Why does doing business in a country with a relatively unsophisticated economy result in increased costs?

What will be an ideal response?

Ans: Risk. There are a variety of factors that contribute to whether a country looks suitable for outside investment or not, but they all boil down to risk. If a country doesn't have proper property rights regulations in place, you could visit your new place of business one day and find that a lot of the locals have taken up residence there. If a country is rather unsophisticated, criminal activity is likely to be higher, and the chance that your place of business could be damaged is greater. There are many more reasons that most businesses prefer to expand in areas that are relatively sophisticated, but again.. it all boils down to how much risk is involved.