Understanding the risks of FDI in the Middle East and Asia

Understanding the risks of FDI in the Middle East and Asia

Blog Article

As the Middle East becomes a more desirable location for FDI, understanding the investment dangers is increasingly important.

Although political instability appears to dominate news coverage on the Middle East, in recent times, the region—and particularly the Arabian Gulf—has seen a stable upsurge in foreign direct investment (FDI). The Middle East and Arab Gulf markets are becoming more and more appealing for FDI. But, the existing research on how multinational corporations perceive area specific risks is scarce and frequently does not have insights, a well known fact lawyers and risk professionals like Louise Flanagan in Ras Al Khaimah would probably know about. Studies on dangers associated with FDI in the region tend to overstate and predominantly concentrate on political risks, such as for instance government instability or policy changes which could influence investments. But lately research has begun to shed a light on a a crucial yet often overlooked factor, particularly the consequences of social facets regarding the sustainability of foreign investments in the Arab Gulf. Indeed, a number of studies expose that numerous businesses and their management teams notably undervalue the impact of cultural differences, due mainly to deficiencies in understanding of these cultural variables.

Pioneering scientific studies on dangers connected to international direct investments in the MENA region offer fresh insights, trying to bridge the research gap in empirical knowledge about the risk perceptions and management strategies of Western multinational corporations active extensively in the area. As an example, research project involving a few major worldwide companies in the GCC countries revealed some fascinating data. It suggested that the risks connected with foreign investments are even more complicated than simply political or exchange rate risks. Cultural risks are perceived as more important than political, monetary, or financial dangers based on survey data . Moreover, the study found that while elements of Arab culture strongly influence the business environment, numerous foreign businesses struggle to adapt to regional traditions and routines. This difficulty in adapting constitutes a danger dimension that needs further investigation and a change in how multinational corporations operate in the region.

Working on adjusting to regional traditions is important not adequate for successful integration. Integration is a loosely defined concept involving a lot of things, such as for example appreciating local values, learning about decision-making styles beyond a restricted transactional business viewpoint, and looking into societal norms that influence company practices. In GCC countries, effective business interactions are more than just transactional interactions. What shapes employee motivation and job satisfaction vary greatly across countries. Therefore, to truly incorporate your business in the Middle East a couple of things are needed. Firstly, a business mindset change in risk management beyond economic risk management tools, as experts and solicitors such as for instance Salem Al Kait and Ammar Haykal in Ras Al Khaimah would likely recommend. Secondly, methods that may be effectively implemented on the ground to convert the new mindset into practice.