Despite the several advantages that international diversification brings to a company, there are times when a company may opt not to expand internationally. Several reasons can be given for this phenomenon, one being the liability of foreignness. This concept attempts to explain how different business environments can make competition on an international platform risky and expensive thereby increasing the liabilities of the company.
Some of the factors underlying the liability of foreignness include the fact that the tastes and preferences of customers in other countries are not always understood. The company’s marketing team might fail miserably at attempting to attract customers on an international platform because of the different cultures and expectations.
Another underlying factor that could deter a company from entering the international market is the different requirements and demands of host governments to compete in their markets. Some governments will be more lenient towards local companies as compared to international ones in a bid to strengthen the former against the latter. In addition, many developing nations view the presence of global companies as neo-colonialism. These governments will not create a favorable business environment for the company (Alexander and Korine, 2008).
The up side of locating the business facilities in regions where business regulation laws are lax is that the less regulation, the more profits a company can make. There is a high probability that the taxes in the region are low, leading to higher profits. Less regulation guarantees the company more room to maneuver in terms of production, marketing, and sale of goods. However, there are also some issues with locating a business where business regulations laws are lax. The company might have to dig deeper into its pocket to protect itself from unfair competition whereas if the regulations were stricter, the government would have protected the company that is practicing fair competition.
Alexander, M., & Korine, H. (2008). When you shouldn’t go global. Harvard Business Review. Retrieved on 20/2/2016 from https://hbr.org/2008/12/when-you-shouldnt-go-global