Impact of Political Enviroonment

EXPLAIN THE IMPACTS OF POLITICAL ENVIRONMENT ON INTERNATIONAL BUSINESS.

Define the Political Environment in International Business

Governments and politics play a large role in international business. The political environment in international business define as a set of political factors and government activities in a foreign market that can either facilitate or hinder a business' ability to conduct business activities in the foreign market. There is often a high degree of uncertainty when conducting business in a foreign country, and this risk is often referred to as political risk or sovereign risk.

Several aspects of government policy can affect business. All firms must follow the law and regulations in the country where business activities happened. This is where the managers must find how to upcoming legislation that can affect their activities. The political environment can impact business organizations in many ways. It could add a risk factor and lead to a major loss. We must understand that the political factors have the power to change results. It can also affect government policies at local to federal level. Companies should be ready to deal with the local and international outcomes of politics. The aim is always to take better decisions for the firm’s progress.

Impact of Political Factors On International Business

There are 4 main area are impacted by political factors on International business which is shown in the graph below:

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1. Impact on the economy

The political environment in a country affects its economic environment and economic setting. Several aspects of government policy can affect business and it may impact the performance of organizations in many ways when dealing in international business where it could add a risk factor and lead to a major loss. The implications of Taxation (tax rates and incentives), trade barrier, tariff and corruption are the examples of a political element in which affect the country's economy.

Taxation

Countries always have some sort of system for tax collection purposes. Governments levy taxes for various reasons. For instance, a tax can be levied on imported products to make the products more expensive than similar products manufactured locally, this is referred to as an import tax. Taxes are also a great source of revenue for governments.

Trade Barrier

Political risk can also translate in the change in tariff barriers, which make a company more or less competitive globally. A trade barrier is simply anything that makes it harder for a company to export products to a foreign country. Formal trade barriers are enacted by governments for the purpose of restricting imports to protect a country's domestic industries. Formal trade barriers include tariffs, which are taxes on imports that helps make domestic products more competitive, and product quotas that limit the number of products imported into the country.