Discussing the risk perception of MNCs in the Middle East

Discussing the risk perception of MNCs in the Middle East

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The Middle East is attracting global investment, especially the Gulf region. Find out more about risk management within the gulf.

This social dimension of risk management calls for a shift in how MNCs do business. Adjusting to local traditions is not only about understanding business etiquette; it also involves much deeper social integration, such as for example appreciating local values, decision-making designs, and the societal norms that affect business practices and employee conduct. In GCC countries, successful company relationships are built on trust and personal connections rather than just being transactional. Also, MNEs can benefit from adapting their human resource management to mirror the social profiles of regional employees, as factors influencing employee motivation and job satisfaction differ 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.

Regardless of the political uncertainty and unfavourable fiscal conditions in certain parts of the Middle East, international direct investment (FDI) in the area and, particularly, in the Arabian Gulf has been continuously increasing within the last two decades. The relevance of the Middle East and Gulf markets is growing for FDI, and the associated risk appears to be essential. Yet, research regarding the risk perception of multinationals in the area is lacking in volume and quality, as consultants and lawyers like Louise Flanagan in Ras Al Khaimah would likely attest. Although various empirical research reports have investigated the effect of risk on FDI, most analyses have been on political risk. Nonetheless, a fresh focus has materialised in present research, shining a limelight on an often-ignored aspect specifically cultural variables. In these groundbreaking studies, the authors pointed out that businesses and their administration usually really neglect the impact of social facets as a result of not enough knowledge regarding social variables. In fact, some empirical studies have found that cultural differences lower the performance of international enterprises.

A lot of the present academic work on risk management strategies for multinational corporations illustrates particular uncertainties but omits uncertainties that are tough to quantify. Indeed, lots of research in the international administration field has been dedicated to the handling of either political risk or foreign exchange uncertainties. Finance and insurance coverage literature emphasises the risk factors for which hedging or insurance coverage instruments are developed to mitigate or transfer a firm's danger exposure. However, present research reports have brought some fresh and interesting insights. They have sought to fill an element of the research gaps by giving empirical understanding of the risk perception of Western multinational corporations and their management methods on the firm level in 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 connected with foreign investments is clearly even more multifaceted compared to frequently cited variables of political risk and exchange rate exposure. Cultural danger is regarded as more important than political risk, monetary danger, and economic danger. Secondly, despite the fact that aspects of Arab culture are reported to really have a strong influence on the business environment, most firms struggle to adapt to regional routines and traditions.