Political factors affecting business

Political factors affecting business
See also
Legal factors affecting business Examples of opportunities PEST analysis STEEP analysis Social and cultural factors affecting business STEEPLE analysis Opportunities and threats External environment Economic factor

Political factors affecting business are closely tied to legal factors affecting business. Stable political environment creates confidence of citizens and companies investing or planning to invest in particular country. So they have very strong influence on economy and development of business. Political decisions have also strong influence on social and cultural environment in a country. Decisions of politicians may also affect pace (promote or disturb) of new technology adoption within economy.

Political factors involving central government organization

• level of bureaucracy (procedures, permits, etc.),
• level of corruption (tradition of bribing government officials)
• government stability and probability of changes of political systems,
• form of government: totalitarianism/autocracy/democracy or other type of political system.
• cyclical nature of democratic countries (elections can change politics from time to time)
• power structure,
• regional government powers,
• private or government owned companies dominate on the market,
• presence of state monopolies,
• government interfere (or not) with business,
• existence of pressure groups influencing government (farmers, miners, etc.),
• activities of lobbyists,
• safety and security, public protection, military,
• level of government spending,

Political factors involving freedom of citizens

• freedom of the press, radio and television,
• free elections,
• Internet censorship,
• freedom of association, freedom to protest,
• freedom of public assembly
• accountability of government and transparency,
• access to information about government actions,
• social unrest (rioting, looting),
• index of political and economic freedom within country,
• influence of media and public opinion on policy and decision making,

Political factors included in various legal regulations

• role of a constitution or similar national legal document,
• education regulation,
• regulation vs deregulation preferences,
• social and environmental policy, reforms and pressures to change,
• more at: legal factors affecting business

Political factors connected to international relations

• trade control (tariffs policy, regulation)
• involvement in international trade unions and agreements (trade blocks, EU, WTO, NAFTA, etc.),
• import/export restrictions on quality and quantity of product
• diplomatic activities promoting investment possibilities (good business climate) abroad,
• tax-free zones for newly created international businesses
• involvement in military conflicts thorough the world and regional,
• exchange rate manipulations through political decisions,
• possibility of expropriation (government taking over assets of foreign business due to no constitutional protection of ownership law),

Check also other:

• Social and cultural factors affecting business
• Technological factors affecting business
• Economic factors affecting business
• Ecological factors affecting business
• Legal factors affecting business
• Ethical factors affecting business

Examples of Political factors affecting business

• Tax Policies: Governments around the world have different taxation policies which can affect businesses. These policies may include direct taxes such as corporate tax, indirect taxes such as Value Added Tax (VAT) or Goods and Services Tax (GST), as well as incentives such as tax breaks for certain industries or research and development.
• Trade Regulations: Governments may impose trade regulations on businesses in order to protect the domestic industry and promote development. These may include tariffs, quotas, embargoes, and sanctions.
• Political Stability: Political stability is essential for a business to be successful. Political instability can lead to economic uncertainty, which in turn can have a negative effect on businesses. It is important for countries to have a stable political climate in order to attract foreign investments and encourage economic growth.
• Labour Laws: Labour laws regulate the relationship between employers and employees. It is important for businesses to comply with these laws in order to ensure the safety and fair treatment of their employees.
• Regulatory Environment: Governments can have a significant impact on businesses through their regulatory environment. These regulations can include environmental regulations, consumer protection laws, anti-trust laws, and industry-specific regulations. It is important for businesses to comply with these regulations in order to remain competitive.
• Government Spending: Government spending can have a significant impact on businesses. When governments invest in infrastructure and technology, businesses can benefit from the improved conditions. On the other hand, when governments cut spending, businesses may suffer due to the reduced demand for their products and services.

Advantages of Political factors affecting business

A stable political environment can be beneficial to businesses, as it promotes a climate of confidence and encourages growth. Some of the advantages of political factors affecting business include:

• Increased access to resources: Political decisions can open up access to resources such as capital, labour and technology. This can be especially important for businesses in developing countries.
• Stable economic environment: Political decisions can also create a more stable economic environment, enabling businesses to plan more effectively. This can include creating a more predictable tax and regulatory framework.
• Access to markets: Political decisions can also open up access to new markets, by reducing trade barriers and tariffs. This can create new opportunities for businesses, particularly those looking to expand into international markets.
• Improved infrastructure: Political decisions can also help to improve the infrastructure of a country, which can have a direct benefit to businesses. This includes improving roads and transport networks, as well as investing in communications and technology.

Limitations of Political factors affecting business

Political factors affecting business have several limitations:

• Political decisions are unpredictable and might lead to unexpected changes in the business environment, which can be difficult to adjust to.
• Political decisions are mostly driven by short-term interests and often neglect the long-term effects of these decisions on businesses.
• Political instability in certain countries makes it difficult for businesses to plan and operate in these environments.
• Political decisions may lack transparency and accountability, leading to confusion among businesses.
• Politics may be used as a tool to favor certain businesses over others, leading to unfair competition and market distortions.
• Political decisions may lead to restrictive policies that limit the growth of businesses.

Other approaches related to Political factors affecting business

Political factors affecting business can be approached from different angles. These include:

• Government regulations and policies – Government policies and regulations have a large impact on the business environment, both in terms of the industry they are targeting and the wider economy. For example, the government may introduce regulations that encourage businesses to adopt green practices or reduce their carbon footprint.
• Political stability – Political stability is important for businesses as it is a sign of a healthy economy, which leads to increased confidence among investors and consumers. This is especially true for businesses in emerging markets, where political instability can have a significant effect on the economy.
• Taxation – Taxation policies can have a large impact on businesses, as they can either encourage or discourage investment and profitability, depending on the type of taxes imposed.
• Trade agreements – Trade agreements between countries can have a major impact on businesses, as they can lead to increased access to new markets and the reduction of tariffs, which can increase profitability.

In summary, Political factors affecting business include government regulations, policies, political stability, taxation, and trade agreements. All of these can have a significant impact on the business environment and the wider economy.

References

• Durnev, A., & Kim, E. (2005). To steal or not to steal: Firm attributes, legal environment, and valuation. The Journal of Finance, 60(3), 1461-1493.
• Edelman, L. B., & Suchman, M. C. (1997). The legal environments of organizations. Annual review of sociology, 479-515.
• Hail, L., Leuz, C., & Wysocki, P. (2010). Global accounting convergence and the potential adoption of IFRS by the US (Part II): Political factors and future scenarios for US accounting standards. Accounting Horizons, 24(4), 567-588.
• Pearce, J. A., Robinson, R. B., & Subramanian, R. (2000). Strategic management: Formulation, implementation, and control. Columbus, OH: Irwin/McGraw-Hill.

Author: Krzysztof Wozniak