Discussing the risk perception of MNCs into the Middle East

Discussing the risk perception of MNCs into the Middle East

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

Much of the present literature on risk management strategies for multinational corporations emphasises particular uncertainties but omits uncertainties that are hard to quantify. Indeed, plenty of research in the international administration field has centered on the management of either political risk or foreign currency exchange uncertainties. Finance and insurance literature emphasises the danger variables for which hedging or insurance coverage instruments could be developed to mitigate or transfer a company's risk visibility. Nevertheless, present 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 techniques 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 associated with foreign investments is clearly far more multifaceted compared to the often cited factors of political risk and exchange rate visibility. Cultural risk is regarded as more crucial than political risk, financial risk, and economic danger. Secondly, even though elements of Arab culture are reported to have a strong impact on the business environment, most firms struggle to adapt to local routines and traditions.

Despite the political uncertainty and unfavourable economic conditions in a few parts of the Middle East, foreign direct investment (FDI) in the region and, especially, in the Arabian Gulf has been considerably increasing in the last 20 years. The relevance of the Middle East and Gulf areas is growing for FDI, and the connected risk is apparently important. Yet, research regarding the risk perception of multinationals in the region is limited in volume and quality, as consultants and attorneys 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 been on political risk. However, a brand new focus has emerged in current research, shining a limelight on an often-ignored aspect particularly cultural factors. In these revolutionary studies, the authors noticed that businesses and their administration frequently really take too lightly the impact of social factors as a result of not enough knowledge regarding social factors. In reality, some empirical studies have unearthed that cultural differences lower the performance of multinational enterprises.

This cultural dimension of risk management requires a shift in how MNCs function. Conforming to regional customs is not just about understanding business etiquette; it also involves much deeper cultural integration, such as for instance understanding regional values, decision-making designs, and the societal norms that influence business practices and employee behaviour. In GCC countries, successful business relationships are made on trust and personal connections rather than just being transactional. Also, MNEs can take advantage of adjusting their human resource administration to mirror the social profiles of regional workers, as variables affecting employee motivation and job satisfaction differ widely across countries. This calls for a change in mind-set and strategy from developing robust monetary risk management tools to investing in social intelligence and regional expertise as specialists and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.