Why International Businesses Prefer to Operate in Developed Countries?

1184 WordsMar 13, 20125 Pages
INTERNATIONAL BUSINESS OPERATIONS INTRODUCTION Traditionally international businesses prefer to conduct business in developed countries due to the fact that they are far more sophisticated and structured. In third world countries they encounter serious problems with their economic, socio-cultural, legal and political circumstances which present the greatest difficulties with respect to business operations. It is more risky to conduct business in these countries. Returns on their investments have a very high level of uncertainty. We will now discuss in detail the major challenges to international business operations in less developed countries. ECONOMIC DEVELOPMENT The per capita income in developing countries is low. Therefore,…show more content…
International businesses are less used to dealing with corruption in less developed countries. They are restricted from bribing officials in foreign countries to gain business. In addition, their behaviour is closely monitored by non-governmental organizations which further restrict their ability to give bribes to developing countries. Lesser developed countries tend to have unfriendly market policies such as price controls and poor bank supervision. There is the perception of excess regulations in the area of business development, entry and obtaining licenses and foreign trade. There is also the perception as to whether regulations are applied uniformly or in a discretionary fashion. Few international companies favour regulations as it limits their freedom of operation. However, they seem to be more concerned about the quality of the regulations. A highly regulated industry restricts the firm but increases the certainty of its operations. In contrast, a poorly designed regulatory framework introduces distortion into investments and increases the uncertainty of operation. As a consequence, international businesses limit their investments especially large production plants. In essence, these business organizations are more reluctant to undertake large investments in countries where there are excessive regulations or where they can vary unpredictably. In

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