Question

What are the factors that determine the costs of doing business in a country? When is the establishment of owned subsidiaries in a foreign market NOT recommended?

200words

Answer 1

The cost of doing business in a country determines the profitability of doing business in the country. Index like the ease of doing business helps us determine the cost, fees and other requirements of doing business in the country. The factors that determine the cost of doing a business are:

1. Level of Taxation- If the rate of taxation is high, then the profits that the firm will earn will be lesser because a higher proportion of income goes for taxation. The tax rate is therefore one of the most important factor to consider when setting up a business in a country.

2. Government regulations- When there are too many regulations imposed while setting up a business, the costs of doing business increases.

3. Labour laws- Since labour cost is a significant variable cost that any business has to incur, they determine the cost of doing business. This could include laws like the number of hours that the employees work which will affect the cost and profit margins.

Setting up foreign subsidiaries is not feasible when there are huge costs that have to be incurred while setting up and the maintenance costs are high. If the costs that have to be incurred including the time that has to be spent to hire new employees and the setting up time are high, then it is not advisable to open a foreign subsidiary abroad.