The Impact of Political Environments on Business

How Political Environments Affect Business

Explain The Importance Of Different Political Environments In Which Businesses Operate. Critically Analyse These Differences, Citing Examples Of How They Might Influence Business In Either Positive Or Negative Ways.

The political head of democracy has the right as well as a responsibility to formulate economic framework on which diverse and industrial groups conduct as well as manage their business. A company cannot exist in a vacuum. It is a crucial part of the political, social and economic milieu (Goldratt 2017).  If politics want to gain control and regulate the economy to promote public welfare, then business too wants to influence all democratic government for its advantage. Many external factors like politics, society, economics and technology affect business both positively as well as negatively. It is the responsibility of the company to minimise the effect of political factors while making decisions. Political as well as environmental factors of a state can have a considerable impact on business and may also introduce risk factors that can make the company suffer (Tur-Porcar, Roig-Tierno and Llorca Mestre 2018). Changes may be positive as well as harmful. Therefore, it is crucial to understand the potential impact of politics on the business. The goal of the business is to make a profit, and that of the government is to ensure stability and growth in the state. The primary aim of the essay is to show how the political environment affects business; it's  impact on organisations and the interrelationship between the two.

The political environment can affect the business by making the environment of the market favourable for the business. These external factors may also be a risk for the business. Hence, the companies should be prompt enough to deal with external as well as internal political outcomes. Some political factors can completely change the scenario of business enterprises. These are tax as well as economic policies. An increase or decrease in tax is an example of a political outcome that can have a massive effect on the profit margins. For instance, the Conservative party of UK and the Republican Party of the US favour cuts in taxes that help the business to grow.  It is totally on the discretion of the government to raise or decrease the tax for a particular company. The prime minister of UK Theresa May has declared that the government will reduce the corporate tax to 17% that will help the big corporations save billions of pounds (Mason 2019). Coffee chain Starbucks in the UK paid only £5.9 million as tax and made a profit of £213 million in the year 2017 by paying the tax of only 2.8% (Sari and Hunar 2018). The decision will have a direct impact on the company; therefore, the latter should make efficient strategies to deal with such situations. Lack of political stability is another factor that has a direct effect on business. This factor can affect companies that are operating on a global scale. For instance, a political upheaval can suddenly take over a government. Such a situation will eventually lead to looting and riots. A case of Venezuela can be cited as an example, who is facing civil unrest in the country. As a result, the economy has become stagnant and businesses are unable to run their operations under these circumstances. Hence, these situations will disturb the business operations as well as activities in that state. Thirdly, foreign regulations can also have an impact on business. Every business needs to expand their operations across borders. However, the political background of the country may influence the organisation’s desire to grow the business in that area. Mpesa is a start-up company that has swiftly taken off in Kenya compared to other countries. Abellon Clean Energy has been a successful bio-pellet company in India but it had difficulty in setting up and expanding their business in Ghana due to poor regulation. The government controls tax policies that may encourage a particular company to grow its business in that region. Similarly, tax policies may also hinder the industry to operate and expand their activities across borders (Slemrod 2016). Changes like these are often initiated by the government when they try to respond to the challenges that take place in other sectors. This is widely known as PESTLE framework (Pan, Chen and Zhan 2018). A brilliant example of this is the Consumer Protection Act as well as Wall Street Reform that was initiated by President Barack Obama in 2010 that was a response to 20018 financial crisis. The step was taken to maintain political stability in the country. The decision was targeted by the critics who believed that it would make the firms in the US less competitive (Lew 2016). However, it was again revoked by Trump’s government in 2018, which made it clear that the politics of a place can have a severe impact on everyday business. Employment laws made by the government can also affect the business people. The laws protect the rights of the employees and include all the dimension of the relationship that exists between an employer and an employee. The code is complex and therefore has many pitfalls as well (Subramanian and Megginson 2018). When the organisation is in touch with the new developments, then they can run the business in the right direction. However, the ones who get it wrong will have to be prepared for the consequences. Citing an example of Nike will make the concept more explicit and show how political factors can affect business. Nike is a globally recognised brand, famous for footwear, equipment, athletic apparel and sportswear. The United States government has formulated many policies that favour the growth of the company. The company is experiencing low interest and stability in currency along with arrangements of tax that are competitive and is helping the business to grow and expand. The government has vowed to show transparency in its global chain that has benefitted Nike. At the same time, Nike is facing a lot of problem in countries like Indonesia and Vietnam due to political unrest in those regions. Business enterprises, however, are not entirely powerless. Lobbying, as well as pressure groups, are ways in which democratic countries deal with the feedback taken from politics and business. Political parties too need the assistance of big business groups for votes and contributions. India’s retail sector is one of the examples. Small-scale retail industries are adversely affected by the arrival of online brands like Amazon. The latter made their presence felt by assuring the government as a reliable vote bank and even persuaded the latter to make changes in the policy of e-commerce. Multinational companies such as Apple and Huawei is profoundly affected by the policies of the government. Hence, international politics can either uplift the business model or cease it. Buying political risk insurance will help companies to cope with political risks (Haendel 2019). The firms need to study the political environment of the country in which they are planning to operate their business. Business can act as a source of social reform.

Examples of Political Factors that Affect Business

 Xi Jinping, the leader of  communist party and president of China, has assured the entrepreneurs that their business is going to be protected and the government will find new methods such as a cut in taxes and bailout funds to ensure the growth of the company. He is the most influential leaders of China who is trying to win the confidence of the capitalists in a time when most of the business owners are worried about their economic growth in future. His Communist Party is trying to adopt a policy that will encourage private sector development. Xi has refused to accept ideas where people are saying that the private economy will come to an end or that the labour unions are built to control the business. He supports the concept of a substantial cut in taxes for the private sector. He encourages the bank to give loan and subsidies to private business to solve the issues of these firms. Xi has promised equal treatment of the private sectors (Wang and Zeng 2016). He has even appointed a local government body to listen to the demands and grievances of individual industries. Xi is trying to stabilise the economy when it is facing a hostile environment. The private enterprises contribute almost 60% of China’s GDP; however, it has to face the brunt of an economic slowdown. Private firms have always had a problematic relationship with the party due to the latter’s hostility towards capitalism. Under Mao Zedong, many private companies closed down (Cumming, Rui, and Wu, 2016.). After Xi became the president in 2012, he pledged to support the private companies to play an essential role in economic activities. Party leaders fear that without the Communist Party, China, will fall into chaos and become prey of hostility. Now the relationship between the party and the private sector is much more flexible (Naughton 2017). They do not interfere in their day-to-day activities. The private sectors can now run their business and take charge of their decisions.

Canada’s political environment has taken a toll on its economy. The political leaders should pay more attention to the limited economic growth. The economic growth is not able to cope with the growing population. The election focused on minor issues relating to phone bills and tax levied on boutiques. An increased private, as well as government investment, is required to deal with the economic crisis (Johnson and Smith 2019). The politics of Canada has been its economy drop by two spots. Government implement policies that help in changing social behaviour, particularly in the business environment. For instance, taxes can be levied by the government who use carbon fuels as it harms the environment. On the other hand, it can offer allowances and subsidies for companies who use renewable sources of energy (Brockmann, Genschel and Seelkopf 2016). The Republican Party is considered to be business-friendly as it always favours limited regulation of the government on the economy. However, there are some exceptions. They keep a close check whether the organisation to make a profit are not misusing the environment, whether they are considering the concerns of the labour union, benefits of healthcare and pensions. The party receive support from the business owners as well as investment capitalists. According to the Republics, a cut in tax will be helpful in economic growth during a time of recession. However, it reduces the government aid which may miss the essentials. As the wealthy class pay more tax only, they will receive the benefit of tax-cut. They want a free market economy that leads to monopolies (Bendle. and Cotte 2016). Democrats, on the other hand, rely more on the intervention of the government to support welfare and other social programs as well as depend on government spending to regulate their economy while keeping the motives of profit of businesses at bay. They argue on the fact that minimum wage should give allowance for a living wage. They believe in progressive taxation unlike the regressive taxation scheme of the Republicans (Tella, Dubra and Lagomarsino 2016). After UK departed from the European Union it helped the business owners of the UK to look at business in a new and challenging way. After Trump became the President of the US, business owners were hopeful that his fiscal policies would boost the economy. Trump promised to consolidate and standardise the regulating bodies to restore the economy of the US. However, with the ban on immigration, abandonment of trade agreements created a lot of uncertainty that harmed the economy of the US.

The Importance of Studying Political Environments

To conclude, it is essential to note that both businesses as well as politics are interconnected and that the latter can have either positive or negative impacts on the former. At times the world of business and politics can collide with each other to create and stimulate new jobs and economy respectively. If the need arises, politicians can take steps against the company if the latter is polluting the environment and working against the citizens' interest. The business owners should be equipped to deal with political changes. When politics is in favour of the business, then the company should make the most of it; however, when it goes against business ethics, one should adapt with it quickly. It is difficult to measure the influence of business on politics. Nonetheless, it can be summarised that the industry and business have built space for themselves to promote their economic activities by winning the confidence of the politicians and the policymakers.

References

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