Is political risk overemphasised in FDI research

Is political risk overemphasised in FDI research

Blog Article

According to current research, a major challenge for businesses in the GCC is adjusting to regional customs and business practices. Find out more about this right here.

This social dimension of risk management demands a change in how MNCs operate. Adjusting to local customs is not just about understanding business etiquette; it also requires much deeper social integration, such as for example understanding regional values, decision-making designs, and the societal norms that affect company practices and worker conduct. In GCC countries, successful business relationships are made on trust and personal connections rather than just being transactional. Moreover, MNEs can benefit from adapting their human resource management to mirror the social profiles of regional 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 social intelligence and regional expertise as professionals and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.

In spite of the political uncertainty and unfavourable economic climates in a few areas of the Middle East, international direct investment (FDI) in the region and, especially, in the Arabian Gulf has been gradually increasing over the past two decades. The relevance of the Middle East and Gulf markets is growing for FDI, and the linked risk is apparently essential. Yet, research regarding the risk perception of multinationals in the area is limited in quantity and quality, as consultants and lawyers like Louise Flanagan in Ras Al Khaimah would likely attest. Although different empirical research reports have examined the effect of risk on FDI, most analyses have been on political risk. Nonetheless, a fresh focus has come forth in current research, shining a spotlight on an often-ignored aspect namely cultural facets. In these revolutionary studies, the writers noticed that companies and their administration usually really neglect the impact of cultural facets because of a not enough knowledge regarding social variables. In fact, some empirical research reports have discovered that cultural differences lower the performance of multinational enterprises.

A lot of the prevailing 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 management field has focused on the handling of either political risk or foreign exchange uncertainties. Finance and insurance literature emphasises the danger factors which is why hedging or insurance coverage instruments can be developed to mitigate or move a firm'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 methods at the company level within the Middle East. In one investigation after gathering and analysing data from 49 major worldwide companies which are active in the GCC countries, the authors discovered the following. Firstly, the risk related to foreign investments is obviously a great deal more multifaceted compared to frequently analyzed factors of political risk and exchange rate visibility. Cultural risk is regarded as more important than political risk, economic risk, and financial risk. Secondly, despite the fact that aspects of Arab culture are reported to have a strong impact on the business environment, most firms find it difficult to adapt to regional routines and customs.