Is political risk overemphasised in FDI research

Is political risk overemphasised in FDI research

Blog Article

The Middle East is attracting global investment, especially the Gulf region. Discover more about risk management within the gulf.

Much of the prevailing literature on risk management strategies for multinational corporations emphasises particular uncertainties but omits uncertainties that are hard to quantify. Certainly, lots of research within the international management field has centered on the management of either political risk or foreign currency exchange uncertainties. Finance and insurance coverage literature emphasises the risk variables which is why hedging or insurance instruments can be developed to mitigate or move a firm's danger exposure. However, current research reports have brought some fresh and interesting insights. They have sought to fill area of the research gaps by giving empirical understanding of the risk perception of Western multinational corporations and their administration techniques on the firm level within the Middle East. In one investigation after gathering and analysing data from 49 major worldwide businesses that are have extensive operations in the GCC countries, the authors found the following. Firstly, the risk related to foreign investments is obviously even more multifaceted than the often cited factors of political risk and exchange rate visibility. Cultural danger is perceived as more crucial than political risk, monetary risk, and economic danger. Secondly, even though aspects 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 traditions.

Regardless of the political uncertainty and unfavourable fiscal conditions in certain parts of the Middle East, foreign direct investment (FDI) in the area and, specially, in the Arabian Gulf has been considerably increasing in the last 20 years. The relevance of the Middle East and Gulf markets is growing for FDI, and the connected risk seems to be crucial. Yet, research regarding the risk perception of multinationals in the area is lacking in quantity and quality, as experts and solicitors like Louise Flanagan in Ras Al Khaimah would probably attest. Although various empirical studies have investigated the effect of risk on FDI, many analyses have largely been on political risk. Nonetheless, a fresh focus has surfaced in current research, shining a limelight on an often-disregarded aspect namely cultural factors. In these groundbreaking studies, the writers noticed that businesses and their administration usually really overlook the effect of social facets because of a lack of knowledge regarding cultural variables. In fact, some empirical studies have found that cultural differences lower the performance of multinational enterprises.

This social dimension of risk management calls for a shift in how MNCs run. Adjusting to local customs is not just about understanding business etiquette; it also involves much deeper social integration, such as for example understanding regional values, decision-making designs, and the societal norms that affect company practices and worker behaviour. In GCC countries, successful business relationships are made on trust and personal connections rather than just being transactional. Moreover, MNEs can take advantage of adapting their human resource management to reflect the social profiles of regional workers, as variables influencing employee motivation and job satisfaction vary widely across cultures. This requires a change in mind-set and strategy from developing robust economic risk management tools to investing in social intelligence and regional expertise as specialists and solicitors such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest.