Discussing the risk perception of MNCs into the Middle East

Discussing the risk perception of MNCs into the Middle East

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The Middle East is attracting global investment, particularly the Gulf area. Discover more about risk management in the gulf.

A lot of the prevailing literature on risk management strategies for multinational corporations highlights 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 currency exchange uncertainties. Finance and insurance literature emphasises the danger factors which is why hedging or insurance coverage instruments can be developed to mitigate or move a firm's danger visibility. Nevertheless, present studies have brought some fresh and interesting insights. They have sought to fill the main research gaps by giving empirical information about the risk perception of Western multinational corporations and their management methods at the firm level within the Middle East. In one investigation after collecting and analysing data from 49 major international companies that are have extensive operations in the GCC countries, the authors found the following. Firstly, the risk related to foreign investments is obviously more multifaceted compared to the frequently cited factors of political risk and exchange rate exposure. Cultural risk is perceived as more important than political risk, economic danger, and financial 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 traditions.

Regardless of the political instability and unfavourable economic climates in certain areas of the Middle East, international direct investment (FDI) in the region and, particularly, into the Arabian Gulf has been continuously increasing in the last two decades. The relevance of the Middle East and Gulf markets is growing for FDI, and the connected risk is apparently important. Yet, research regarding the risk perception of multinationals in the area is limited in quantity and quality, as experts and attorneys like Louise Flanagan in Ras Al Khaimah would probably attest. Although different empirical research reports have investigated the effect of risk on FDI, many analyses have been on political risk. However, a fresh focus has materialised in current research, shining a limelight on an often-neglected aspect particularly cultural variables. In these revolutionary studies, the writers pointed out that companies and their administration frequently really neglect the impact of social factors because of a lack of knowledge regarding cultural variables. In fact, some empirical studies have unearthed that cultural differences lower the performance of international enterprises.

This cultural dimension of risk management calls for a change in how MNCs run. Adjusting to local customs is not only about being familiar with company etiquette; it also requires much deeper cultural 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 designed on trust and individual connections rather than just being transactional. Additionally, MNEs can benefit from adjusting their human resource management to reflect the cultural profiles of regional employees, as factors influencing employee motivation and job satisfaction vary widely across countries. This involves a shift in mindset and strategy from developing robust financial risk management tools to investing in social intelligence and regional expertise as professionals and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.