Business Insights

7 Factors that affect the success of businesses in developing countries

January 02, 2024

Businesses success in developing countries

In 2022, the United Nations Conference on Trade and Development or UNCTAD reported a record high of USD 13 trillion in the total trade of goods and services by developing countries. Furthermore, developing economies’ share in world exports increased to 42 percent in the same year, from 37 percent in 2010. In terms of business expansion and investments, entrepreneurs would be remiss not to consider developing nations as viable locations for growing their businesses.

While investing in developing countries comes with inherent risks, they also have unique advantages that make them attractive destinations for business. For instance, developing countries typically have lower operating costs and come with a young pool of workers who are educated and skilled enough to handle a variety of jobs. Moreover, developing nations are ripe with emerging market opportunities. These are just some of the many benefits when starting a business in these developing economies.

Is starting a business in a developing country worth it?

That said, entrepreneurs have to consider external factors that can impact their business in these countries. That’s why in this article, we tackle these vital factors to ensure businesses will thrive within this imperfect environment.

Supportive government policies

One of the most important factors of business success in developing countries is the presence of supportive government policies. To boost business confidence, the government needs to implement forward-thinking regulations and investment-friendly laws. Moreover, tax incentives and customized support services go a long way in attracting foreign investors to the country.

Countries like Rwanda and Singapore have successfully implemented comprehensive policies that encourage foreign investment and entrepreneurship, becoming regional economic powerhouses in the process. The ease of doing business in such nations plays an important role in attracting global players and fostering economic growth.

Peace and order situation

A stable and secure environment is the bedrock upon which businesses thrive. The peace and order situation in a country can either attract or deter investors. That’s why nations with political stability and low crime rates often find themselves in the spotlight.

Costa Rica, for instance, transformed its image for the better by prioritizing peace, consequently becoming a magnet for tech companies and demonstrating the power of tranquility in achieving business success.

Availability of infrastructure and productive assets

Infrastructure plays a pivotal role in business operations. Without accessible transportation networks and reliable energy supply, business would grind to a screeching halt. Moreover, without efficient communication systems, businesses would struggle to compete in a global market.

This reality is not lost on the government of the Philippines. That’s why infrastructure development in the Philippines has been kicked into high gear with infrastructure flagship projects amounting to an estimated USD 150.9 billion. These projects aim to provide businesses, communities, and other national stakeholders with diversified and sustainable energy sources as well as mass transport systems. In facing these challenges, the government hopes to attract businesses and investors into the country, helping them flourish while providing livelihood opportunities to the Filipino people.

Access to financing or capital

Access to capital is often a make-or-break factor for businesses in developing countries. Businesses, from small to large enterprises, require a robust financial system that includes banks and venture capital firms. These institutions provide a lifeline that enables businesses to survive and grow, especially during a rough patch.

A notable example are microfinance initiatives, such as Bangladesh’s Grameen Bank. They have empowered countless small businesses by providing much-needed capital that would have otherwise been inaccessible. With the help of this institution, aspiring entrepreneurs are given the chance to realize their dream and lift their family from poverty.

Quality of human capital and availability of labor

Businesses thrive when they have access to a skilled and educated workforce. With technical expertise and creative talent, high-quality human capital can be a driving force behind a business’s success, no matter if it belongs to the marketing, retail, manufacturing, finance, construction, or some other sector. Moreover, the availability of labor at competitive rates influences cost-effectiveness.

India’s IT sector, for example, has flourished due to its highly skilled and cost-effective workforce. The country continues to attract global tech giants that want to hire skilled Indian software developers for their companies.

Economic conditions

The economic conditions of a country can significantly impact businesses. Factors like inflation rates and currency stability affect business planning and profitability. However, economic growth can create a host of opportunities.

As a case in point, Ethiopia has attracted investments in various sectors, from textiles to technology. With an estimated 6.4 percent GDP growth in 2022, the country is touted as one of the fastest-growing economies in the African continent. As such, the country is seen as a lucrative and profitable market for global investors.

Market size and demand

Finally, the size of the market and local demand are major considerations for businesses. As developing countries often boast large consumer markets, they provide plenty of opportunities for businesses seeking to expand. That said, understanding local consumer preferences is essential.

Companies like McDonald’s have customized their menus to cater to local tastes in different countries, demonstrating the importance of aligning with local demand.

Conclusion

Businesses in developing countries navigate a complex landscape where opportunities and challenges coexist. These external factors, such as those previously mentioned, play vital roles in determining success within such an unpredictable environment. Knowing these factors, it’s up to each business to develop strategies to manage the risks and leverage the opportunities in developing countries.