How do MNCs manage cultural risks in the Arab gulf countries

How do MNCs manage cultural risks in the Arab gulf countries

Blog Article

According to recent research, an important challenge for businesses within the GCC is adjusting to regional customs and business practices. Learn more about this here.

Despite the political instability and unfavourable economic conditions in certain elements of the Middle East, international direct investment (FDI) in the region and, particularly, into the Arabian Gulf has been steadily increasing within the last 20 years. The relevance of the Middle East and Gulf markets is growing for FDI, and the associated risk is apparently crucial. Yet, research on the risk perception of multinationals in the area is limited in quantity and quality, as consultants and solicitors like Louise Flanagan in Ras Al Khaimah may likely attest. Although various empirical research reports have examined the effect of risk on FDI, most analyses have largely been on political risk. However, a new focus has emerged in present research, shining a spotlight on an often-overlooked aspect particularly cultural facets. In these groundbreaking studies, the writers pointed out that businesses and their management usually seriously underestimate the effect of cultural facets as a result of lack of knowledge regarding cultural factors. In fact, some empirical research reports have found that cultural differences lower the performance of international enterprises.

A lot of the prevailing literature on risk management strategies for multinational corporations emphasises particular uncertainties but omits uncertainties that are hard to quantify. Certainly, lots of research in the worldwide management field has been dedicated to the management of either political risk or foreign exchange uncertainties. Finance and insurance literature emphasises the risk variables which is why hedging or insurance coverage instruments are developed to mitigate or transfer a company's risk visibility. Nevertheless, current research reports have brought some fresh and interesting insights. They have sought to fill area of the research gaps by providing empirical knowledge about the risk perception of Western multinational corporations and their administration techniques at the firm level in the Middle East. In one investigation after collecting and analysing information from 49 major worldwide businesses which are have extensive operations in the GCC countries, the authors discovered the following. Firstly, the risk related to foreign investments is clearly more multifaceted compared to the frequently examined variables of political risk and exchange rate visibility. Cultural risk is regarded as more essential than political risk, monetary risk, and economic risk. Secondly, even though elements of Arab culture are reported to have a strong influence on the business environment, most firms battle to adapt to regional routines and customs.

This cultural dimension of risk management calls for a change in how MNCs operate. Adapting to regional customs is not only about being familiar with business etiquette; it also involves much deeper social integration, such as for example appreciating local values, decision-making styles, and the societal norms that impact company practices and employee behaviour. In GCC countries, successful company relationships are designed on trust and personal connections rather than just being transactional. Also, MNEs can reap the benefits of adapting their human resource management to reflect the social profiles of regional workers, as factors influencing employee motivation and job satisfaction vary widely across countries. This calls for 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 likely suggest.