On Middle East FDI trends and changes

On Middle East FDI trends and changes

Blog Article

According to recent research, a significant challenge for companies in the GCC is adapting to local customs and business practices. Find out more about this here.

A lot of the prevailing academic work on risk management strategies for multinational corporations emphasises particular uncertainties but omits uncertainties that are tough to quantify. Indeed, lots of research within the international management field has focused on the management of either political risk or foreign exchange uncertainties. Finance and insurance literature emphasises the danger variables for which hedging or insurance coverage instruments can be developed to mitigate or transfer a firm's risk visibility. Nonetheless, current research reports have brought some fresh and interesting insights. They have sought to fill area of the research gaps by giving empirical information about the risk perception of Western multinational corporations and their administration techniques on the company level within the Middle East. In one research after collecting and analysing data from 49 major international companies that are active in the GCC countries, the authors discovered the following. Firstly, the risk associated with foreign investments is clearly a lot more multifaceted compared to usually cited variables of political risk and exchange rate exposure. Cultural risk is perceived as more crucial than political risk, monetary risk, and economic danger. Secondly, even though aspects of Arab culture are reported to really have a strong influence on the business environment, most firms struggle to adapt to local routines and customs.

In spite of the political uncertainty and unfavourable economic conditions in a few elements of the Middle East, international direct investment (FDI) in the region and, particularly, within the Arabian Gulf has been steadily increasing in the last 20 years. The relevance of the Middle East and Gulf markets is growing for FDI, and the associated risk is apparently 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 probably attest. Although different empirical studies have examined the effect of risk on FDI, many analyses have largely been on political risk. Nonetheless, a new focus has come forth in present research, shining a limelight on an often-disregarded aspect namely cultural facets. In these groundbreaking studies, the writers noticed that businesses and their administration often really underestimate the impact of social facets due to a not enough knowledge regarding social variables. In fact, some empirical research reports have found that cultural differences lower the performance of multinational enterprises.

This social dimension of risk management requires a shift in how MNCs function. Conforming to regional traditions is not just about understanding business etiquette; it also involves much deeper cultural integration, such as understanding regional values, decision-making styles, and the societal norms that affect company practices and employee behaviour. In GCC countries, successful company relationships are built on trust and personal connections rather than just being transactional. Furthermore, MNEs can benefit from adapting their human resource management to reflect the cultural profiles of local employees, as factors influencing employee motivation and job satisfaction vary widely across cultures. This requires a change in mind-set and strategy from developing robust economic risk management tools to investing in cultural intelligence and local expertise as consultants and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.