Question

How do political factors affect the international business?

Answer 1

There are many external environmental factors that can affect your business. It is common for managers to assess each of these factors closely. The aim is always to take better decisions for the firm’s progress. Some common factors are political, economic, social and technological (known as PEST analysis). Companies also study environmental, legal, ethical and demographical factors.

The political factors affecting business are often given a lot of importance. Several aspects of government policy can affect business. All firms must follow the law. Managers must find how upcoming legislations can affect their activities.

The political environment can impact business organizations in many ways. It could add a risk factor and lead to a major loss.  You should understand that the political factors have the power to change results. It can also affect government policies at local to federal level. Companies should be ready to deal with the local and international outcomes of politics.

Changes in the government policy make up the political factors. The change can be economic, legal or social. It could also be a mix of these factors.

Increase or decrease in tax could be an example of a political element. Your government might increase taxes for some companies and lower it for others. The decision will have a direct effect on your businesses. So, you must always stay up-to-date with such political factors. Government interventions like shifts in interest rate can have an effect on the demand patterns of company.

Certain factors create Inter-linkages in many ways. Some examples are:

Political decisions affect the economic environment.

Political decisions influence the country’s socio-cultural environment.

Politicians can influence the rate of emergence of new technologies.

Politicians can influence acceptance of new technologies.

The political environment is perhaps among the least predictable elements in the business environment. A cyclical political environment develops, as democratic governments have to pursue re-election every few years. This external element of business includes the effects of pressure groups. Pressure groups tend to change government policies.

As political systems in different areas vary, the political impact differs. The country’s population democratically elects open government system. In totalitarian systems, government’s power derives from a select group.