Is political risk overemphasised in FDI analysis

Is political risk overemphasised in FDI analysis

Blog Article

According to present research, an important challenge for companies in the GCC is adjusting to regional customs and business practices. Learn more about this here.

This cultural dimension of risk management demands a shift in how MNCs operate. Adapting to regional customs is not only about being familiar with business etiquette; it also requires much deeper cultural integration, such as for example appreciating regional values, decision-making styles, and the societal norms that affect business practices and worker behaviour. In GCC countries, successful company relationships are built on trust and individual connections rather than just being transactional. Additionally, MNEs can take advantage of adjusting their human resource management to mirror the cultural 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 monetary risk management tools to investing in cultural intelligence and regional expertise as consultants and attorneys such Salem Al Kait and Ammar Haykal in Ras Al Khaimah may likely suggest.

Much of the present academic work on risk management strategies for multinational corporations demonstrates particular uncertainties but omits uncertainties that are difficult to quantify. Indeed, plenty of research in the worldwide administration field has focused on the handling of either political risk or foreign exchange uncertainties. Finance and insurance literature emphasises the danger factors for which hedging or insurance coverage instruments can be 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 area 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 collecting and analysing information from 49 major worldwide companies that are have extensive operations in the GCC countries, the authors discovered the following. Firstly, the risk associated with foreign investments is actually much more multifaceted than the often cited variables of political risk and exchange rate exposure. Cultural risk is regarded as more essential than political risk, financial risk, and economic danger. Secondly, despite the fact that elements of Arab culture are reported to have a strong influence on the business environment, most firms find it difficult to adapt to regional routines and traditions.

In spite of the political instability and unfavourable fiscal conditions in a few areas of the Middle East, international direct investment (FDI) in the area and, particularly, in the Arabian Gulf has been continuously increasing within the last 20 years. The relevance of the Middle East and Gulf areas is growing for FDI, and the associated risk seems to be crucial. Yet, research regarding the risk perception of multinationals in the area is lacking in volume and quality, as specialists and lawyers like Louise Flanagan in Ras Al Khaimah would likely attest. Although various empirical studies have investigated the effect of risk on FDI, most analyses have largely been on political risk. However, a fresh focus has emerged in recent research, shining a spotlight on an often-overlooked aspect namely cultural factors. In these pioneering studies, the authors noticed that companies and their management frequently seriously neglect the impact of cultural factors because of a lack of knowledge regarding social factors. In reality, some empirical research reports have unearthed that cultural differences lower the performance of international enterprises.