Benefits and Costs for the Investing Corporation

The act of investing assets in a foreign country exposes the parent corporation (or increases its exposure) to a wider range of business risks and competitive disadvantages. Every investment decision must take these disadvantages into account and every act of investment testifies to a belief that the expected benefits exceed the inherent disadvantages. These handicaps include: a degree of familiarity with local customs and law that is less than that of indigenous firms; the prospect of discrimination by the host government in favour of the subsidiaries’ competitors; interference by the government of the investing country in profit repatriation; possible difficulties in obeying two conflicting sets of antitrust laws and the operational disadvantage of having a subsidiary and its market far removed from parental control. Even though these handicaps may vary significantly from one project to another, most of the categories of risk are self-evident. The advantages are less self-evident. It is the potential benefits that will be the deciding factors in determining the decision of whether to invest abroad or not. At the same time, a study of the potential benefits will indicate what sort of corporations in which industries will be likely to invest abroad and in what types of countries.