The political environment is perhaps one of the least predictable elements of the business environment. A cyclical political environment develops as democratic governments seek re-election every few years. This external element of the business includes stakeholder impact. Interest groups tend to change government policy. This is still a big 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 $2.6 trillion, is wasted on corruption. In addition, corruption increases business costs by up to 10%, according to the World Economic Forum. Conducting a macro-environmental analysis, a good example of how political factors have influenced a company, can be associated with Nike. Nike is a globally recognized sportswear, shoes, accessories and sports equipment.
Nike has been very lucky because the U.S. government has formulated such guidelines that will promote business growth. The company benefits from a stable currency and low interest rate conditions, as well as highly competitive tax provisions that help the company drive growth. The U.S. government has taken initiatives regarding transparency in the global value chain, from which Nike has benefited greatly. However, Nike is facing tough times in its outsourced manufacturers in other regions such as Indonesia, Thailand and Vietnam, where political unrest is on the rise. Many external environmental factors can impact your business. It is common for managers to accurately assess each of these factors. The goal is always to make better decisions for the progress of the company. Some common factors are political, economic, social and technological factors (known as PEST analysis). Companies are also looking at environmental, legal, ethical and demographic factors.
One of the biggest challenges for businesses is corruption. The ability to influence companies – whether or not it creates value – can enable public servants to use their power. Governments often try to create value directly by producing public goods that have two identifying factors: this, of course, works both ways. If you live in an area where the governing party has high corporate tax rates and offers few incentives to small business owners, Consider moving your business elsewhere. Interest groups and lobbying are two ways in which democracies manage feedback loops between politics and business. Political parties need the support of corporations – especially the largest and most influential ones – in the form of votes and contributions. Different political parties or individuals pursue different policies to lead national and local economies to prosperity on the basis of their own economic ideologies. This means that political trends can impact the taxes levied by businesses and individuals, allowing you and your customers to spend more or less money in the market. Economic policy can also affect interest rates throughout the economy, including interest rates on small business loans. The mood of all economic actors in society can be influenced by the government`s ability to control economic conditions. For example, in a struggling economy, consumers may spend less in the market, resulting in banks lending fewer to businesses. From a business perspective, compliance changes are even more relevant, especially when it comes to financial reporting and auditing.
An excellent example of this is the Dodd-Frank Wall Street Reform and Consumer Protection Act, passed in the United States in 2010 by Barack Obama in response to the 2008 financial crisis. Designed to reign in cruelty and maintain financial stability, it has been targeted by critics who have said it will make U.S. companies less competitive. Subsequently, it was repealed by the Trump administration in 2018, showing how the political will of the day can greatly affect day-to-day operations in one way or another. The political nuances of a country are one of the most important challenges in international trade. Political leaders often make decisions that affect labor law, education, transportation, and taxes, which in turn affect businesses. It`s not easy to overcome the political challenges of multiple countries, so it`s important to make sure it`s ready for globalization before you grow your business. Political factors can influence companies in several ways. These external environmental factors can result in a risk factor that can lead to a significant loss of business. These factors can alter overall results and, therefore, companies should be able to cope with local and international policy outcomes.
In modern society, politics can be defined as all activities and systems that have a direct impact on how power and authority are distributed and used. From a business perspective, changes in these machinations can affect the fate of your business in a variety of ways, regardless of your size or scope. David Ingram has written for several publications since 2009, including “The Houston Chronicle” and online at Business.com. As a small business owner, Ingram regularly faces modern issues in management, marketing, finance, and business law. He holds a Bachelor of Arts in Management from Walsh University. For example, the Republican Party in the United States and the Conservative Party in the United Kingdom are clear examples of parties advocating tax cuts as a means of growth for businesses. The election of Donald Trump in the United States has led to some of the biggest tax cuts in history, which is of course good news for businesses in the region. Political factors can affect a company by making the market environment more or less favorable for that company. Typically, governments have a lot of power over companies and often there`s not much companies can do about it.
