Is political risk overemphasised in FDI research

Is political risk overemphasised in FDI research

Blog Article

Find out more on how Western multinational corporations perceive and manage dangers in the Middle East.

In spite of the political instability and unfavourable economic conditions in a few areas of the Middle East, international direct investment (FDI) in the area and, specially, into the Arabian Gulf has been steadily increasing over the past two decades. The relevance of the Middle East and Gulf markets is growing for FDI, and the associated risk appears to be crucial. Yet, research on the risk perception of multinationals in the region is limited in amount and quality, as experts and attorneys like Louise Flanagan in Ras Al Khaimah may likely 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 current research, shining a limelight on an often-neglected aspect specifically cultural variables. In these groundbreaking studies, the writers noticed that companies and their management often really underestimate the effect of social facets as a result of not enough knowledge regarding cultural variables. In fact, some empirical research reports have unearthed that cultural differences lower the performance of international enterprises.

This social dimension of risk management requires a shift in how MNCs run. Adjusting to regional traditions is not only about understanding business etiquette; it also involves much deeper social integration, such as for example understanding regional values, decision-making styles, and the societal norms that influence company practices and worker behaviour. In GCC countries, successful business relationships are built on trust and personal connections instead of just being transactional. Furthermore, MNEs can benefit from adapting their human resource administration to reflect the social profiles of regional workers, as factors affecting employee motivation and job satisfaction differ widely across countries. This involves a shift in mind-set and strategy from developing robust economic risk management tools to investing in cultural intelligence and regional expertise as professionals and attorneys such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.

A lot of the present literature on risk management strategies for multinational corporations highlights particular uncertainties but omits uncertainties that are tough to quantify. Indeed, a lot of research within the international administration field has centered on the management of either political risk or foreign currency exchange uncertainties. Finance and insurance literature emphasises the risk variables for which hedging or insurance coverage instruments could be developed to mitigate or transfer a company's risk visibility. But, current studies have brought some fresh and interesting insights. They have sought to fill an element of the research gaps by providing empirical information about the risk perception of Western multinational corporations and their administration strategies on the firm 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 cited variables of political risk and exchange rate exposure. Cultural danger is perceived as more essential 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 struggle to adapt to regional routines and customs.