Exactly how do MNCs manage cultural risks in the GCC countries

Exactly how do MNCs manage cultural risks in the GCC countries

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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 cultural dimension of risk management demands a shift in how MNCs operate. Adapting to local traditions is not just about being familiar with business etiquette; it also requires much deeper cultural integration, such as understanding local values, decision-making designs, and the societal norms that impact company practices and worker conduct. In GCC countries, successful company relationships are built on trust and individual connections rather than just being transactional. Additionally, MNEs can take advantage of adjusting their human resource administration to reflect the social profiles of local workers, as factors affecting employee motivation and job satisfaction vary widely across countries. This requires a change in mindset and strategy from developing robust monetary risk management tools to investing in cultural intelligence and regional expertise as experts and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.

Much of the prevailing literature on risk management strategies for multinational corporations illustrates particular uncertainties but omits uncertainties that are difficult to quantify. Certainly, plenty of research in the worldwide administration field has centered on the handling of either political risk or foreign exchange uncertainties. Finance and insurance coverage literature emphasises the danger factors which is why hedging or insurance coverage instruments can be developed to mitigate or move a company's risk visibility. But, recent research reports have brought some fresh and interesting insights. They have sought to fill part of the research gaps by providing empirical information about the risk perception of Western multinational corporations and their management techniques on the company level in the Middle East. In one research after gathering and analysing data from 49 major international businesses that are active in the GCC countries, the authors discovered the following. Firstly, the risk associated with foreign investments is obviously even more multifaceted than the frequently analyzed variables of political risk and exchange rate visibility. Cultural risk is perceived as more crucial than political risk, monetary danger, and economic risk. Secondly, even though elements of Arab culture are reported to really have a strong impact on the business environment, most firms struggle to adapt to local routines and traditions.

In spite of the political uncertainty and unfavourable economic conditions in some areas of the Middle East, international direct investment (FDI) in the area and, specially, in the Arabian Gulf has been continuously increasing in the last 20 years. The relevance of the Middle East and Gulf areas is growing for FDI, and the linked risk seems to be important. Yet, research on the risk perception of multinationals in the region is lacking in volume 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 been on political risk. However, a brand new focus has materialised in present research, shining a limelight on an often-disregarded aspect namely cultural factors. In these pioneering studies, the authors noticed that companies and their management often seriously neglect the impact of cultural factors because of a lack of knowledge regarding cultural variables. In fact, some empirical studies have unearthed that cultural differences lower the performance of international enterprises.