On Middle East FDI trends and changes

On Middle East FDI trends and changes

Blog Article

Studies suggest that the prosperity of multinational corporations within the Middle East hinges not only on economic acumen, but also on understanding and integrating into local cultures.

Despite the political uncertainty and unfavourable fiscal conditions in some parts of the Middle East, international direct investment (FDI) in the region and, particularly, into the Arabian Gulf has been considerably increasing in the last two decades. The relevance of the Middle East and Gulf areas is growing for FDI, and the connected risk appears to be important. Yet, research regarding the risk perception of multinationals in the region is lacking in amount and quality, as experts and lawyers like Louise Flanagan in Ras Al Khaimah would probably attest. Although various empirical studies have examined the effect of risk on FDI, most analyses have largely been on political risk. However, a new focus has materialised in current research, shining a spotlight on an often-disregarded aspect specifically cultural factors. In these revolutionary studies, the researchers pointed out that businesses and their administration often really disregard the impact of social facets because of a not enough knowledge regarding cultural factors. In fact, some empirical research reports have discovered that cultural differences lower the performance of international enterprises.

Much of the prevailing literature on risk management strategies for multinational corporations emphasises particular uncertainties but omits uncertainties that are hard to quantify. Certainly, lots of research within the international administration field has focused on the handling of either political risk or foreign exchange uncertainties. Finance and insurance coverage literature emphasises the risk factors which is why hedging or insurance instruments are developed to mitigate or transfer a company's danger exposure. But, recent research reports have brought some fresh and interesting insights. They have sought to fill part of the research gaps by giving empirical knowledge about the risk perception of Western multinational corporations and their administration methods at the company level in the Middle East. In one investigation after gathering and analysing data from 49 major international businesses that are have extensive operations in the GCC countries, the authors discovered the following. Firstly, the risk associated with foreign investments is clearly more multifaceted compared to the frequently analyzed variables of political risk and exchange rate visibility. Cultural risk is regarded as more essential than political risk, financial risk, and financial danger. Secondly, even though elements of Arab culture are reported to really have a strong influence on the business environment, most firms struggle to adapt to regional routines and traditions.

This cultural dimension of risk management calls for a change in how MNCs do business. Adjusting to local traditions is not only about understanding business etiquette; it also involves much deeper social integration, such as for instance understanding local values, decision-making styles, and the societal norms that impact company practices and worker behaviour. In GCC countries, successful business relationships are made on trust and individual connections instead of just being transactional. Additionally, MNEs can benefit from adapting their human resource administration to mirror the social profiles of regional employees, as factors influencing employee motivation and job satisfaction differ widely across countries. This calls for a change in mindset and strategy from developing robust economic risk management tools to investing in cultural intelligence and regional expertise as specialists and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah may likely suggest.