Exactly how do MNCs manage cultural risks in the GCC countries

Exactly how do MNCs manage cultural risks in the GCC countries

Blog Article

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

Regardless of the political instability and unfavourable economic conditions in certain elements of the Middle East, international direct investment (FDI) in the area and, especially, within the Arabian Gulf has been continuously increasing over the past 20 years. The relevance of the Middle East and Gulf areas is growing for FDI, and the connected risk appears to be important. Yet, research regarding the risk perception of multinationals in the area is lacking in amount and quality, as experts and lawyers like Louise Flanagan in Ras Al Khaimah would likely attest. Although different empirical studies have investigated the effect of risk on FDI, most analyses have largely been on political risk. However, a new focus has surfaced in recent research, shining a limelight on an often-neglected aspect specifically cultural variables. In these pioneering studies, the researchers remarked that businesses and their management usually really disregard the impact of cultural facets due to a lack of knowledge regarding social factors. In fact, some empirical research reports have unearthed that cultural differences lower the performance of multinational enterprises.

A lot of the present academic work on risk management strategies for multinational corporations illustrates particular uncertainties but omits uncertainties that are difficult to quantify. Indeed, lots of research within the international 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 can be developed to mitigate or transfer a company's danger exposure. However, current research reports have brought some fresh and interesting insights. They have sought to fill an element of the research gaps by providing empirical knowledge about the risk perception of Western multinational corporations and their administration methods on the firm level within 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 related to foreign investments is clearly a lot more multifaceted than the often examined variables of political risk and exchange rate exposure. Cultural danger is regarded as more crucial than political risk, monetary risk, and economic danger. Secondly, even though aspects 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.

This cultural dimension of risk management demands a shift in how MNCs work. Adjusting to local traditions is not just about understanding company etiquette; it also involves much deeper cultural integration, such as for instance appreciating local values, decision-making designs, and the societal norms that influence business practices and worker conduct. In GCC countries, successful business relationships are made on trust and individual connections rather than just being transactional. Also, MNEs can reap the benefits of 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 cultural intelligence and local expertise as specialists and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah may likely suggest.