Exactly how do MNCs manage cultural risks in the Arab gulf countries

Exactly how do MNCs manage cultural risks in the Arab gulf countries

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Studies suggest that the success of international corporations within the Middle East hinges not merely on economic acumen, but additionally on understanding and integrating into local cultures.

This social dimension of risk management calls for a shift in how MNCs function. Adjusting to local customs is not only about understanding business etiquette; it also involves much deeper social integration, such as for example appreciating regional values, decision-making designs, and the societal norms that influence business practices and employee conduct. In GCC countries, successful company relationships are built on trust and personal connections instead of just being transactional. Moreover, MNEs can reap the benefits of adjusting their human resource management to reflect the cultural profiles of local workers, as variables influencing employee motivation and job satisfaction vary widely across cultures. This involves a change in mind-set and strategy from developing robust monetary risk management tools to investing in cultural intelligence and local expertise as experts and attorneys such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.

Despite the political instability and unfavourable fiscal conditions in certain parts of the Middle East, foreign direct investment (FDI) in the region and, especially, within the Arabian Gulf has been considerably increasing over the past two decades. The relevance of the Middle East and Gulf markets is growing for FDI, and the associated risk seems to be important. Yet, research on the risk perception of multinationals in the region is limited in quantity and quality, as consultants and lawyers like Louise Flanagan in Ras Al Khaimah would likely attest. Although various empirical studies have investigated the effect of risk on FDI, most analyses have largely been on political risk. Nonetheless, a fresh focus has emerged in recent research, shining a spotlight on an often-overlooked aspect namely cultural factors. In these revolutionary studies, the researchers remarked that businesses and their administration frequently seriously neglect the impact of cultural factors as a result of not enough knowledge regarding social variables. In fact, some empirical studies have unearthed that cultural differences lower the performance of international enterprises.

A lot of the present literature on risk management strategies for multinational corporations features particular uncertainties but omits uncertainties that are difficult to quantify. Indeed, plenty of research within the international management field has focused on the handling of either political risk or foreign currency exchange uncertainties. Finance and insurance coverage literature emphasises the risk factors which is why hedging or insurance coverage instruments could be developed to mitigate or transfer a company's danger exposure. Nevertheless, recent 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 management methods at the firm level within the Middle East. In one research after collecting and analysing information from 49 major worldwide companies which are have extensive operations in the GCC countries, the authors found the following. Firstly, the risk associated with foreign investments is clearly even more multifaceted compared to frequently cited factors of political risk and exchange rate exposure. Cultural danger is perceived as more essential than political risk, monetary risk, and financial risk. Secondly, even though elements of Arab culture are reported to have a strong impact on the business environment, most firms find it difficult to adapt to local routines and traditions.