Companies should monitor their political environment. Changes in policy factors can affect the company`s strategy for the following reasons: The government is stepping in, as evidenced by the fact that the PRC has signed tax treaties and arrangements with more than 80 countries and regions, including two special administrative regions of the PRC, Hong Kong and Macao. One of these types is the trade tax. Business tax is levied on the supply of most services in the PRC, the transfer of intangible assets in the PRC and the transfer of real estate in the PRC. For example, in the service sector such as transport, they charge 3% tax, banks and the sale of real estate 5% and 5% – 20% for entertainment. For example, an aggressive takeover could topple a government. This could lead to riots, looting and general environmental unrest. These disrupt business operations. Sri Lanka was in a similar state during a civil war. Egypt and Syria have also faced unrest. Political risk insurance is one way to manage political risk.
Companies operating internationally use such insurance to reduce their risk exposure. The political environment can affect business organizations in several ways. This could add a risk factor and result in a significant loss. They need to understand that political factors have the power to change outcomes. It can also have an impact on government policies at the local and federal levels. Companies must be prepared to deal with the local and international results of the policy. There are many external environmental factors that negatively and positively affect the company. Business leaders must consider these factors and make decisions that minimize the impact of the external environment.
These factors include political, economic, social, technological, legal and environmental factors, also known as PESTLE analysis. The most obvious effects are changes in laws and regulations that affect your business. Taxes, in particular, can have a huge impact on your overhead and profit margins. Several international political factors influence business when a company grows globally. The same applies when international companies become competitors by expanding into national territories. Similarly, almost all of Cairo took to the streets for the ouster of Egyptian President Mubarak Hosni. After the 18-day revolution in 2011, the president was forced to resign. During this time, many companies have been negatively affected. That`s why political stability is crucial for businesses. The government intervenes politically in trade, may try to protect jobs or certain industries. Some industries may be considered essential for national security purposes, such as defence, telecommunications and infrastructure.
A country`s import and export may be affected by these national security issues, as some governments may not want advanced technological information to be sold to hostile foreign interests. Some governments use trade as retaliation when another country is politically or economically unjust. On the other hand, governments can influence trade to reward a country for its political support in global affairs. A company does not exist in a vacuum, separate from the rest of society. It is an integral part of the socio-economic and political milieu of modern life and, therefore, changes in this external environment can have mild to severe effects on your business. The judiciary is independent of political parties, as is the defence. If you`re a business owner, these situations can be particularly frustrating. While you may try to be proactive rather than reactive, the reality is that you can`t adequately prepare for the unknown – a situation that goes doubly crazy when political playmakers ignore the realities of business “on the ground.” Political change can be morally and emotionally stressful for an entrepreneur, as it can leave you completely helpless. For example, the recent communal unrest in New Delhi, which began during President Donald Trump`s visit to India.
Although the two have no connection, India and the United States have signed many trade agreements and, ironically, companies have been affected by these unrest. There are many ways in which political factors can affect businesses. The political factor is an external environmental factor that increases risk and can also lead to significant business losses. It can also change the overall bottom line, which is why companies should deal better with politics both locally and internationally. Many companies have someone specifically designated to deal with these politicians and political agendas. Political and economic systems are fully integrated, and the social revolution is always the precursor of the political revolution. 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. Because public goods are accessible and benefit everyone, companies often do not produce them because they do not generate profit. Governments could change their rules and regulations. This, in turn, could affect a business.
China entered the era of multilateral trade after formally joining the World Trade Organization (WTO) in 2005. This is an important move for China because China has fully implemented the principles of the market economy. But in practice, China is suspected of building superiority to compete with the strength of the US economy. The political structure, basic laws, rules, regulations and practices that are implemented derive from China`s political system and control state power, government, and state-society relations. On the basis of the Union of Workers` Peasants and the democratic centralism practiced by the people, show whether China is a socialist country and whether the primary system in the country is the socialist system. Public goods benefit businesses because they enable other businesses to create value through their use. For example, a government provides public education that produces qualified people who can hire businesses. The socio-cultural environment of the country can be influenced by political decisions Knowledge of global politics is also important because of international competition from foreign companies. However, the challenges of global politics can offer many opportunities. An effective trade strategy takes into account both globalization and national factors. Compared to corporations, governments have more power.
For example, governments can force individuals and businesses to pay taxes, whether or not it adds value. For example, when Starbucks arrived in India, it was mandatory to open a Starbucks store in the joint venture ship with Tata. Compliance with the country`s labour laws is mandatory for companies. However, complicating these laws will not help the government or businesses. 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. Politics can benefit businesses through value creation, but it can also hurt value creation. Whether through corruption, subsidizing domestic companies or the globalization of competitors, several challenges can arise that threaten the well-being of a company. China is particularly dangerous in terms of political risks. The possibility of nationalizing industries must be considered. In fact, this has already happened in China (1949). There is also a risk of confiscation, expropriation, currency inconvertibility and termination of the contract.
Currency devaluation and runaway inflation are possible scenarios in many countries that make the adequacy of insurance limits catastrophic as one of many potential problems. There is also a risk of personal harm or kidnapping to the company`s employees and a risk of extortion attempts for the company. A unique form of political risk occurs in China, and that is the constant struggle between the country`s central government and provincial and municipal governments over applicable law and its compliance or non-compliance. This makes it difficult for companies operating in China to know exactly what the rules are. How governments fulfill this responsibility has a significant impact on businesses. For example, to protect the well-being of citizens and ensure a living wage, a government can introduce a basic wage requirement. The United States is an example of a federal minimum wage of $7.25 per hour. Remember: politics is to business what winds are to a sailboat.
If they blow cheaply, you need to take full advantage of them, but if they inevitably change direction, you need to be able to adapt quickly. Ultimately, the political environment as an entrepreneur is just one of many drivers of change you have to deal with. There is no way to fully insure your organization against adversity in this context. Fortunately, however, it`s not all about the fall; As with all things in life, change can be a positive opportunity if you`re smart enough to take it. Another challenge in conducting international business is encountering situations where investments are withdrawn from a country. This can happen when governments take more power than they deserve.