Question

Impact of political disturbance on business

Answer 1

Answer:

There are 4 main effects of these political factors on business organizations. They are:

1. Impact on economy
2. Changes in regulation
3. Political stability
4. Mitigation of risk

• Impact on economy

The political situation of a country affects its economic setting. The economic environment affects business performance.

For example, there are major differences in Democratic and Republican policies in the US. This influences factors like taxes and government spending, which ultimately affect the economy. A greater level of government spending often stimulates the economy.

• Changes in regulation

Governments could alter their rules and regulations. This could, in turn, have an effect on a business.

After the accounting scandals of the early 21st century, the US SEC became more attentive on corporate compliance. The government introduced the Sarbanes-Oxley compliance regulations of 2002. This was a reaction to the social environment. The social environment urged a change to make public companies more liable.

• Political Stability

Lack of political stability in a country effects business operations. This is especially true for the companies which operate internationally.

For example, an aggressive takeover could overthrow a government. This could lead to riots, looting and general disorder in the environment. These disrupt business operations. Sri Lanka was in a similar state during a civil war. Egypt and Syria faced disturbances too.

• Mitigation of Risk

Buying political risk insurance is a way to manage political risk. Companies that have international operations use such insurance to reduce their risk exposure