Political Environment

IMPACT OF POLITICAL ENVIRONMENT ON BUSINESS

The Political Environment

Relatively uncontrollable factors outside the firm Technological Legal and Political that influence its decision-making Environment Environment

Factors in government, the law and the regulatory system that affect the way an organisation operates Environment Economic

Socio-Cultural Environment

The Political Environment SYSTEM

STABILITY Legal and Political Environment

POLICIES

SYSTEM Includes the structures, processes, and activities by which a nation governs itself.

Political System

 Autocratic state  Democratic state

SYSTEM Autocratic state Imposed authority Lack of constitutional guarantees Restricted participation  Companies light need to pay bribes to government  The business law is vague Doing business seems to be a risky proposition

Democratic state Freedom Rights  Stable business environment thanks to laws  Freedom and no censorship Doing business in a democratic state seems to be safer than in a totalitarian state

SYSTEM Political Ideology Capitalist System

 Capitalist system  Socialist system Socialist System

- Private ownership of business - Public ownership of business is encouraged is the norm The political ideology affects - foreign government attitude towards profit repatriation. - foreign government attitude towards foreign direct investment

SYSTEM Political relationships Favorable political relationships  foster stable business environments  increase international cooperation in many areas  lead to increase business opportunities and lower risk The World Trade Organisation can facilitate political relationships  The WTO ensures that trade flows as smoothly, predictably and freely as possible.

STABILITY Political Stability : « A subjective governance indicator aggregated from a variety of sources and measuring perceptions of the likelihood of destabilization. »

POLICIES TAXATION Governments use income and sales taxes which can vary from country to country.

POLICIES PROPERTY • Intellectual Property « Property that results from people’s intellectual talent and abilitie. » • Industrial Property « Industrial property includes patents and trademarks. » • Copyrights « Copyrights give creators of original works the freedom to publish or dispose of them as they choose. »

 The problem is that laws in some countries are softer than in others

POLICIES PRODUCT SAFETY AND LIABILITY « Product liability holds manufacturers, sellers, and others, including individual company officers, responsible for damage, injury, or death caused by defective products. » The United States has the toughest product liability laws in the world following by Europe.

 Enforcement of product liability laws differs from nation to nation.

Conclusion • The political environment has an important impact on the business • There is a large field with many factors which the companies have to consider if they want to expand overseas • Political environment is not stable and can change quickly • The political environment creates advantages and disadvantages