National Institutions and the Global Business Environment

Introduction

International business is conducted within systems of rules, organizations, norms and political relationships. Firms do not compete only in markets; they also operate within national institutions that shape how markets function. A company entering a foreign country must therefore understand not only customers, competitors and costs, but also the quality of public administration, the reliability of courts, the protection of property, the structure of taxation, the role of the state and the expectations embedded in local society.

National institutions influence the risks and opportunities associated with foreign investment, exporting, international sourcing, strategic alliances and digital operations. Two countries with similar population sizes and income levels may offer very different business environments because their legal systems, political stability, regulatory practices and informal norms differ. Conversely, countries with different political systems may provide comparable commercial opportunities when they offer predictable rules, capable infrastructure and credible enforcement.

This chapter develops three complementary tools. PESTLE provides a broad environmental scan; institutional theory explains how formal and informal rules shape organizational behavior; and CAGE helps managers assess distance between home and host countries. These tools are applied to emerging markets, state capitalism, regulation, property rights and country attractiveness. The objective is not merely to rank countries, but to improve the quality of managerial judgment.

Learning Objectives

By the end of this chapter, students should be able to:

1. Explain how political, legal, economic and social institutions influence international business.
2. Apply PESTLE, institutional theory and CAGE to country analysis.
3. Distinguish formal institutions from informal institutions and assess institutional voids.
4. Evaluate emerging markets, state capitalism, regulation and property-rights regimes.
5. Assess country attractiveness using structured qualitative and quantitative evidence.
6. Identify ethical, governance and compliance risks in cross-border operations.
7. Translate institutional analysis into market-entry and risk-management decisions.

1. Institutions and the Business Environment

An institution is a durable rule, norm or organization that structures human interaction. Institutions reduce uncertainty by establishing expectations about what individuals, firms and governments may do. They also distribute power and resources. Courts, parliaments, central banks, regulators, property registries, professional associations and universities are examples of institutions. Social conventions, religious expectations, trust relationships and attitudes toward authority are informal institutions.

Institutions differ from organizations. An institution is a rule system or pattern of accepted behavior; an organization is a collective actor operating within that system. A ministry is an organization, while public-administration procedures are part of an institutional system. A corporation is an organization, while corporate law and accounting standards are institutions.

Formal and informal institutions

Formal institutions are explicitly codified and enforced through legal or administrative mechanisms. They include:

• constitutions and political rules;
• commercial, labor and tax law;
• regulations and licensing procedures;
• property and intellectual-property rights;
• accounting and disclosure standards; and
• judicial and dispute-resolution systems.

Informal institutions consist of socially transmitted expectations. These include trust, business etiquette, family networks, attitudes toward corruption, gender norms, views of hierarchy and the legitimacy of government authority. Informal institutions may support formal rules, compensate for their weakness or conflict with them.

For example, a country may have sophisticated contract law but weak enforcement. Firms may then rely on reputation, long-term relationships, family connections or arbitration. Such arrangements can facilitate business among established actors but create barriers for foreign entrants without local networks.

Institutional quality and uncertainty

Institutional quality is multidimensional. It may include government effectiveness, regulatory quality, rule of law, control of corruption, political stability and accountability. Strong institutions do not eliminate uncertainty, but they make uncertainty more manageable. They improve the predictability of taxation, licensing, contract enforcement and policy implementation.

Managers should distinguish between risk and uncertainty. Risk refers to outcomes for which probabilities can be estimated, such as a known tariff schedule. Uncertainty refers to outcomes for which probabilities are difficult to establish, such as the possibility of an abrupt political intervention in a weakly institutionalized market. Institutional analysis helps convert some uncertainty into assessable risk, although it cannot remove it entirely.

2. PESTLE Analysis

PESTLE examines six dimensions of the external environment: political, economic, social, technological, legal and environmental. It is a scanning framework rather than a prediction model. Its value lies in organizing evidence and identifying interactions among forces.

Political analysis

Political analysis should go beyond identifying whether a country is democratic or authoritarian. Relevant questions include whether political authority is predictable, whether policy changes after elections, how central and regional governments interact, and whether business access depends on political connections. A politically stable authoritarian system may offer short-term policy consistency, but succession risk and limited transparency may create substantial long-term uncertainty.

Political risk may arise from expropriation, capital controls, civil conflict, sanctions, discriminatory procurement, sudden changes in industrial policy or restrictions on foreign ownership. The manager should assess both probability and exposure. A low-probability event may still be material if the firm's assets are immobile and difficult to recover.

Economic analysis

Country analysis should include both macroeconomic and structural variables. Important indicators include real GDP growth, inflation, unemployment, public debt, current-account conditions, exchange-rate arrangements, productivity, income distribution and financial-market depth. Aggregate growth can conceal weak household purchasing power or severe regional inequality.

Exchange-rate exposure is especially important. A firm may earn revenue in a local currency while paying debt service or imported-input costs in a foreign currency. Managers should distinguish transaction exposure, translation exposure and economic exposure. Hedging can manage some transaction risk, but it cannot fully protect a business model whose competitiveness is structurally affected by currency movements.

Social analysis

Demographics, education, urbanization, migration, religion, language, social class and gender roles can affect market demand and employment practices. Social analysis should not rely on stereotypes. Country averages are starting points, not substitutes for segment-level research. A young population may indicate future growth, but only if education, employment and purchasing power support consumption.

Technological analysis

Technology is both infrastructure and institutional capability. Broadband access, payment systems, logistics networks, data centers, cybersecurity capacity and research institutions influence the feasibility of international operations. Data-protection rules may determine whether customer information can be transferred across borders. Artificial intelligence can improve forecasting, translation and compliance monitoring, but its deployment must account for privacy, bias, explainability, data localization and accountability.

Legal analysis

Legal systems differ in the origin and interpretation of law, the role of precedent, administrative discretion and the accessibility of courts. Managers should examine company formation, foreign ownership, licensing, taxation, labor regulation, competition law, consumer protection, environmental obligations, insolvency and dispute resolution.

A written rule is not equivalent to an enforceable rule. The practical legal environment depends on judicial independence, administrative competence, enforcement consistency, legal costs and the time required to resolve disputes. International contracts should specify governing law, forum and arbitration arrangements where appropriate, while recognizing that local mandatory rules may override contractual choices.

Environmental analysis

Environmental conditions increasingly affect country attractiveness. Water stress, extreme weather, biodiversity regulation, carbon pricing, pollution controls and energy reliability can influence facility location and supply-chain design. Environmental risk is also a governance issue: inadequate enforcement may reduce short-term costs but increase reputational, litigation and transition risks.

Interactions within PESTLE

PESTLE categories should not be treated as independent. For example, a carbon tax is simultaneously political, legal, economic and environmental. Digital taxation is technological, legal and economic. A drought can produce social migration, political pressure, commodity inflation and regulatory intervention. Advanced analysis therefore maps causal chains rather than producing six disconnected lists.

3. Institutional Theory and Comparative Advantage

Institutional theory explains how organizations respond to the rules and expectations of their environments. A central proposition is that firms seek not only efficiency but also legitimacy. An organization may adopt practices because they improve productivity, because regulators require them or because they signal conformity to accepted norms.

The institutional pillars

A widely used framework identifies three pillars:

1. Regulative pillar: laws, sanctions, monitoring and formal enforcement.
2. Normative pillar: professional standards, values and expectations about appropriate conduct.
3. Cultural-cognitive pillar: shared assumptions about reality, authority and acceptable behavior.

These pillars may reinforce one another. Accounting standards are regulative, accounting professionalism is normative, and shared beliefs about trustworthy reporting are cultural-cognitive. They may also conflict. A formal anti-bribery rule may coexist with an informal expectation that gifts are necessary to maintain relationships.

Institutional isomorphism

Organizations often become similar through three mechanisms:

• Coercive isomorphism: pressure from governments, regulators or powerful stakeholders.
• Mimetic isomorphism: imitation under uncertainty.
• Normative isomorphism: influence of professional education and occupational standards.

Multinational enterprises face a dual challenge. They must achieve global integration while maintaining local legitimacy. A global code of conduct may be standardized, but training, reporting channels and implementation may need local adaptation.

Institutional voids

Institutional voids are gaps or weaknesses in the intermediaries that support markets. Examples include unreliable credit information, weak distribution systems, limited executive search, uncertain property registration and ineffective commercial courts. Institutional voids do not mean that no institutions exist. They mean that market-supporting institutions are incomplete, inaccessible or unreliable.

Firms may respond by building private substitutes: supplier-development programs, internal logistics, proprietary payment systems, relationship-based distribution or private arbitration. Such responses can create competitive advantage, but they require resources and may increase operational complexity.

4. CAGE Distance and Cross-Border Strategy

The CAGE framework examines distance between countries across four dimensions:

• Cultural distance: language, religion, values, social norms and communication styles.
• Administrative or political distance: colonial ties, treaties, political systems, regulation, legal traditions and government relations.
• Geographic distance: physical distance, time zones, transport links, climate and borders.
• Economic distance: income levels, consumer purchasing power, labor costs, infrastructure and economic capabilities.

CAGE is not a single numerical score. It is a disciplined way to identify frictions that may reduce the transferability of a business model.

A consumer brand may face cultural distance because product meanings differ. A pharmaceutical company may face administrative distance because approval procedures and reimbursement systems differ. A manufacturer may face geographic distance through transport costs and lead-time variability. A premium digital service may face economic distance because target customers have different purchasing power and payment access.

CAGE should be applied at the industry and activity level. Geographic distance may matter greatly for fresh food but less for cloud software. Administrative distance may matter more for banking than for apparel. Managers should avoid treating national culture as a fixed explanation for every business outcome.

5. Emerging Markets and Institutional Development

The term emerging market generally refers to an economy with rising integration into global markets, improving productive capacity and significant growth potential, but with institutional, infrastructural or financial-market constraints relative to advanced economies. Emerging markets are heterogeneous. Some possess sophisticated technology sectors and strong institutions in particular regions, while others face severe volatility and weak administrative capacity.

Opportunities

Emerging markets may offer:

• expanding middle-class and urban demand;
• lower-cost labor or specialized skills;
• natural resources and strategic locations;
• infrastructure and digital leapfrogging;
• opportunities created by under-served consumers; and
• government incentives for investment and technology transfer.

Risks

Risks include inflation, currency volatility, policy reversals, weak contract enforcement, corruption, inadequate infrastructure, political concentration, informal competition and limited exit options. Market size alone is therefore an inadequate indicator of attractiveness.

A useful approach is to distinguish market potential from market accessibility. Potential concerns demand, resources and growth. Accessibility concerns whether the firm can legally enter, obtain licenses, move profits, protect intellectual property, recruit talent and operate reliably.

6. State Capitalism and the Role of Government

State capitalism describes systems in which governments use state-owned enterprises, sovereign wealth funds, public banks, industrial policy, procurement and regulation to influence economic development and strategic sectors. It exists in varied forms, from direct ownership to sophisticated coordination between public and private actors.

State involvement may correct market failures, finance infrastructure, support national capabilities and coordinate long-term investment. It may also produce preferential treatment, opaque subsidies, political interference, crowding out of private firms and conflicts between commercial and public objectives.

Multinational firms should assess:

• whether state-owned enterprises are competitors, partners or customers;
• whether procurement is transparent;
• whether subsidies create an uneven competitive field;
• whether strategic sectors restrict foreign ownership;
• whether data, energy or infrastructure are treated as national-security assets; and
• whether political objectives may override commercial logic.

The existence of state capitalism does not automatically make a market unattractive. Public-sector relationships can provide access and scale, but they also create compliance, reputational and dependency risks. Firms should maintain clear procedures for gifts, lobbying, public procurement and conflicts of interest.

7. Regulation, Property Rights and Governance

Regulation

Regulation establishes minimum standards and corrects externalities, information asymmetry and market power. However, regulation can also be inefficient when rules are excessive, inconsistent, discriminatory or poorly coordinated. Managers should evaluate not only the number of regulations but also their clarity, predictability, enforcement and administrative cost.

Regulatory strategy should be ethical and transparent. Compliance is not merely a legal department function. Product design, procurement, data management, human resources, finance and supply-chain teams all create regulatory exposure. Effective systems assign responsibility, train employees, monitor third parties and provide protected reporting channels.

Property rights

Property rights specify who may use, benefit from, transfer or exclude others from an asset. They include rights over land, physical assets, shares, trademarks, patents, copyrights, trade secrets and data. Secure property rights encourage investment because investors are more likely to commit resources when expected returns are not easily appropriated.

Property rights are bundles rather than absolute possessions. They are limited by zoning, taxation, environmental law, compulsory licensing, competition policy and public-interest rules. Intellectual-property protection may be strong on paper but weak in enforcement. Firms should therefore combine registration with technical safeguards, contractual controls, employee access management and careful decisions about what knowledge to disclose.

Governance and corruption

Corporate governance concerns the direction, control and accountability of firms. In cross-border operations, governance must address ownership concentration, related-party transactions, board oversight, minority investors, audit quality and stakeholder responsibilities.

Corruption creates legal, economic and ethical harm. It distorts competition, increases costs, undermines public services and exposes firms to prosecution under domestic and extraterritorial laws. A payment may be locally customary yet unlawful under applicable anti-bribery rules. Managers should use risk-based due diligence for agents, distributors, joint-venture partners and public-sector intermediaries.

8. Assessing Country Attractiveness

Country attractiveness is a relative and purpose-specific judgment. A country attractive for a call center may be unsuitable for a pharmaceutical plant. A country attractive for sales may be unsuitable for regional headquarters. Assessment should begin with the firm's strategic objective and critical success factors.

A practical assessment sequence is:

1. Define the decision: export, licensing, acquisition, greenfield investment, sourcing or regional hub.
2. Identify non-negotiable constraints, such as ownership restrictions or sanctions.
3. Analyze PESTLE conditions.
4. Evaluate institutional strength and institutional voids.
5. Assess CAGE distance for the specific industry and activity.
6. Estimate operational benefits, costs and risks.
7. Test scenarios, including adverse policy and currency conditions.
8. Select risk responses and governance controls.

A weighted scoring model can organize judgment, but it should not create false precision. If criteria are weighted, the overall score can be represented as:

where S is the total attractiveness score, wᵢ is the weight assigned to criterion i, rᵢ is the rating for criterion i, and n is the number of criteria. The assumptions are that weights and ratings use a consistent scale and that the criteria are sufficiently defined for comparison. The model is useful for transparency, not for claiming objective truth. Correlated criteria and subjective ratings can distort results.

Worked example: a transparent scoring model

Suppose a firm evaluates a country using four criteria rated from 1 to 5:

The score is 3.90 out of 5. It indicates a relatively attractive opportunity under the stated assumptions. It does not prove that investment should proceed. The firm must still examine whether institutional reliability is a threshold condition rather than a compensable weakness. A very low rating for intellectual-property protection, for example, may veto entry despite strong market potential.

9. Case Study: Meridian Medical Devices’ Entry Decision

Background

Meridian Medical Devices, a fictional European manufacturer of diagnostic equipment, is considering entry into two emerging markets. Country A has a large population, fast healthcare growth and low production costs. However, procurement is decentralized, courts are slow and foreign exchange controls have occasionally delayed profit repatriation. Country B is smaller and more expensive, but it has transparent public procurement, stronger intellectual-property enforcement and a regional trade agreement.

Problem

Senior management initially recommends Country A because its projected market size is twice that of Country B. The compliance director argues that market size ignores institutional exposure. The board asks for a structured comparison and an entry recommendation.

Analysis

Using PESTLE, the team identifies the following:

• Political: Country A has frequent changes in health-ministry leadership; Country B has more stable policy coordination.
• Economic: Country A offers lower labor costs but higher currency volatility; Country B has higher costs and more reliable financing.
• Social: Both countries have unmet healthcare demand, but medical purchasing decisions in Country A depend heavily on regional relationships.
• Technological: Country B has better hospital information systems, while Country A has greater scope for future digital expansion.
• Legal: Country B provides faster procurement appeals and stronger patent enforcement.
• Environmental: Country A has less reliable electricity in some regions, increasing service and maintenance costs.

Institutional theory reveals institutional voids in Country A involving procurement information, distributor oversight and dispute resolution. CAGE analysis shows that Country A has greater administrative and geographic complexity because service technicians must travel across poorly connected regions. Country B has greater economic distance because its operating costs are higher, but its administrative distance is lower.

Approach and solution

Meridian rejects a simple “largest market wins” decision. It chooses a staged strategy:

1. Enter Country B through a wholly owned sales and service subsidiary.
2. Enter Country A through a carefully selected local distributor, with audit rights, compliance certification, training and termination provisions.
3. Use milestone-based investment in Country A rather than immediately building a factory.
4. Price contracts to address currency risk and specify international arbitration where legally effective.
5. Maintain dual suppliers for critical components and hold spare parts near major hospitals.
6. Use a compliance dashboard covering public procurement, third-party payments, product registration and data protection.

Outcome

After two years, Country B produces lower revenue but higher margins and more predictable cash flows. Country A produces strong sales growth, but only after Meridian establishes a regional service center and replaces one distributor for inadequate records. The staged strategy allows the company to learn without committing its full asset base.

Learning points

The case demonstrates that country attractiveness is activity-specific. Institutional reliability can be more valuable than low cost, particularly where products require registration, public procurement, after-sales service and intellectual-property protection. It also demonstrates that entry mode is a risk-management choice: firms can vary ownership, commitment and control rather than choosing between total entry and total avoidance.

10. Contemporary Developments and Managerial Practice

Global business environments are increasingly shaped by geopolitical competition, supply-chain resilience, national-security screening, digital sovereignty and climate transition. Governments may restrict technology transfer, screen foreign investment, subsidize strategic industries or require local data storage. These developments make institutional analysis a continuing process rather than a one-time country report.

Managers should establish early-warning systems that monitor elections, regulatory consultations, court decisions, currency restrictions, sanctions, labor disputes, climate events and changes in enforcement practice. Scenario planning is valuable because institutional shocks often interact. For example, geopolitical tension may produce export controls, which create supply shortages, inflation and political pressure for local production.

Responsible managers should also consider stakeholders beyond shareholders. Entry decisions affect employees, suppliers, consumers, communities and public institutions. Ethical international business requires respect for labor rights, human rights, privacy, environmental obligations and anti-corruption standards, even where local enforcement is weak. A legal minimum is not always an adequate ethical standard.

Challenges and Limitations of the Frameworks

PESTLE can become a superficial checklist if evidence is not prioritized or causal relationships are not examined. Institutional theory may be difficult to operationalize because informal norms are hard to measure and may vary within a country. CAGE can oversimplify nations by treating distance as a national average rather than an industry- and region-specific phenomenon. Weighted scores can conceal judgment behind apparently precise numbers.

Country analysis also suffers from data limitations. Official statistics may be delayed, politically influenced or inconsistent across countries. Global indexes are useful inputs but should not be treated as complete measures of institutional quality. Interviews, site visits, legal advice, stakeholder consultation, scenario analysis and pilot operations should complement secondary data.

The strongest practice is triangulation: compare multiple sources, distinguish fact from interpretation, identify assumptions, test sensitivity and state what evidence would change the recommendation.

Chapter Summary

National institutions shape the rules, incentives and expectations within which international firms operate. Formal institutions include laws, regulations, courts and property-rights systems; informal institutions include norms, relationships and shared beliefs. Institutional quality influences predictability, legitimacy, transaction costs and the ability to protect investments.

PESTLE provides a broad scan of political, economic, social, technological, legal and environmental forces. Institutional theory explains regulative, normative and cultural-cognitive pressures, as well as institutional voids and organizational adaptation. CAGE highlights cultural, administrative, geographic and economic distance, helping managers evaluate how transferable a business model will be.

Emerging markets can provide growth and innovation opportunities but may involve institutional voids, currency risk and policy uncertainty. State capitalism can support development while creating unequal competition and political dependence. Regulation, property rights, governance and anti-corruption systems are central to country attractiveness. Structured scoring can improve transparency, but it must not replace judgment, scenario analysis or ethical evaluation.

The central managerial lesson is that international strategy must match institutional conditions. Firms should select entry modes, ownership levels, contracts, controls and investment stages according to both opportunity and institutional exposure.

Key Terms

Institution: A durable rule, norm or organization that structures interaction.

Formal institution: A codified rule enforced through legal or administrative mechanisms.

Informal institution: A socially transmitted norm, expectation or convention.

Institutional quality: The reliability, effectiveness and predictability of a country’s institutions.

Institutional void: A weakness or absence in market-supporting institutions.

PESTLE: A framework analyzing political, economic, social, technological, legal and environmental forces.

CAGE: A framework analyzing cultural, administrative, geographic and economic distance.

Political risk: The possibility that political events or government actions will harm business value.

Regulation: Public rules that govern conduct, markets and externalities.

Property rights: Rights to use, benefit from, transfer or exclude others from assets.

Intellectual property: Legally protected creations such as patents, trademarks and copyrights.

State capitalism: Economic organization involving substantial government ownership or direction.

Legitimacy: Social acceptance that an organization or practice is appropriate and proper.

Isomorphism: The process through which organizations become similar.

Market potential: The possible demand, growth and commercial value of a country or segment.

Market accessibility: The practical ability to enter and operate in a market.

Country attractiveness: The relative suitability of a country for a defined business purpose.

Institutional distance: Differences between countries’ rules, norms and enforcement systems.

Scenario analysis: Evaluation of decisions under alternative plausible future conditions.

Review Questions

Short Answer Questions

1. What is the difference between a formal institution and an informal institution?
2. What are the six dimensions of PESTLE?
3. Define an institutional void and provide one example.
4. What are the four dimensions of the CAGE framework?
5. Why are property rights important for international investment?

Long Answer Questions

1. Explain how institutional quality affects transaction costs, legitimacy and foreign-market entry.
2. Compare PESTLE and institutional theory as tools for international environmental analysis.
3. Discuss the opportunities and risks associated with emerging markets.
4. Analyze the benefits and limitations of state capitalism for multinational enterprises.
5. Explain why country attractiveness should be assessed in relation to a specific business activity rather than as a universal country ranking.

Analytical / Application Questions

1. Select two countries and use PESTLE and CAGE to recommend an entry mode for a digital-services firm. State your assumptions and identify the most important risks.
2. A manufacturer faces weak contract enforcement but strong demand in a foreign market. Design a staged entry and governance plan that addresses institutional voids.
3. Construct a weighted country-attractiveness model with at least five criteria. Explain your weights, assess the limitations of the score and identify any threshold condition that should override the total.

Multiple Choice Questions with Answers

Question 1

Which statement best distinguishes an institution from an organization?

A. An institution is always a government body, while an organization is always private.

B. An institution is a rule system or accepted pattern, while an organization is a collective actor.

C. An institution has employees, while an organization has only informal norms.

D. An institution operates internationally, while an organization operates nationally.

Correct Answer: B. An institution is a rule system or accepted pattern, while an organization is a collective actor.

Question 2

Which PESTLE dimension most directly concerns contract enforcement and intellectual-property protection?

A. Social

B. Technological

C. Legal

D. Environmental

Correct Answer: C. Legal

Question 3

A firm copies a competitor’s market-entry practice because it is uncertain about the best strategy. This is an example of:

A. Coercive isomorphism

B. Mimetic isomorphism

C. Normative isomorphism

D. Regulatory capture

Correct Answer: B. Mimetic isomorphism

Question 4

Which CAGE dimension includes differences in legal traditions and government relations?

A. Cultural

B. Administrative or political

C. Geographic

D. Economic

Correct Answer: B. Administrative or political

Question 5

What is an institutional void?

A. A complete absence of all government institutions

B. A gap or weakness in market-supporting institutions

C. A temporary fall in national income

D. A legal prohibition on foreign investment

Correct Answer: B. A gap or weakness in market-supporting institutions

Question 6

Which is a potential advantage of state capitalism for an international firm?

A. It guarantees equal treatment for all competitors.

B. It can coordinate infrastructure and long-term strategic investment.

C. It eliminates political risk.

D. It prevents government involvement in markets.

Correct Answer: B. It can coordinate infrastructure and long-term strategic investment.

Question 7

In the weighted scoring example, what is the total score when the weighted values are 1.20, 0.90, 1.00 and 0.80?

A. 2.90

B. 3.40

C. 3.90

D. 4.90

Correct Answer: C. 3.90

Question 8

Why should a country-attractiveness score not be treated as an objective decision by itself?

A. Weights and ratings involve assumptions and may include correlated criteria.

B. Country scores can never include economic information.

C. Quantitative models are illegal in international business.

D. All countries have identical institutional conditions.

Correct Answer: A. Weights and ratings involve assumptions and may include correlated criteria.

Question 9

Which response best addresses weak distributor oversight in a foreign market?

A. Remove all compliance requirements to accelerate sales.

B. Use due diligence, audit rights, training and termination provisions.

C. Rely exclusively on informal relationships.

D. Transfer all responsibility to the distributor without monitoring.

Correct Answer: B. Use due diligence, audit rights, training and termination provisions.

Question 10

Why is market size alone an inadequate measure of country attractiveness?

A. Large markets cannot generate profit.

B. Market size does not measure accessibility, institutional reliability or operating risk.

C. Small markets always have stronger institutions.

D. Market size is unrelated to consumer demand.

Correct Answer: B. Market size does not measure accessibility, institutional reliability or operating risk.