How do MNCs manage cultural risks in the Arab gulf countries

How do MNCs manage cultural risks in the Arab gulf countries

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Studies claim that the success of international businesses within the Middle East hinges not merely on monetary acumen, but additionally on understanding and integrating into local cultures.

A lot of the present literature on risk management strategies for multinational corporations features particular uncertainties but omits uncertainties that are hard to quantify. Indeed, a lot of research within the international administration field has centered on the management of either political risk or foreign currency exchange uncertainties. Finance and insurance coverage literature emphasises the danger factors which is why hedging or insurance instruments could be developed to mitigate or move a firm's danger exposure. Nonetheless, present studies 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 management techniques on the firm level in the Middle East. In one research after collecting and analysing data from 49 major international businesses which are active in the GCC countries, the authors found the following. Firstly, the risk associated with foreign investments is actually much more multifaceted compared to frequently analyzed variables of political risk and exchange rate visibility. Cultural risk is perceived as more crucial than political risk, monetary risk, and financial danger. Secondly, even though elements of Arab culture are reported to have a strong influence on the business environment, most firms find it difficult to adapt to local routines and customs.

Regardless of the political instability and unfavourable economic climates in certain parts of the Middle East, international direct investment (FDI) in the area and, particularly, within the Arabian Gulf has been considerably increasing over the past two decades. The relevance of the Middle East and Gulf markets is growing for FDI, and the linked risk is apparently important. Yet, research on the risk perception of multinationals in the area is lacking in quantity and quality, as professionals and solicitors like Louise Flanagan in Ras Al Khaimah would likely attest. Although various empirical studies have examined the effect of risk on FDI, many analyses have been on political risk. Nevertheless, a brand new focus has come forth in present research, shining a spotlight on an often-ignored aspect specifically cultural variables. In these revolutionary studies, the authors pointed out that companies and their management frequently really underestimate the impact of cultural factors due to a lack of knowledge regarding cultural factors. In reality, some empirical research reports have unearthed that cultural differences lower the performance of international enterprises.

This cultural dimension of risk management requires a shift in how MNCs function. Conforming to regional traditions is not only about understanding company etiquette; it also requires much deeper social integration, such as for example understanding regional values, decision-making designs, and the societal norms that influence business practices and employee conduct. In GCC countries, successful business relationships are made on trust and individual connections instead of just being transactional. Also, MNEs can reap the benefits of adapting their human resource management to reflect the social profiles of local employees, as variables influencing employee motivation and job satisfaction vary 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 professionals and attorneys such Salem Al Kait and Ammar Haykal in Ras Al Khaimah may likely suggest.