Is political risk overemphasised in FDI research

Is political risk overemphasised in FDI research

Blog Article

The Middle East is attracting global investment, particularly the Gulf area. Learn more about risk management in the gulf.

This cultural dimension of risk management demands a shift in how MNCs do business. Adapting to local traditions is not just 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 made on trust and individual connections rather than just being transactional. Furthermore, MNEs can take advantage of adapting their human resource administration to mirror the cultural profiles of regional employees, as variables influencing employee motivation and job satisfaction differ widely across cultures. This involves a shift in mindset and strategy from developing robust monetary risk management tools to investing in cultural intelligence and regional expertise as experts and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.

Much of the present academic work on risk management strategies for multinational corporations demonstrates particular uncertainties but omits uncertainties that are tough to quantify. Indeed, lots of research in the international administration field has focused on the management of either political risk or foreign currency exchange uncertainties. Finance and insurance literature emphasises the danger variables for which hedging or insurance instruments are developed to mitigate or transfer a firm's danger visibility. Nevertheless, present studies have brought some fresh and interesting insights. They have sought to fill the main research gaps by giving empirical knowledge about the risk perception of Western multinational corporations and their management techniques on the firm level in the Middle East. In one research after gathering and analysing data from 49 major international businesses which 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 compared to often cited factors of political risk and exchange rate exposure. Cultural risk is regarded as more essential than political risk, monetary 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 local routines and traditions.

In spite of the political uncertainty and unfavourable economic 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 linked risk seems to be important. Yet, research on the risk perception of multinationals in the region is limited in amount and quality, as professionals and solicitors like Louise Flanagan in Ras Al Khaimah would probably attest. Although various empirical studies have investigated the effect of risk on FDI, most analyses have been on political risk. However, a brand new focus has come forth in present research, shining a limelight on an often-disregarded aspect particularly cultural facets. In these pioneering studies, the authors pointed out that companies and their management often really take too lightly the effect of cultural factors because of a lack of knowledge regarding cultural factors. In reality, some empirical research reports have unearthed that cultural differences lower the performance of international enterprises.