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 present research, a significant challenge for companies in the GCC is adapting to regional customs and business practices. Discover more about this right here.

Much of the prevailing literature on risk management strategies for multinational corporations illustrates particular uncertainties but omits uncertainties that are hard to quantify. Certainly, a lot of research within the worldwide management field has been dedicated to the management of either political risk or foreign exchange uncertainties. Finance and insurance coverage literature emphasises the risk variables for which hedging or insurance coverage instruments could be developed to mitigate or transfer a firm's danger exposure. However, current studies have brought some fresh and interesting insights. They have sought to fill area of the research gaps by providing empirical information about the risk perception of Western multinational corporations and their management methods at the company level in the Middle East. In one research after collecting and analysing information from 49 major worldwide 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 frequently analyzed factors of political risk and exchange rate exposure. Cultural danger is perceived as more crucial than political risk, financial risk, and financial 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 local routines and customs.

In spite of the political instability and unfavourable fiscal conditions in certain parts of the Middle East, foreign direct investment (FDI) in the area and, particularly, within 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 associated risk appears to be essential. Yet, research on the risk perception of multinationals in the region is lacking in volume and quality, as consultants and attorneys like Louise Flanagan in Ras Al Khaimah would probably attest. Although different empirical studies have investigated the effect of risk on FDI, many analyses have largely been on political risk. Nevertheless, a new focus has come forth in present research, shining a spotlight on an often-ignored aspect specifically cultural facets. In these revolutionary studies, the authors noticed that businesses and their administration usually really neglect the effect of social facets as a result of not enough knowledge regarding cultural variables. In fact, some empirical studies have discovered that cultural differences lower the performance of international enterprises.

This social dimension of risk management demands a change in how MNCs operate. Adjusting to local customs is not just about being familiar with company etiquette; it also requires much deeper social integration, such as for example understanding regional values, decision-making designs, and the societal norms that affect company practices and worker conduct. In GCC countries, successful company relationships are built 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 local employees, as factors influencing employee motivation and job satisfaction vary widely across cultures. 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 probably suggest.