Many external environmental elements might have an impact on your company. Managers often analyse each of these aspects carefully. The goal is to make better judgments for the company’s development at all times. Political, economic, social, and technical considerations are all frequent (known as PEST analysis). Environmental, legal, ethical, and demographical aspects are also studied by businesses. Political concerns that impact business are often given a lot of weight. Several components of government policy may have an impact on the economy. All businesses must abide by the law. Managers must determine how forthcoming laws will impact their operations. The political climate has a variety of effects on businesses. It might introduce a risk element and result in a significant loss. You should be aware that political forces have the ability to influence outcomes. It may also influence government policy at all levels, from municipal to federal. Companies must be prepared to cope with local and worldwide political consequences and they can make a move on securing their business with political risk insurance which provides financial protection to investors, financial institutions, and businesses that face the possibility of losing money because of political events. It protects against the possibility that a government will take some action that causes the insured to experience a large financial loss. By having liability insurance it protects financial institutions in the face of political change, both governmental actions and politically-motivated violence
The political elements are changes in government policy. Economic, legal, or societal changes are all possible. It might also be a combination of these elements. A political factor might be an increase or reduction in taxation. Your government may raise taxes on certain businesses while lowering them on others. Your company will be directly affected by the decision. As a result, you must constantly be aware of such political developments. Government actions, such as interest rate changes, might affect a company’s demand patterns.
Inter-linkages are formed for a variety of reasons. Here are several examples:
- Political actions have an impact on the economy.
- The country’s socio-cultural climate is influenced by political choices.
- Politicians have the ability to affect the pace at which new technologies arise.
- Politicians may affect how new technologies are accepted.
Perhaps one of the least predictable aspects of the corporate environment is the political climate. As democratic administrations must seek re-election every few years, a cyclical political climate emerges. The influence of pressure groups is included in this external aspect of the business. Government policies are often influenced by pressure organisations. The political influence varies depending on the political systems in various places. The people of the nation democratically elect an open government system. The government under totalitarian regimes gets its authority from a small number of people.
For many nations, corruption is a roadblock to economic progress. Bribes to government officials help certain businesses survive and expand. These firms’ success and development are not dependent on the value they provide to customers.
A list of political variables impacting business is provided below:
- Level of corruption
- Press freedom is important.
- Controlling trade
- Education Regulations
- Antitrust legislation
- Employment legislation
- Discrimination legislation
- Data protection legislation
- Environmental Regulations
- Health and safety regulations
- Regulation of competition
- Regulated and unregulated markets
- Fiscal policy (tax rates and incentives)
- Changes in government stability and associated issues
- Government participation in labour unions and agreements
- Import limits on product quality and quantity
- Law of Intellectual Property (Copyright, patents)
- E-commerce and consumer protection
- Environmental pollution legislation
These political considerations have four basic implications for commercial entities. They are:
- Tax and economic policies
- Political stability
- Foreign Trade Regulations
- Employment Laws
What Impact Does Politics Have on the Business Environment?
With a shift in administration policy, political considerations emerge that may alter the whole corporate landscape. These changes may be economic, legal, or societal in nature, and may contain the following elements:
1. Tax and economic policies
An excellent example of a political component is raising or lowering tax rates. Due to particular factors, government rules may increase the tax rate for certain enterprises while lowering it for others. This judgement will have an immediate effect on companies. This is why having a plan in place to cope with such events is critical.
2. Political stability
A country’s lack of political stability may have a considerable influence on corporate operations. This is particularly true for companies that operate on a worldwide basis. A hostile takeover, for example, may overthrow a government. Such a condition will eventually result in looting, rioting, and overall disturbance in the surroundings. Such events may interrupt corporate operations and activities, negatively impacting the company’s bottom line.
3. Foreign Trade Regulations
Every company has to grow its operations into new nations. However, a country’s political history might impact a company’s desire to grow its activities. Government-controlled tax laws may encourage a company to extend operations in new areas, whilst other tax rules might stymie the growth of other businesses. When it comes to multinational corporations’ competitiveness in a foreign location, government programmes aimed to help local enterprises may backfire against them.
4. Employment Laws
Employment laws defend workers’ rights and cover every facet of the employer-employee relationship. Employment law is a complicated subject with several difficulties. Businesses that stay up to date on the newest changes in this legislation may steer their operations in the correct direction; but, those that get it wrong must be well prepared for the costly consequences. Employees account for over 98 per cent of the company’s successes (or lack thereof) in contemporary organisations, and any changes in employment legislation would, of course, have a significant influence on corporate operations.
Political Factors Affecting Nike as an Example
Nike is a wonderful illustration of how political issues have influenced a corporation while doing a macro environment study. Nike is well-known athletic clothing, footwear, sports accessories, and equipment brand. Nike has been very fortunate in that the United States government has established rules that encourage company development. The firm benefits from a stable currency and cheap interest rate environment, as well as exceptionally favourable tax arrangements that aid in its expansion. The US government has taken steps to increase openness in the global value chain, and Nike has reaped the benefits. However, Nike is having trouble with its outsourced producers in other countries like Indonesia, Thailand, and Vietnam, where political upheaval is on the rise.