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What Is The Political Environment Of Business? Definition & Factors

What Is The Political Environment Of Business? Definition & Factors

Political Environment Of Business

The political factors affect the market, which in turn, impacts the ability of an organization to run a business. The political inference can make a market less friendly for businesses. Basically, the government has a lot of power over businesses, and there is not much that companies can do about it. Hence, the political environment of business has significant meaning when it comes to organizational expansion. Wanna know more? Read till the end…

What Is The Political Environment Of A Business?

Political Business Environment

There are several ways in which political factors impact the business. Let’s first start with the political environment definition. The political factor or political environment is a powerful external environmental factor adding risk to a firm. In addition, it can also lead to a significant loss in business. This can also alter the result, as a result of which, companies need to strengthen themselves more while dealing with local and international politics.

A large number of companies appoint a person who deals with political agendas, and such politicians.

Why Is It Important To Consider The Political Environment Of Business?

Consider The Political Environment

Have you ever thought about why it is so important to consider the political environment of business? If you are struggling with the answer to this particular question, then RELAX; we are here to elaborate on the answer today.

To be very precise, the political environment creates the basis of the business environment in a nation. Imagine the government policies are not in favor of a business or political riots are at their peak in a country? Will the businesses be able to survive? The answer is NO; they won’t in any way. Hence, to ensure that the large scale, as well as businesses, sustain the domestic and international market, considering the political environment is fundamental.   

What Are The Elements Of The Political Environment Of Business?

Elements Of The Political Environment

The Political Environment of business is although a single term but is a full package of several factors that work behind it. The political environment is literally complex and consists of interconnected aspects which regulate business decisions. Let’s take a look at the 4 key political factors affecting business:

1. Terrorism

Terrorism is a very important political factor that affects the business environment drastically. For example, if terrorist activities regularly happen in a particular country or a province it deteriorates the business stability. The consumers’  demand drops considerably while the operational activities stop. Political chaos caused by communal riots derails a plethora of trade agreements, deals, etc which degrade the economy in the long run.

2. Foreign Policies

Foreign policies, treaties, and pacts often pose some allowances and barriers at the same time to international trade. In other words, they affect the trade relations between two or more nations. This is how foreign policies impact the political environment of a business.

3. Taxation Rules

The ways how the tax rate changes affect business growth. Governments periodically raise and lower the tax rates and bars of countries. Thus impact the cost price and selling prices of goods and commodities. Moreover, while creating annual reports, companies need to consider the changes in interest rates and tax rates of a business.

4. Foreign Trade Regulations

Business expansion happens only when trade regulations are in favor and act as a driving factor for business development. The expansionary trade policies uplift the trade activities and expand the business activities beyond the national borders. 

Some Real-Life Examples Of Political Environment In Business

Examples Of Political Environment In Business

There are numerous examples of the political environment in business affecting organizational performance. On the other hand, there are also instances where the political environment is an essential component of the business macro environment. National and international politics often boost or hamper business performance. Here are some real-life examples of the Political Environment of business that you should not miss:

  • Tesco’s performance is often affected by terrorist activities, which often happen in several provinces of the UK. This is an example of how the political environment of a business impacts a company’s performance.
  • Furthermore, the European Union is solely responsible for the member country’s trade policies. Also, it negotiates the agreements for its member countries. Since the EU represents a single voice of individual members unitedly, the negotiation becomes more strengthening. This has a positive impact on the political environment of business.
  • After Brexit, every industry of the European Union has been affected. Especially, when the UK had left the EU, each industry in the country faced exceptional challenges. The entire supply chain of different sectors experienced delays, cost rises, etc that impacted the overall business performance. This is another crucial example of the effects of the political environment in international business.
  • In addition to these, the tax-related changes, and government laws also hamper as well as shake the domestic and international market stability of the business.

Frequently Asked Questions (FAQ):

Q1. What Are Political Factors In Business?

“Political factor” is one of the key components of the PESTLE analysis model. It refers to the relationship between the government and business performance. Nevertheless, the Political environment of business and the Legal environment are also related to each other.

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They together affect how the businesses operate in the home country and also in the foreign market. Some of these political factors are as follows: labor law, tax policies, trade restrictions, political rivalry, tariffs, inflation rate, exchange rates, interest rates, etc.

Q2. What Is Political Environment Marketing?

In marketing, the political environment of business plays a crucial role as it determines how businesses would devise marketing strategies. Marketers require observing and analyzing the organization’s political environment that keeps on changing from time to time. This will help them to stay under the limelight in both the national and international markets. This is known as political environment marketing.

Q3. Which Of The Following Is An Example Of The Political Environment?

The question here is, which of the following is an example of a Political environment? The given options are:

  1. Advancement of new technology 
  2. Trade restrictions
  3. Environment protection laws
  4. Inflation

The correct answer to this question is Option B – Trade Restrictions. 

Wrapping It Up

To conclude, companies should keep tabs on their political environment of business. Political factors can have an impact on corporate strategies which eventually exert influence on the business performance. Politics should be monitored by businesses as a result of this.

That’s it about the political environment of business. Tell us what you think about our guide and let us know your views in the comment area.

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