How do MNCs manage cultural risks in the Arab gulf countries

How do MNCs manage cultural risks in the Arab gulf countries

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Find out more about how precisely Western multinational corporations perceive and handle dangers in the Middle East.

A lot of the present literature on risk management strategies for multinational corporations emphasises particular uncertainties but omits uncertainties that are hard to quantify. Certainly, lots of research within the international administration 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 could be developed to mitigate or move a firm's risk visibility. However, current studies have brought some fresh and interesting insights. They have sought to fill area of the research gaps by giving empirical understanding of 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 data from 49 major worldwide companies which are active in the GCC countries, the authors found the following. Firstly, the risk connected with foreign investments is obviously even more multifaceted than the usually examined variables of political risk and exchange rate visibility. Cultural risk is perceived as more essential than political risk, economic danger, and economic danger. Secondly, despite the fact that aspects of Arab culture are reported to have a strong impact on the business environment, most firms struggle to adapt to local routines and customs.

In spite of the political instability and unfavourable fiscal conditions in some areas of the Middle East, international direct investment (FDI) in the area and, particularly, in the Arabian Gulf has been progressively increasing over the past two decades. The relevance of the Middle East and Gulf markets is growing for FDI, and the linked risk seems to be crucial. Yet, research regarding the risk perception of multinationals in the region is limited in quantity and quality, as professionals and solicitors like Louise Flanagan in Ras Al Khaimah would likely attest. Although various empirical studies have examined the effect of risk on FDI, most analyses have been on political risk. However, a brand new focus has materialised in recent research, shining a spotlight on an often-ignored aspect specifically cultural variables. In these revolutionary studies, the writers pointed out that companies and their management often seriously brush aside the effect of social facets as a result of not enough knowledge regarding social factors. In reality, some empirical studies have found that cultural differences lower the performance of multinational enterprises.

This cultural dimension of risk management calls for a shift in how MNCs run. Adapting to local customs is not just about understanding business etiquette; it also involves much deeper social integration, such as for example understanding regional values, decision-making designs, and the societal norms that impact business practices and employee behaviour. In GCC countries, successful business relationships are made on trust and personal connections rather than just being transactional. Furthermore, MNEs can benefit from adapting their human resource management to reflect the cultural profiles of regional workers, as variables affecting employee motivation and job satisfaction differ widely across countries. This involves a change in mindset and strategy from developing robust economic risk management tools to investing in cultural intelligence and local expertise as consultants and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah may likely suggest.