There may be several reasons why one would want to block users from all countries except the targeted one: with large amounts of traffic this can be a solid way to save on bandwidth, or this can have something to do with content licensing restrictions, or this can be an additional step to fighting web spam and hacker attacks.
Anyway, while the reasons are clear and also we know how to do that (via IP address blocking, browser language detection, etc), there may be quite a few disadvantages:
- As being discussed in this forum thread, territorial blocking may not be really good for word of mouth (we know that the Chinese and Indian people who are often blocked from some US-based web resources are really active on Digg and StumbleUpon and it is often due to them that the piece goes viral);
- The web is flat, that being said there isn’t much you can do to block anyone from anything today: there are plenty of broadly available tools and apps that allow people to browse the web no matter what country they are actually located in: nowadays you don’t need to be a hacker to access any blocked site. So why bother blocking one?
- Often this is just against user experience: think about those people from your country who travel a lot and can’t access your site from other countries.
- I don’t know any evidence of direct impact on SEO, this may damage your SEO efforts indirectly: by limiting your site to only one country, you get fewer links and thus your link profile looks less diverse and hence less powerful.
So there seems to be good reasons to block users by country (in some cases) as well as solid arguments against doing that.