Is political risk overemphasised in FDI research

Is political risk overemphasised in FDI research

Blog Article

According to current research, a significant challenge for firms in the GCC is adjusting to regional customs and business practices. Learn more about this here.

Despite the political uncertainty and unfavourable economic climates in certain areas of the Middle East, foreign direct investment (FDI) in the region and, particularly, into the Arabian Gulf has been steadily 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 essential. Yet, research regarding the risk perception of multinationals in the area is limited in quantity and quality, as experts and solicitors like Louise Flanagan in Ras Al Khaimah may likely attest. Although various empirical research reports 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 particularly cultural variables. In these pioneering studies, the writers noticed that businesses and their administration often really overlook the effect of cultural facets as a result of not enough knowledge regarding cultural factors. In reality, some empirical research reports have found that cultural differences lower the performance of international enterprises.

Much of the prevailing literature on risk management strategies for multinational corporations highlights particular uncertainties but omits uncertainties that are hard to quantify. Indeed, plenty of research in the worldwide management field has been dedicated to the management of either political risk or foreign currency exchange uncertainties. Finance and insurance literature emphasises the danger factors which is why hedging or insurance instruments could be developed to mitigate or transfer a firm's danger exposure. Nonetheless, recent research reports have brought some fresh and interesting insights. They have sought to fill part of the research gaps by giving empirical information about 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 information from 49 major international businesses which are active in the GCC countries, the authors discovered the following. Firstly, the risk associated with foreign investments is actually much more multifaceted compared to usually examined factors of political risk and exchange rate exposure. Cultural risk is regarded as more essential than political risk, financial danger, and financial risk. Secondly, even though elements of Arab culture are reported to really have a strong influence on the business environment, most firms find it difficult to adapt to regional routines and customs.

This cultural dimension of risk management requires a change in how MNCs run. Conforming to regional customs is not only about being familiar with business etiquette; it also involves much deeper social integration, such as appreciating regional values, decision-making styles, and the societal norms that impact company practices and employee behaviour. In GCC countries, successful company relationships are designed on trust and personal connections rather than just being transactional. Furthermore, MNEs can take advantage of adjusting their human resource management to reflect the social profiles of regional employees, as factors affecting employee motivation and job satisfaction vary widely across cultures. This involves a change in mindset and strategy from developing robust economic risk management tools to investing in social intelligence and regional expertise as professionals and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.