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 Socio-Cultural
Economic 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  Autocratic state

System  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  Capitalist system

Ideology  Socialist system

Capitalist 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