The impact of the political environment on business


How does the political environment affect business?

Explain the importance of the different political environments in which companies operate. Analyze these differences critically, citing examples of how they can positively or negatively affect the business.


The political head of a democracy has the right as well as the responsibility to build the economic framework by which the various industrial groups conduct and manage their work. A business cannot exist in a vacuum. It is an important part of the political, social and economic environment (Goldratt 2017). If politics wants to take control and regulate the economy to promote public welfare, corporations also want to influence all democratic governments to their advantage. Many external factors such as political, social, economic and technological influence business both positively and negatively. The company is responsible for minimizing the influence of political factors when making decisions. Political and environmental factors in a state can have a huge impact on business and can also introduce risk factors for business to suffer (Tur-Porcar, Roig-Tierno) and Llorca Mestre 2018). The changes can be both positive and detrimental. Therefore, it is important to understand the potential impact of the policy on business. The purpose of business is to make a profit, and the purpose of the government is to ensure the stability and growth of the state. The main purpose of the essay is to show how the political environment affects business; its impact on organizations and the reciprocal relationship between the two parties.

The political environment can affect the business by making the market environment favorable for the business. These external factors can also pose a risk to the business. Therefore, companies must be agile enough to deal with external and internal political outcomes. Some political factors can completely change the scenario of business ventures. These are financial and economic policies. Raising or lowering taxes is an example of a policy outcome that can have a large effect on profit margins. For example, the Conservative Party in the UK and the Republican Party in the US support tax cuts that help businesses grow. The government has complete discretion to increase or decrease taxes on a particular business. UK Prime Minister Theresa May said the government would cut corporate tax to 17%, which would save big businesses billions of pounds (Mason 2019). UK coffee chain Starbucks paid just £5.9 million in tax and made £213 million in profit in 2017 paying just 2.8% tax (Sari and Hunar 2018). The decision will have a direct impact on the company; therefore, they should develop effective strategies to deal with such situations. Lack of political stability is another factor that has a direct impact on business. This factor can affect companies operating globally. For example, a political upheaval could suddenly take over a government. Such a situation would eventually lead to looting and riots. The case of Venezuela can be taken as an example, which is facing civil unrest in the country. As a result, the economy becomes stagnant and businesses are unable to manage their operations under these circumstances. So these situations will disrupt business as well as business in this state. Third, foreign regulations can also affect businesses. Every business must expand its operations beyond borders. However, the political context of the country can influence an organization’s desire to develop its activities in this area. Mpesa is a startup that has grown rapidly in Kenya compared to other countries. Abellon Clean Energy is a successful bio pellet company in India, but it has had difficulty establishing and growing its business in Ghana due to poor regulation. The government controls tax policies that can encourage a particular company to expand its business in that region. Similarly, tax policies can also prevent the industry from operating and expanding across borders (Slemrod 2016). Such changes are often initiated by governments trying to deal with challenges in other areas. This is widely known as the PESTLE framework (Pan, Chen and Zhan 2018). A good example of this is the Consumer Protection and Wall Street Reform Act, which was initiated by President Barack Obama in 2010 in response to the financial crisis of 2018. This measure was taken. to maintain political stability in the country. This decision has been targeted by critics who say it will make American companies less competitive (Lew 2016). However, he was removed from office by the Trump administration in 2018, which makes it clear that the politics of a place can seriously affect everyday affairs. Employment laws introduced by the government can also affect entrepreneurs. The law protects workers’ rights and covers all aspects of the relationship that exists between an employer and an employee. The code is complex and therefore also has many pitfalls (Subramanian and Megginson 2018). When the organization is in touch with new developments, it can steer the business in the right direction. However, those who are wrong will have to prepare for the consequences. Citing an example from Nike will make the concept clearer and show how political factors can affect business. Nike is a globally recognized brand known for its footwear, equipment, sportswear and athletic apparel. The US government has developed many policies to promote business growth. The company has low interest rates and stable currency along with a competitive tax regime and helps businesses grow and expand. The government has committed to transparency in its global chain, which has benefited Nike. At the same time, Nike is facing many problems in countries like Indonesia and Vietnam due to political unrest in these regions.

Examples of political factors affecting business

Xi Jinping, leader of the Communist Party and President of China, assures businessmen that their businesses will be protected and that the government will find new measures such as tax cuts and rescue funds. to ensure the growth of the business. He is China’s most influential leader trying to win the trust of capitalists at a time when most business owners are worried about their future economic growth. His communist party is trying to adopt a policy that encourages the development of the private sector. Mr. Xi has refused to accept suggestions that the private economy will end or that unions will be created to control businesses. He advocates the concept of substantial tax reductions for the private sector. It encourages the bank to provide loans and grants to private companies to solve their problems. Xi promises equal treatment to the private sector (Wang and Zeng 2016). He even appointed a local government agency to listen to individual industry requests and complaints. Xi is trying to stabilize the economy in the face of a hostile environment. Private companies contribute nearly 60% of China’s GDP; however, it is facing the brunt of the economic downturn. Private companies have always had a troubled relationship with the party because it is hostile to capitalism. Under Mao Zedong, many private companies closed down (Cumming, Rui and Wu, 2016.). After becoming president in 2012, Mr. Xi pledged to help private companies play an important role in economic activities. Party leaders fear that without the Communist Party, China will fall into chaos and fall prey to hostility. The relationship between the party and the private sector is now much more flexible (Naughton 2017). They do not interfere with their daily activities. The private sector can now manage the business and take responsibility for its decisions.

Canada’s political environment has weighed heavily on its economy. Political leaders should be more concerned with limited economic growth. Economic growth cannot cope with population growth. The election focused on minor issues related to phone bills and taxes levied on stores. Increased private investment, as well as government, is needed to address the economic crisis (Johnson and Smith 2019). Canada’s policies have caused the country’s economy to shrink by two points. The government implements policies that help change social behavior, especially in the business environment. For example, government using carbon fuel can tax it because it harms the environment. On the other hand, it can provide allowances and subsidies to companies using renewable energy sources (Brockmann, Genschel and Seelkopf 2016). Republicans are seen as pro-business because they still support limited government regulation of the economy. However, there are some exceptions. They closely monitor whether the for-profit organization is abusing the environment, taking into account union concerns, healthcare benefits and pensions. The party received support from business owners as well as capitalist investors. According to the republics, tax cuts will help economic growth during recessions. However, it reduces government aid, running the risk of missing essentials. When the wealthy no longer pay taxes, they benefit from tax breaks. They want a free market economy that leads to monopoly (Bendle. and Cotte 2016). Meanwhile, Democrats rely more heavily on government intervention to support welfare and other social programs, as well as public spending to regulate their economy while keeping the profit motive in mind. company profits. They argued that the minimum wage should confer the right to a living wage. They believe in a progressive tax system as opposed to the Republican Party’s regressive fiscal plan (Tella, Dubra and Lagomarsino 2016). After the UK left the European Union, it helped UK business owners think about business in a new and challenging way. After Trump became President of the United States, business owners hoped his tax policies would stimulate the economy. Trump has promised to strengthen and standardize regulatory agencies to revive the American economy. However, along with the immigration ban, the abandonment of trade agreements has created many uncertainties that hurt the US economy.

The importance of studying the political environment

In conclusion, it should be noted that business and politics are interconnected and politics can have a positive or negative impact on politics. Sometimes business and politics can clash to create and promote new jobs and a new economy. If necessary, politicians can take action against the company if it pollutes the environment and goes against the interests of citizens. Business owners need to be equipped to deal with political changes. When the policy benefits the company, the company must make the most of it; however, when it goes against business ethics, you must adapt quickly. It is difficult to measure the influence of companies on politics. However, it can be summed up that industry and businesses have built a space for themselves to boost their economic activities by winning the trust of politicians and decision makers. determined.


Bendle, n. And Cotte, j., 2016. Assumptions Of Rationality In Political Marketing: The Case Of The Republican Autopsy. Journal Of Nonprofit & Public Sector Marketing, 28(1), Pp.66-83.

Brockmann, h., Genschel, p. And Seelkopf, l., 2016. Happy Taxation: Increasing Tax Compliance Through Positive Rewards?. Journal Of Public Policy, 36(3), Pp.381-406.

Cumming, d., Rui, o. And Wu, y., 2016. Political Instability, Access To Private Debt, And Innovation Investment In China. Emerging Markets Review, 29, Pp.68-81.

Goldratt, e.m., 2017. Critical Chain: a Business Novel. Routledge.

Haendel, d., 2019. Foreign Investments And The Management Of Political Risk. Routledge.

Johnson, f. And Smith, k. (2019). Canadian Business Growing More Frustrated As Politicians Focus On Pocketbook Issues Over Economy. Financial Post.

Lew, j.j., 2016. Eight Years After The Financial Crisis: How Wall Street Reform Strengthened Our Financial System And Laid The Foundation For Long-Run Growth. Nyuj Legis. & Pub. Pol’y, 19, p.611.

Mason, b. (2019). Corporate Tax Cuts In Uk Save Big Business Billions Of Pounds. World Socialist Website.

Naughton, b., 2017. The General Secretary’s Extended Reach: Xi Jinping Combines Economics And Politics. China Leadership Monitor, 54, Pp.1-10.

Pan, w., Chen, l. And Zhan, w., 2018. Pestel Analysis Of Construction Productivity Enhancement Strategies: a Case Study Of Three Economies. Journal Of Management In Engineering, 35(1), p.05018013.

Sari, n. And Hunar, r.s., 2018. Analysis Method Of Transfer Pricing Used By Multinational Companies Related To Tax Avoidance And Its Consistencies To The Arm’s Length Principle (Case Study: Starbucks Corporation). Journal Of Business Strategy And Execution, 8(1), Pp.70-96.

Slemrod, j., 2016. Tax Compliance And Enforcement: New Research And Its Policy Implications.

Subramanian, k. And Megginson, w., 2018. Employment Protection Laws And Privatization. The Journal Of Law And Economics, 61(1), Pp.97-123.

Tella, r.d., Dubra, j. And Lagomarsino, a.l., 2016. Meet The Oligarchs: Business Legitimacy, State Capacity And Taxation (No. w22934). National Bureau Of Economic Research.

Tur-Porcar, a., Roig-Tierno, n. And Llorca Mestre, a., 2018. Factors Affecting Entrepreneurship And Business Sustainability. Sustainability, 10(2), p.452.

Wang, z. And Zeng, j., 2016. Xi Jinping: The Game Changer Of Chinese Elite Politics?. Contemporary Politics, 22(4), Pp.469-486.

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