Political factors affecting a business
Clarke Ricks
School of Business, Liberty University
BUSI 690: Policy and Strategy in Global Competition
Dr. Hicks
April 6, 2021
Political factors affecting a business
Politics impacts business in different ways. In most countries, regulations and laws
shape how businesses operate. However, political influence varies from country to country.
In this article, we’ll look at some of the most significant political factors affecting a business
for your next PESTLE analysis. Politics is an uncomfortable word for most businesses. It’s a
word that brings to mind lobbyists and partisan politics, as well as failed policies. But, as a
business owner, ignoring politics is probably the worst thing you can do.
The political environment is extremely important if you’re doing business overseas. For
example, it might be hard to access the same resources as a domestic company because of
the restrictions imposed on foreign businesses. In addition, the legal framework could be a
lot different than in your country. Taxation, for instance, is a big one. Businesses don’t really
have a choice in the matter. They are required to pay taxes according to the tax policies of
the country
List of Political factors affecting a business
Political stability
The political situation in many countries around the world is far from stable. This
instability often makes it hard for businesses to operate. The political environment can
make a huge difference to any business, from startups to large corporations.
Businesses are less likely to invest new capital or enter foreign markets if the political
situation is tumultuous. Any time you wear the decision-maker hat, you’re risk-averse. So
you don’t want to enter a foreign market where there’s political instability.
The best way to handle political volatility is to be flexible and respond quickly to
changes. The World Bank’s Political stability and absence of violence/terrorism Rank is an
indicator that sheds light on the historical political stability.
For example, prolonged political turmoil weakened investor and consumer confidence
in Egypt and Brazil.
Labour law changes
Labour law changes can be tricky. Any change in labour laws will affect businesses.
Changes are typically pushed by the government. It is usually a result of demands from the
working class or a shift in public opinion. Therefore, businesses need to be aware of these
changes and find ways to comply.
A change in political leadership can change government policies. In some countries,
certain political parties are considered ‘Business Friendly.’ Some political parties are more
workers-friendly in terms of policies. A great example is a push to raise the minimum wage
in developed countries. Some other similar changes are;
Maximum work hours and overtime changes
Enhanced protections for disabled workers
Trade unions related regulations
Contract or part-time employment benefits
Enhanced maternal and paternal rights
Europe’s political environment has changed dramatically in the last three decades. A
process of democratization and a shift to a market economy followed the fall of the Soviet
Union.
The European Union has agreed to a basic set of rules and principles regarding its
governance. Fundamentally, these principles are supposed to protect people’s rights and
make the market work for most people.
The Maastricht Treaty, the basis for the European Union, is an example of how political
changes impact employment and social security policies.
Foreign trade agreements
FTAs (free trade agreements) remove trade barriers and tariffs between countries. It’s
one of the best ways to boost international trade. They affect both domestic and
international trade. Global business relationships have been built on these agreements for
centuries.
Here are a few key benefits of FTAs,
Price reduction due to competition
Increase in productivity
Economy of scale with distributed manufacturing
Improves standard of living
You get direct access to foreign markets whether you import or export. Imports, in
particular, can put local businesses under pressure.
The North American Free Trade Agreement is a free trade pact between the United
States, Mexico, and Canada. North America’s business climate has been shaped by it. Over
the years, there have been pros and cons to the agreement.
The treaty has created business growth for North American companies. It established a
regional market and an easy way to create integrated manufacturing hubs. However, it has
also led to job losses among low-wage workers since it became easier to relocate
manufacturing to areas with lower labour costs.
So, businesses need to understand the implications to develop strategies that will reap
the rewards of these trade policies.
Corruption
It’s still a huge problem in some parts of the world. According to the Organisation for
Economic Co-operation and Development, it costs billions. Every year, more than 5% of
global GDP, or US$2.6 trillion, is wasted on corruption. In addition, corruption increases
business costs by up to 10%, according to the World Economic Forum.
