On Middle East FDI trends and changes

On Middle East FDI trends and changes

Blog Article

Find out more exactly how Western multinational corporations perceive and manage risks within the Middle East.

A lot of the prevailing literature on risk management strategies for multinational corporations emphasises particular uncertainties but omits uncertainties that are hard to quantify. Certainly, a lot of research within the worldwide management field has been dedicated to the management of either political risk or foreign currency exchange uncertainties. Finance and insurance literature emphasises the risk variables for which hedging or insurance instruments are developed to mitigate or transfer a company's danger exposure. Nonetheless, recent 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 strategies at the company level within the Middle East. In one investigation after gathering and analysing information from 49 major international companies which are have extensive operations in the GCC countries, the authors found the following. Firstly, the risk related to foreign investments is clearly more multifaceted compared to usually examined factors of political risk and exchange rate visibility. Cultural danger is regarded as more important than political risk, economic danger, and financial risk. Secondly, even though aspects of Arab culture are reported to really have a strong impact on the business environment, most firms battle to adapt to local routines and customs.

Regardless of the political uncertainty and unfavourable economic climates in some parts of the Middle East, foreign direct investment (FDI) in the region and, especially, into the Arabian Gulf has been steadily 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 area is lacking in volume and quality, as consultants and lawyers like Louise Flanagan in Ras Al Khaimah may likely attest. Although different empirical research reports have examined the effect of risk on FDI, many analyses have been on political risk. Nevertheless, a new focus has surfaced in current research, shining a limelight on an often-disregarded aspect particularly cultural facets. In these revolutionary studies, the authors pointed out that businesses and their management often seriously take too lightly the impact of cultural factors because of 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 social dimension of risk management requires a change in how MNCs work. Adapting to local customs is not just about being familiar with company etiquette; it also requires much deeper social integration, such as for instance appreciating local values, decision-making styles, and the societal norms that influence company practices and worker conduct. In GCC countries, successful company relationships are made on trust and personal connections rather than just being transactional. Furthermore, MNEs can reap the benefits of adjusting their human resource administration to reflect the cultural profiles of local workers, as variables 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 specialists and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah may likely suggest.