Preview

Effects of Politics on Business Environment

Good Essays
Open Document
Open Document
603 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Effects of Politics on Business Environment
EFFECTS OF POLITICS ON BUSINESS ENVIRONMENT AND ITS RESULTS ON SOCIETY

The political environment in a country affects business organizations and could introduce a risk factor that could cause them to suffer a loss. The political environment could change as a result of the actions and policies of governments at all levels, from the local level to the federal level. Businesses need to be prepared to deal with the fallouts of government politics.
Impact on the Economy
The political environment in a country affects its economic environment. The economic environment, in turn, affects the performance of a business organization. In the United States, for instance, there are significant differences in Democratic and Republican policies. This has implications for factors such as taxes and government spending, which in turn affect the country's economy. A higher level of government spending tends to stimulate the economy, for instance.
Political Stability
Particularly for businesses that operate internationally, a lack of political stability in any country has an effect on its operations. A hostile takeover could overthrow a government, for instance. This could lead to rioting and looting and general disorder in the environment. All this disrupts the operations of a business. Such disruptions have occurred in Sri Lanka, which went through a protracted civil war, and in Egypt and Syria, which have been subject to disturbances as people agitate for certain rights.
Mitigation of Risk
One way to manage political risk is to buy political risk insurance. Organizations that have international operations use this type of insurance to mitigate their risk exposure as a result of political instability. There are indices that provide an idea of the risk exposure an organization has in certain countries. For instance, an index of economic freedom ranks countries based on how political interference impacts business decisions in each country.

The political environment can

You May Also Find These Documents Helpful

  • Better Essays

    External Greggs

    • 1233 Words
    • 5 Pages

    Politics may affect the ability of a business to achieve its aims and objectives and changes in laws may mean a company has to change the way in which it operates. For example, the annual rising of minimum wage each year may result in a business being unable to employ as many people as they would have done in the past.…

    • 1233 Words
    • 5 Pages
    Better Essays
  • Good Essays

    Political risk happens when a country’s government unexpectedly changes its policies, which now negatively affect the foreign company. These policy changes can include trade barriers which serve to limit or prevent trade. Some governments will have tariffs in exchange for the right to export item into their country. (Investopedia) A foreign government could come and nationalize and seize control of a company’s assets. Obviously the seizure of a company is extreme but not unheard of.…

    • 672 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Ge Pestel Analysis

    • 703 Words
    • 3 Pages

    Politics highlight the role of nation governments, as the large global company, the firm has to deal with national political systems differently. The difficulties to negotiate with government conditions including tax systems, regulations and restriction which the firm has to adjust the service conditions and product requirements to get into the nation markets. These will be the huge impact which the firm has to be considered properly in order to work well with the governments and reach customer goals. However, The political conflict might have an effect on investment decisions of new entry. For example, according to Dibb and Lyndon, the research say that annually, firms in United States have to hand in tax returns to The Internal Revenue Authority on April 15th as the US government required. The other example is in Thailand. Due to inconsistency of Thai government, there was a political protester occurred in Bangkok public places such as national airport and many other important places which stop and extremely harm the economy. This shows the difference of political stability (Thailand's Protesters Highlight Rifts, 2009).…

    • 703 Words
    • 3 Pages
    Good Essays
  • Satisfactory Essays

    Political macro environment factors encompass of effects such as tax policies, government-issued safety guidelines, the accessibility of government contracts, as well as the modifications in the governing political party. International laws, for instance trade agreements and tariffs, can influence the supply and demand chains also obtainable markets for several diverse corporations too.…

    • 580 Words
    • 3 Pages
    Satisfactory Essays
  • Powerful Essays

    Tnk-Bp

    • 2402 Words
    • 10 Pages

    Political risks can be defined as the “probability of disruption of the operations of multinational enterprises by political forces or events.” (p. 246) Examples include uncertainty caused by government regulations, legal issues, corruption, and political instability. Economic risks can be defined as “fundamental weaknesses in [an] … economy with the potential to cause adverse effects on firms’ efforts.” (p. 247) Political risks and economic risks are interdependent. In Russia, BP faced an enormous amount of political and economic risk. Russia’s institutional instability combined with a weak legal system and high levels of government…

    • 2402 Words
    • 10 Pages
    Powerful Essays
  • Powerful Essays

    Assessing Political Risk

    • 1172 Words
    • 5 Pages

    Wagner stated that “the exercise of political power is the root cause of political risks in international business.” (p. 1) Every country has some type of political risk of doing business in that country; however, every country may not be impacted the same way. The impact of political risk is country specific. Eun and Resnick stated that “political risk that firms face can differ in terms of the incidence as well as the manner in which political events affect them.” (p. 405) Political risk can range from tax increases to briberies and extortions. The key factor for businesses is to have a clear understanding of the political risk of that country and the consequences that could potentially impact its business. The purpose of this paper is to assess the political risk that is associated with doing business in the three foreign countries known as Korea, China, and Japan.…

    • 1172 Words
    • 5 Pages
    Powerful Essays
  • Satisfactory Essays

    Monitoring, understanding, and adapting to the political environment is absolutely essential for any business, because it significantly affects every aspect of their working.…

    • 340 Words
    • 2 Pages
    Satisfactory Essays
  • Good Essays

    Mod 5

    • 5720 Words
    • 23 Pages

    5. What means can managers use to assess political risk? What do you think is the relative effectiveness of these different methods? At the time you are reading this, what countries or areas do you feel have political risk sufficient to discourage you from doing business there?…

    • 5720 Words
    • 23 Pages
    Good Essays
  • Good Essays

    PEST Analysis: Toyota

    • 617 Words
    • 3 Pages

    It is related to government policy and its administrative practices that can have an effect on something. Most of the business operators will keep a watchful eye on any political factor, such as new legislation or regulatory shifts, which could have a substantial impact on how their company operates and its bottom line.…

    • 617 Words
    • 3 Pages
    Good Essays
  • Powerful Essays

    Abstract When a firm chooses to enter or continue business in a foreign market, it becomes exposed to associated political risks which should be assessed and managed. Help is available for becoming aware of the level of macro political risk; that is, the political risk across industries or all businesses in entire countries or geographic regions. Yet, surprisingly little guidance exists by which to identify and assess firmspecific political risks, termed micro political risk. Herein, we offer some new perspectives on the nature of micro political risk within a host country, illustrating how it stems from economic, societal, and governmental forces. We have compiled a number of firm-specific variables which can affect the firm’s micro political risk profile, and advance an innovative methodology by which executives can address these variables and develop an assessment of their firm’s micro political risk. Examples of micro political risk situations are provided, along with discussion of implementing the proposed methodology. # 2008 Kelley School of Business, Indiana University. All rights reserved.…

    • 7268 Words
    • 30 Pages
    Powerful Essays
  • Best Essays

    Strategic planning is essential prior to any individual or company deciding to engage in international business whether as direct/indirect investment or through trade. An evaluation of risks should be considered and strategies developed accordingly prior to any potential investment in a foreign country. One such risk which requires consideration is political risk i.e. "governmental or societal actions and policies, originating either within or outside the host country, and negatively affecting either a select group of, or the majority of, foreign business operations and investments." (Simon, 1982). This can be broken down in ‘macro political risk’ i.e. a risk which affects all foreign enterprise at all levels and ‘micro political risk’, risk which affects only specific industries or certain companies. According to Rugman (2009) types of political risk can be categorised into two i.e. “legal/governmental” and “non-legal/extra-governmental”. Below is an in-depth discussion addressing these risks and the approaches which can be adopted in order to succeed as a foreign investor.…

    • 3224 Words
    • 13 Pages
    Best Essays
  • Better Essays

    The political environment under which a firm operates has key impact on the performance of a firm. Political issues that touch on a firm’s operations include regulations, de-regulations, tax policy including rates and incentives, trade control, import restrictions, tariffs, competition regulation, laws governing workplace health and safety, employment, consumer protection, data protection and so forth. Change in taxes such as what happened in Kenya recently with the Kenya Revenue Authority imposing excise duty on each banking and other transactions and re-introducing taxes on certain goods in the market means that for the banking sector the cost of operations have gone up and some banks have passed this cost onto the customer which means that in the short to medium term there is a possibility that some banks may lose customers affecting their projected profit or growth margins.…

    • 1969 Words
    • 8 Pages
    Better Essays
  • Good Essays

    Political stability and ideology will add to the ‘feel’ of business, and laws will give a more formal context to enterprise. Political turbulence is the problem in some countries, while enterprise is strangled by red tape in other regions.…

    • 848 Words
    • 4 Pages
    Good Essays
  • Good Essays

    When doing international business, the manager may face several types of financial risks. The major types of financial risks are commercial risks, political risks, exchange rate risks, and other such as inflation-related risks. Thus, political risks are non commercial risks. Political risks are any changes in the political environment that may adversely affect the value of a firm's business activities. Political risks may occur in any nation, but the risks vary considerably between countries. We may distinguish two types of classification of political risks. A classification based on the characteristic of political risks and a classification or categorization based on the local government actions or control.…

    • 1128 Words
    • 5 Pages
    Good Essays
  • Powerful Essays

    Statoil

    • 2040 Words
    • 9 Pages

    The political environment in which a firm operates has a major impact on its operations and profitability, and is mainly influenced by the political forces in an industry or country.…

    • 2040 Words
    • 9 Pages
    Powerful Essays