How do MNCs manage cultural risks in the GCC countries

How do MNCs manage cultural risks in the GCC countries

Blog Article

According to recent research, an important challenge for businesses within the GCC is adjusting to local customs and business practices. Find out more about this here.

A lot of the present literature on risk management strategies for multinational corporations demonstrates particular uncertainties but omits uncertainties that are difficult to quantify. Indeed, plenty of research in the international administration field has centered on the management of either political risk or foreign exchange uncertainties. Finance and insurance coverage literature emphasises the risk variables which is why hedging or insurance instruments can be developed to mitigate or transfer a firm's danger visibility. However, current research reports have brought some fresh and interesting insights. They have sought to fill area of the research gaps by providing empirical information about the risk perception of Western multinational corporations and their administration strategies on the firm level within the Middle East. In one research after gathering and analysing data from 49 major international businesses which are active in the GCC countries, the authors discovered the following. Firstly, the risk associated with foreign investments is actually more multifaceted compared to the often cited factors of political risk and exchange rate visibility. Cultural risk is perceived as more essential than political risk, financial danger, and financial risk. Secondly, despite the fact that aspects of Arab culture are reported to have a strong impact on the business environment, most firms struggle to adapt to regional routines and traditions.

Regardless of the political uncertainty and unfavourable fiscal conditions in certain parts of the Middle East, international direct investment (FDI) in the region and, especially, into the Arabian Gulf has been progressively increasing over the past 20 years. The relevance of the Middle East and Gulf markets is growing for FDI, and the linked risk appears to be essential. Yet, research on the risk perception of multinationals in the area is limited in amount and quality, as consultants and attorneys like Louise Flanagan in Ras Al Khaimah would probably attest. Although various empirical research reports have examined the effect of risk on FDI, most analyses have been on political risk. However, a new focus has materialised in recent research, shining a limelight on an often-disregarded aspect specifically cultural facets. In these pioneering studies, the researchers pointed out that companies and their management often really brush aside the impact of cultural factors due to a not enough knowledge regarding social variables. In reality, some empirical studies have discovered that cultural differences lower the performance of international enterprises.

This cultural dimension of risk management requires a change in how MNCs run. Adapting to regional traditions is not just about understanding business etiquette; it also involves much deeper social integration, such as appreciating local values, decision-making styles, and the societal norms that impact business practices and worker conduct. In GCC countries, successful company relationships are designed on trust and individual connections instead of just being transactional. Furthermore, MNEs can take advantage of adjusting their human resource administration to reflect the cultural profiles of local employees, as factors affecting employee motivation and job satisfaction differ widely across countries. This calls for a shift in mindset and strategy from developing robust monetary 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 would likely suggest.