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 businesses in the Middle East hinges not only on economic acumen, but additionally on understanding and integrating into local cultures.

Regardless of the political instability and unfavourable economic conditions in a few areas of the Middle East, foreign direct investment (FDI) in the region and, especially, within the Arabian Gulf has been steadily increasing over the past two decades. The relevance of the Middle East and Gulf markets is growing for FDI, and the connected risk appears to be crucial. Yet, research regarding the risk perception of multinationals in the area is lacking in volume and quality, as consultants and attorneys like Louise Flanagan in Ras Al Khaimah may likely attest. Although different empirical research reports have examined the effect of risk on FDI, many analyses have largely been on political risk. Nevertheless, a new focus has surfaced in recent research, shining a spotlight on an often-ignored aspect namely cultural factors. In these pioneering studies, the authors pointed out that companies and their administration usually really underestimate the effect of social facets due to a not enough 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 requires a shift in how MNCs work. Adapting to local customs is not just about being familiar with company etiquette; it also requires much deeper cultural integration, such as appreciating local values, decision-making designs, and the societal norms that affect company practices and worker behaviour. In GCC countries, successful business relationships are built on trust and individual connections instead of just being transactional. Also, MNEs can take advantage of adapting their human resource management to reflect the social profiles of regional employees, as factors influencing employee motivation and job satisfaction differ widely across countries. This involves a shift in mindset and strategy from developing robust financial 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.

A lot of the prevailing 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 worldwide management field has been dedicated to the handling of either political risk or foreign exchange uncertainties. Finance and insurance literature emphasises the danger factors for which hedging or insurance coverage instruments could be developed to mitigate or transfer a company's risk exposure. But, recent studies have brought some fresh and interesting insights. They have sought to fill part of the research gaps by giving empirical information about the risk perception of Western multinational corporations and their management strategies on the company level in the Middle East. In one research after collecting and analysing information from 49 major international companies that are active in the GCC countries, the authors found the following. Firstly, the risk associated with foreign investments is actually more multifaceted compared to the usually examined factors of political risk and exchange rate exposure. Cultural risk is perceived as more important than political risk, economic risk, and economic danger. Secondly, despite the fact that elements of Arab culture are reported to really have a strong influence on the business environment, most firms find it difficult to adapt to local routines and traditions.