Last week, this blog set out the reasons why new or re-launched businesses should consider locating in the Third World.

However, the fact remains that the contributors to this blog remain located in the “Old World”.

Inertia, sentiment, family and social circumstances must inevitably influence what remains as much a personal decision as a business calculation.

Yet there are also legitimate business reasons why international entrepreneurs should at least be cautious about basing all their operations in even the most dynamic emerging economies: -

1   Corruption. In most Western countries the potential for official blackmail is growing in proportion with regulation but corruption is still not as systemic as it is in some other parts of the world. A business might just survive where it is wholly dependent on a single all-powerful corrupt official who realises that he has a vested interest in its continuation, even its prosperity. However, it is far more likely that a small business has to deal with a swarm of petty officials, all of whom just want to get as much as possible for themselves out of the business before they all bleed it to death.

2   Rule of law. While most entrepreneurs like the idea of countries where there as few laws as possible, no one would want to live and work in a country where there are no laws at all. Business is practically impossible where there is no enforcement of the law of contract – or where you have to spend huge sums on private armies to secure property, people, and personal safety. Of course, every country has laws but not every country enforces those laws in objective and fair ways.

3   Political stability. Even where there is honest government and the rule of law, there are no guarantees. A successful, well-managed business is at the mercy of factors entirely beyond its control. Regimes change, policies change, laws change, sometimes very quickly and without warning – even retrospective laws, particularly tax liabilities, are not unknown. A subtle alteration in the membership of a politburo, or an obscure colonel passed over for promotion, can turn a business-friendly environment into a most unfriendly one overnight.  

4   Foreign does not mean different. Many of the problems that drive businesses out of “developed” states, like over-regulation and labour disputes, are also to be found in developing nations.

5   Trade restrictions. Although the media assure us that business is now “globalised”, the reality is that all sorts of barriers remain – and could get higher if a developing economy is suddenly separated from its richest markets by a trade war.

It must be stressed that these concerns do not apply to all Third World nations – there are some young nations which offer greater security than many in the declining West – but they are issues that need to be considered when making those crucial first decisions about where to locate.