According to current research, a significant challenge for companies in the GCC is adapting to local customs and business practices. Find out more about this here.
A lot of the present literature on risk management strategies for multinational corporations emphasises particular uncertainties but omits uncertainties that are hard to quantify. Indeed, lots of research in the worldwide management field has been dedicated to the management of either political risk or foreign currency exchange uncertainties. Finance and insurance literature emphasises the danger factors for which hedging or insurance coverage instruments can be developed to mitigate or move a firm's danger visibility. Nonetheless, recent research reports have brought some fresh and interesting insights. They have sought to fill part of the research gaps by giving empirical knowledge about the risk perception of Western multinational corporations and their administration strategies on the firm level in the Middle East. In one research after collecting and analysing information from 49 major international businesses 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, monetary risk, and financial danger. Secondly, even though elements of Arab culture are reported to really have a strong influence on the business environment, most firms find it difficult to adapt to regional routines and customs.
Regardless of the political uncertainty 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 over the past 20 years. The relevance of the Middle East and Gulf areas is growing for FDI, and the associated risk appears to be crucial. Yet, research regarding the risk perception of multinationals in the region is limited in amount and quality, as specialists and lawyers like Louise Flanagan in Ras Al Khaimah may likely attest. Although different empirical research reports have investigated the effect of risk on FDI, most analyses have largely been on political risk. Nonetheless, a new focus has appeared in present research, shining a limelight on an often-overlooked aspect specifically cultural variables. In these revolutionary studies, the authors pointed out that companies and their administration usually really neglect the effect of social facets as a result of lack of knowledge regarding cultural variables. In fact, some empirical research reports have unearthed that cultural differences lower the performance of international enterprises.
This social dimension of risk management calls for a shift in how MNCs run. Adapting to regional traditions is not only about being familiar with company etiquette; it also requires much deeper social integration, such as appreciating local values, decision-making styles, and the societal norms that influence business practices and employee behaviour. In GCC countries, successful business relationships are built on trust and personal connections rather than just being transactional. Moreover, MNEs can take advantage of 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 requires 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.