and unfavourable economic climates in a few parts of the Middle East, foreign direct investment (FDI) in the area and, specially, within the Arabian Gulf has been progressively increasing in the last two decades. The relevance of the Middle East and Gulf markets is growing for FDI, and the associated risk seems to be important. Yet, research on 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, many analyses have largely been on political risk. However, a new focus has materialised in current research, shining a spotlight on an often-overlooked aspect particularly cultural variables. In these groundbreaking studies, the researchers noticed that companies and their administration frequently really take too lightly the effect of cultural factors as a result of lack of knowledge regarding cultural variables. In fact, some empirical research reports have discovered that cultural differences lower the performance of multinational enterprises.
A lot of the prevailing academic work on risk management strategies for multinational corporations demonstrates 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 for which hedging or insurance instruments can be developed to mitigate or move a firm's risk exposure. Nonetheless, current research reports have brought some fresh and interesting insights. They have sought to fill part of the research gaps by giving empirical understanding of the risk perception of Western multinational corporations and their management methods at the company level within the Middle East. In one investigation after gathering and analysing information from 49 major international businesses which are active in the GCC countries, the authors discovered the following. Firstly, the risk associated 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 do business. Adjusting to local traditions is not just about understanding company etiquette; it also requires much deeper cultural integration, such as understanding regional values, decision-making styles, and the societal norms that influence business practices and worker conduct. In GCC countries, successful company relationships are designed on trust and individual connections instead of just being transactional. Moreover, MNEs can take advantage of adjusting their human resource administration to reflect the cultural profiles of regional employees, as variables affecting employee motivation and job satisfaction differ widely across countries. This calls for a change in mindset and strategy from developing robust financial risk management tools to investing in social intelligence and regional expertise as professionals and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah may likely suggest.