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 turns into a more attractive destination for FDI, understanding the investment risks is increasingly important.

Although political instability seems to take over media coverage on the Middle East, in recent times, the region—and specially 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 attractive for FDI. Nonetheless, the present research on what multinational corporations perceive area specific risks is scarce and frequently lacks depth, an undeniable fact attorneys and danger professionals like Louise Flanagan in Ras Al Khaimah would probably be familiar with. Studies on dangers related to FDI in the region tend to overstate and predominantly concentrate on governmental dangers, such as for example government uncertainty or policy modifications which could impact investments. But recent research has started to illuminate a crucial yet often overlooked factor, particularly the consequences of cultural factors on the sustainability of foreign investments in the Arab Gulf. Indeed, a number of studies reveal that numerous businesses and their administration teams notably overlook the effect of cultural differences, due mainly to deficiencies in understanding of these cultural factors.

Pioneering studies on risks connected to international direct investments in the MENA region offer fresh insights, trying to bridge the gap in empirical knowledge about the risk perceptions and management strategies of Western multinational corporations active extensively in the region. As an example, research project involving a few major worldwide companies in the GCC countries revealed some interesting findings. It suggested that the risks connected with foreign investments are a great deal more complicated than simply political or exchange rate risks. Cultural risks are perceived as more important than governmental, monetary, or financial dangers based on survey data . Furthermore, the study unearthed that while elements of Arab culture strongly influence the business environment, many foreign companies struggle to adjust to regional customs and routines. This difficulty in adapting is really a danger dimension that needs further investigation and a change in exactly how multinational corporations run in the region.

Focusing on adjusting to regional culture is important yet not sufficient for effective integration. Integration is a loosely defined concept involving several things, such as appreciating regional values, comprehending decision-making styles beyond a limited transactional business viewpoint, and looking into societal norms that influence business practices. In GCC countries, successful business relationships are more than just transactional interactions. What influences employee motivation and job satisfaction differ greatly across countries. Thus, to seriously integrate your business in the Middle East a few things are needed. Firstly, a business mindset change in risk management beyond financial risk management tools, as professionals and lawyers such as for instance Salem Al Kait and Ammar Haykal in Ras Al Khaimah would probably suggest. Next, strategies which can be effectively implemented on the ground to convert the new mindset into practice.