According to current research, a significant challenge for companies in the GCC is adapting to local customs and business practices. Find out more about this here.

Despite the political instability and unfavourable economic conditions in some parts of the Middle East, international direct investment (FDI) in the area and, specially, into the Arabian Gulf has been considerably increasing within the last 20 years. The relevance of the Middle East and Gulf areas is growing for FDI, and the connected risk seems to be important. Yet, research regarding the risk perception of multinationals in the area is lacking in amount and quality, as experts and lawyers like Louise Flanagan in Ras Al Khaimah would likely attest. Although different empirical research reports have examined the effect of risk on FDI, most analyses have been on political risk. Nevertheless, a fresh focus has come forth in current research, shining a spotlight on an often-overlooked aspect particularly cultural facets. In these groundbreaking studies, the authors pointed out that businesses and their administration frequently seriously overlook the effect of cultural factors as a result of lack of knowledge regarding social factors. In fact, some empirical studies have unearthed that cultural differences lower the performance of international enterprises.

Much of the existing academic work on risk management strategies for multinational corporations demonstrates particular uncertainties but omits uncertainties that are difficult to quantify. Certainly, lots of research in the worldwide management field has centered on the management of either political risk or foreign currency exchange uncertainties. Finance and insurance literature emphasises the risk variables which is why hedging or insurance coverage instruments can be developed to mitigate or transfer a firm's risk exposure. But, recent research reports have brought some fresh and interesting insights. They have sought to fill part of the research gaps by giving empirical understanding of the risk perception of Western multinational corporations and their administration techniques on the company level in the Middle East. In one research 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 clearly even more multifaceted compared to usually analyzed variables of political risk and exchange rate exposure. Cultural risk is regarded as more important than political risk, monetary risk, and financial risk. Secondly, despite the fact that aspects of Arab culture are reported to really have a strong influence on the business environment, most firms battle to adapt to local routines and traditions.

This cultural dimension of risk management demands a shift in how MNCs do business. Adapting to regional customs is not only about understanding company etiquette; it also involves much deeper cultural integration, such as for example appreciating regional values, decision-making styles, and the societal norms that impact company practices and employee conduct. In GCC countries, successful business relationships are designed on trust and personal connections instead of 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 vary widely across cultures. This calls for a shift in mindset and strategy from developing robust economic risk management tools to investing in social intelligence and local expertise as specialists and lawyers such Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely suggest.