Studies suggest that the prosperity of multinational corporations within the Middle East hinges not only on economic acumen, but also on understanding and integrating into local cultures.
Despite the political uncertainty and unfavourable fiscal conditions in some parts of the Middle East, international direct investment (FDI) in the region and, particularly, into the Arabian Gulf has been considerably increasing in the last two decades. 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 region is limited in volume and quality, as professionals and lawyers like Louise Flanagan in Ras Al Khaimah would probably attest. Although different empirical studies have examined the effect of risk on FDI, most analyses have largely been on political risk. Nonetheless, a brand new focus has emerged in present research, shining a spotlight on an often-disregarded aspect specifically cultural factors. In these revolutionary studies, the writers pointed out that businesses and their management usually seriously overlook the impact of social factors as a result of lack of knowledge regarding social variables. In reality, some empirical research reports have found that cultural differences lower the performance of international 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. Certainly, a lot of research within the international 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 which is why hedging or insurance coverage instruments could be developed to mitigate or move a firm's danger visibility. Nevertheless, present studies have brought some fresh and interesting insights. They have sought to fill an element of the research gaps by providing empirical understanding of the risk perception of Western multinational corporations and their administration techniques on the firm level in the Middle East. In one research after collecting and analysing data from 49 major worldwide companies that are have extensive operations in the GCC countries, the authors found the following. Firstly, the risk related to foreign investments is obviously a lot more multifaceted than the frequently cited variables of political risk and exchange rate visibility. Cultural risk is regarded as more essential than political risk, financial risk, and financial danger. Secondly, even though aspects 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.
This social dimension of risk management calls for a shift in how MNCs do business. Adjusting to local traditions is not only about being familiar with business etiquette; it also involves much deeper social integration, such as for example understanding local values, decision-making styles, and the societal norms that impact company practices and worker behaviour. In GCC countries, successful business relationships are made on trust and individual connections instead of just being transactional. Additionally, MNEs can benefit from adapting their human resource administration to mirror the social profiles of regional workers, as factors influencing employee motivation and job satisfaction vary widely across cultures. This involves a change in mind-set and strategy from developing robust monetary risk management tools to investing in cultural intelligence and local expertise as experts and attorneys such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.