On Middle East FDI trends and changes

On Middle East FDI trends and changes

Blog Article

According to current research, a significant challenge for firms within the GCC is adjusting to local customs and business practices. Find out more about this right here.

In spite of the political instability and unfavourable economic conditions in certain elements of the Middle East, international direct investment (FDI) in the region and, specially, into the Arabian Gulf has been progressively increasing in the last two decades. The relevance of the Middle East and Gulf areas is growing for FDI, and the connected risk seems to be essential. Yet, research regarding the risk perception of multinationals in the region is limited in volume and quality, as specialists and lawyers like Louise Flanagan in Ras Al Khaimah may likely attest. Although various empirical studies have investigated the effect of risk on FDI, many analyses have largely been on political risk. However, a new focus has emerged in present research, shining a limelight on an often-disregarded aspect specifically cultural variables. In these pioneering studies, the researchers remarked that companies and their management usually really brush aside the impact of cultural facets due to a lack of knowledge regarding social factors. In fact, some empirical research reports have unearthed that cultural differences lower the performance of multinational enterprises.

Much of the prevailing academic work on risk management strategies for multinational corporations demonstrates particular uncertainties but omits uncertainties that are difficult to quantify. Certainly, lots of research in the worldwide administration field has focused on the handling 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 can be developed to mitigate or transfer a company's risk visibility. Nevertheless, recent research reports have brought some fresh and interesting insights. They have sought to fill the main research gaps by giving empirical understanding of the risk perception of Western multinational corporations and their management techniques at the company level in the Middle East. In one research after collecting and analysing information from 49 major international businesses that 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 frequently cited factors of political risk and exchange rate exposure. Cultural danger is perceived as more essential than political risk, financial danger, and economic danger. Secondly, even though elements of Arab culture are reported to really have a strong influence on the business environment, most firms battle to adapt to local routines and traditions.

This cultural dimension of risk management demands a shift in how MNCs operate. Adapting to regional customs is not only about understanding company etiquette; it also involves much deeper cultural integration, such as appreciating regional values, decision-making styles, and the societal norms that affect business practices and worker behaviour. In GCC countries, successful company relationships are designed on trust and personal connections instead of just being transactional. Furthermore, MNEs can take advantage of adjusting their human resource management to mirror the social profiles of local employees, as variables influencing employee motivation and job satisfaction vary widely across countries. This requires a shift in mind-set 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.