Why International Businesses Prefer to Operate in Developed Countries?
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, consumers’ ability to purchase goods and services are minimal. For example a consumer may desire a new car but the cost of the car and his income may prevent such a purchase. International businesses may have difficulty understanding consumers’ preferences and would have to make additional investments to adapt their products and services to meet the needs of consumers. They may have to reduce the size of their products, use cheaper ingredients or settle for less profit to enable customers to purchase their goods.
The infrastructures in these countries are poorly developed as compared to developed countries where the infrastructures are well established. Multinational Enterprises face serious challenges when operating in less developed countries because much of the infrastructure with which they are accustomed to, such as nationwide distribution channels, transportation networks and high-capacity communication networks are absent in these markets.
The labour force in less developed countries is untrained and less effective than in developed nations. Most of them are poorly educated and are unable to function usefully within the workplace. International businesses will have to invest in education and training for the
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, consumers’ ability to purchase goods and services are minimal. For example a consumer may desire a new car but the cost of the car and his income may prevent such a purchase. International businesses may have difficulty understanding consumers’ preferences and would have to make additional investments to adapt their products and services to meet the needs of consumers. They may have to reduce the size of their products, use cheaper ingredients or settle for less profit to enable customers to purchase their goods.
The infrastructures in these countries are poorly developed as compared to developed countries where the infrastructures are well established. Multinational Enterprises face serious challenges when operating in less developed countries because much of the infrastructure with which they are accustomed to, such as nationwide distribution channels, transportation networks and high-capacity communication networks are absent in these markets.
The labour force in less developed countries is untrained and less effective than in developed nations. Most of them are poorly educated and are unable to function usefully within the workplace. International businesses will have to invest in education and training for the
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