2015 Economic Freedom Heat Map The importance of observing the political environmentįirms should track their political environment. It ranks countries based on how politics impacts business decisions there. The index of economic freedom is a good example. There are some indices that give an idea of the risk exposure in certain countries. Companies that have international operations use such insurance to reduce their risk exposure. Egypt and Syria faced disturbances too.īuying political risk insurance is a way to manage political risk. Sri Lanka was in a similar state during a civil war. This could lead to riots, looting and general disorder in the environment. This is especially true for the companies which operate internationally.įor example, an aggressive takeover could overthrow a government. Lack of political stability in a country effects business operations. The social environment urged a change to make public companies more liable. This was a reaction to the social environment. The government introduced the Sarbanes-Oxley compliance regulations of 2002. This could in turn have an effect on a business.Īfter the accounting scandals of the early 21st century, the US SEC became more attentive on corporate compliance. Governments could alter their rules and regulations. A greater level of government spending often stimulates the economy. This influences factors like taxes and government spending, which ultimately affect the economy. The economic environment affects the business performance.įor example, there are major differences in Democratic and Republican policies in the US. The political situation of a country affects its economic setting. Example: How political factors affect Nike.The importance of observing the political environment.
There are 4 main effects of these political factors on business organizations. Laws that regulate environment pollution.Intellectual property law (Copyright, patents).Import restrictions on quality and quantity of product.Government involvement in trade unions and agreements.Government stability and related changes.The success and growth of these companies are not based on the value they offer to consumers.īelow, is a list of political factors affecting business: Some firms survive and grow by offering bribes to government officials. In totalitarian systems, government’s power derives from a select group.Ĭorruption is a barrier to economic development for many countries. The country’s population democratically elects open government system. Pressure groups tend to change government policies.Īs political systems in different areas vary, the political impact differs. This external element of business includes the effects of pressure groups. A cyclical political environment develops, as democratic governments have to pursue re-election every few years. The political environment is perhaps among the least predictable elements in the business environment. Politicians can influence acceptance of new technologies.Politicians can influence the rate of emergence of new technologies.Political decisions influence the country’s socio-cultural environment.Political decisions affect the economic environment.Government interventions like shifts in interest rate can have an effect on the demand patterns of company.Ĭertain factors create Inter-linkages in many ways.
So, you must always stay up-to-date with such political factors. The decision will have a direct effect on your businesses. Your government might increase taxes for some companies and lower it for others. Increase or decrease in tax could be an example of a political element.
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