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.

Despite the political instability and unfavourable economic conditions in some parts of the Middle East, foreign direct investment (FDI) in the area and, specially, 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 connected risk appears to be crucial. Yet, research on the risk perception of multinationals in the region is limited in quantity and quality, as experts and attorneys like Louise Flanagan in Ras Al Khaimah would probably attest. Although different empirical research reports have examined the effect of risk on FDI, many analyses have largely been on political risk. Nonetheless, a fresh focus has emerged in present research, shining a limelight on an often-disregarded aspect particularly cultural facets. In these revolutionary studies, the researchers remarked that businesses and their administration usually really brush aside the effect of social factors due to a lack of knowledge regarding cultural variables. In fact, some empirical studies have found that cultural differences lower the performance of international enterprises.

This social dimension of risk management demands a change in how MNCs work. Adapting to local customs is not just about being familiar with company etiquette; it also requires much deeper cultural integration, such as appreciating regional values, decision-making designs, and the societal norms that impact business practices and employee conduct. In GCC countries, successful company relationships are designed on trust and personal connections rather than just being transactional. Moreover, MNEs can benefit from adapting their human resource administration to reflect the cultural profiles of local workers, as variables affecting employee motivation and job satisfaction differ widely across cultures. This requires a change 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. Certainly, a lot of research within the international management field has been dedicated to the management of either political risk or foreign exchange uncertainties. Finance and insurance coverage literature emphasises the danger factors which is why hedging or insurance instruments are developed to mitigate or move a firm's danger exposure. However, present studies have brought some fresh and interesting insights. They have sought to fill an element of the research gaps by giving empirical knowledge about the risk perception of Western multinational corporations and their administration techniques on the company level in the Middle East. In one research after collecting and analysing information from 49 major international businesses that are have extensive operations in the GCC countries, the authors discovered the following. Firstly, the risk associated with foreign investments is actually more multifaceted compared to the often examined variables of political risk and exchange rate exposure. Cultural danger is perceived as more essential than political risk, economic danger, and economic danger. Secondly, even though elements of Arab culture are reported to have a strong impact on the business environment, most firms struggle to adapt to regional routines and customs.