On Middle East FDI trends and changes

On Middle East FDI trends and changes

Blog Article

Find out more about how Western multinational corporations perceive and manage risks in the Middle East.

A lot of the present literature on risk management strategies for multinational corporations features particular uncertainties but omits uncertainties that are difficult to quantify. Certainly, lots of research in the worldwide administration field has centered on the management of either political risk or foreign currency exchange uncertainties. Finance and insurance coverage literature emphasises the risk factors which is why hedging or insurance coverage instruments could be developed to mitigate or transfer a firm's risk visibility. Nonetheless, current studies 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 management strategies on the firm level in the Middle East. In one research after collecting and analysing information from 49 major worldwide companies which are have extensive operations in the GCC countries, the authors found the following. Firstly, the risk connected with foreign investments is actually far more multifaceted compared to the often examined variables of political risk and exchange rate exposure. Cultural danger is perceived as more important than political risk, economic risk, and financial risk. Secondly, despite the fact that aspects of Arab culture are reported to really have a strong influence on the business environment, most firms struggle to adapt to regional routines and customs.

This social dimension of risk management calls for a change in how MNCs run. Conforming to regional customs is not only about understanding company etiquette; it also involves much deeper social integration, such as for instance understanding local values, decision-making designs, and the societal norms that impact business practices and employee conduct. In GCC countries, successful business relationships are designed on trust and personal connections instead of just being transactional. Moreover, MNEs can reap the benefits of adapting their human resource administration to reflect the social profiles of regional employees, as variables influencing employee motivation and job satisfaction differ widely across countries. This involves a change in mindset and strategy from developing robust economic risk management tools to investing in social intelligence and local expertise as specialists and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.

Regardless of the political uncertainty and unfavourable economic conditions in certain parts of the Middle East, foreign direct investment (FDI) in the area and, particularly, within the Arabian Gulf has been considerably increasing over the past 20 years. The relevance of the Middle East and Gulf areas is growing for FDI, and the associated risk appears to be essential. Yet, research on the risk perception of multinationals in the region is lacking in volume and quality, as consultants and attorneys like Louise Flanagan in Ras Al Khaimah would probably attest. Although various empirical studies have examined the effect of risk on FDI, many analyses have largely been on political risk. Nevertheless, a brand new focus has materialised in recent research, shining a spotlight on an often-neglected aspect particularly cultural factors. In these pioneering studies, the writers remarked that businesses and their management often seriously brush aside the effect of cultural factors due to a lack of knowledge regarding social factors. In reality, some empirical studies have discovered that cultural differences lower the performance of international enterprises.