A very good question, Adam. For a good portion of people, travelling to another country is a "risky" or "uncertain" experience, so the more familiar it is (in terms of the tour company, other people on the tour or travel service) the more likely they are to travel. This is the antithesis of my form of travel, because this effectively creates a travelling "foreign enclave", and it does distance yourself from the local culture. However, for some people, it is either this way of travel or none at all, so it is difficult to be too critical of this travel as there is a demand for it, but it is something I never do.
When travelling, I always try to utilise the services of a local provider, which is usually to hire a car and driver, day tours or for places I could not travel alone (i.e. African safari) the reasons being several:
First, they are cheaper - this is especially true of any tour provider in Asia, Africa, and the Middle East. Second, they usually inject more money back into the local economy as these businesses are locally owned.
Third, many foreign providers tend to place you with only other foreigners, but I much prefer being around local people instead. An excellent example of this was a river cruise I took in Bohol, Philippines a couple of months ago. It was very touristy, and usually I shun such things, but but over 90% of the people on the boat where Filipinos, so it still felt very cultural.
Fourthly, these local providers tend to take you to restaurants that the local people consider to be good, rather than a place which has good "Western" options - though these may be the same - they usually are not. Furthermore, these locally preferred options tend to have better value for money.
Overall, when travelling to another country, I avoid the "foreign enclave" as much as possible (though splurging on a nice hotel occasionally is always refreshing). Thus, local providers are always my choice as it ensures my best chance of fully experiencing the local culture whilst still having the convenience of my own transport or of a day tour to a place that I could not otherwise visit.