http://study.com/academy/lesson/political-influences-on-business-lesson-quiz.

html

Introduction
Let's begin with a general discussion of political influences on businesses. The political processes within a country
generate laws and regulatory requirements. Companies doing business within that country must follow the laws and
comply with the regulations or face legal penalties. Theoretically, the laws and regulations reflect the social values and
governmental objectives of the host country. Unsurprisingly, these will vary widely among countries. For example,
consider the different social, cultural, and political values of North Korea and Canada.

Even within a country, regional differences can lead to diverse laws, regulatory requirements, and political concerns.
These concerns influence your life, and mine, every day. For example, as I write this, I am drinking a can of
carbonated water. Printed on the top of the can is a notice that a ten-cent bottle deposit is required in my state.
Presumably, this is a state regulation designed to encourage people to recycle the can and avoid littering.
I also have a bottle of over-the-counter vitamins within reach. Inside I found a small, white sack labeled 'HARMLESS
ABSORBENT- DO NOT EAT.' Apparently, this reflects a concern at some level of government that I might deliberately
eat the sack. I guess I'll have to find something else for lunch! Let's look at some of the more important types of
political influences on business.
Political Stability
The political processes within a country can take many forms, from dictatorships to participatory democracies. Recent
history has provided numerous instances of civil war, revolution, and externally imposed regime changes. When a
political system is unstable, it is difficult to conduct even the simplest business activity. For example, in times of
political disruption, the banking systems are likely to be impaired or completely shut down. Routine activities such as
paying bills, arranging credit, buying merchandise and making capital investments become very difficult.

In times of political upheaval, uncertainty discourages new investment or expansion. For example, if there is the
possibility that a pro-business government could be overthrown by a socialist regime favoring state ownership of
business assets, foreign investment within the country is unlikely. Even in a country such as the United States,
changes in administrations or budgetary squabbles can influence business strategies.
Taxes
Political entities often use taxations as a means to promote or discourage certain business activities. For example, U.
S. federal income tax regulations encourage business investment by allowing accelerated depreciation methods and
tax credits. Similarly, state and local taxing authorities often allow reduced tax rates and tax credits to promote
business activities within their jurisdictions. Taxes, in the form of import duties and tariffs, are used by countries to
discourage foreign imports and competition.

https://quizlet.com/106368840/chapter-9-influencing-the-political-environmentflash-cards/
Why Business should be involved
-a pluralistic system invites many participants
-economic skates are high for firms
-business counterbalances other social interests
-business is a vital stakeholder of government

why business should not be invloved

-managers are not qualified to engage in political debate
-business it too big, too powerful
-business is too selfish to care about the common good
-business risks its credibility by engaging in partisan politics

Business as a Political Participant

many business executives and managers see their role in the political process as a vital to the
progress (and possibly survival) of their company

Stakeholder Groups in Politics

-various stakeholder groups, representing many varied concerns and politicians have a voice in
politics and the public policy process
-labor unions have a longstanding role in the US politics
-ALF-CIO, a federal of unions and the Teamster Union have formed political action committees to
influence electoral races and legislation
-Ad hoc coalitions: a diverse business organizations and interest groups band together in support
or opposition to a specific legislative or regulatory initiative

Influencing the business - government relationship

-business leaders and scholars agree that firms must participate in the political process
-stakes are too high for business not to be involved
-government acts on issues that affect basic operation of companies
-companies therefore must formulate a corporate political strategy
-involved the activities taken by organizations to acquire, develop, and use power to obtain an
advantage

Information strategy
businesses seek to provide government policymakers with information to influence their action
-lobbying
-direct communication
-expert witness testimony

Financial-incentive strategy
businesses provide policymakers incentives to act in certain way
-political contributors
-economic leverage
-political consulting aid
-office personnel

Constituency - building strategy

businesses seeks to gain from other affected organizations to better influence government
policymakers to act in a way that helps them
-stakeholder coalitions
-advocacy advertising
-public relations
-legal challenges

Lobbying
lobbyists communicate with and try to persuade others to support an organization's interest or
skate as they consider a particular law, policy, or regulation
-revolving door: when businesses hire former government officials as lobbyists and political
advisors

Direct communication
businesses invite officials to participate in activities that will improve government officials
understanding of management and employee concerns

Expert witness testimony

businesses provide facts, anecdotes, or data to educate or influence government leaders at
public forums like congressional hearings

The Business Roundtable

-one of the most effective organizations for promoting direct communication between business
and policymakers
-organization of CEOs of leading corporations
-studies various public policy issues and advocates for laws in believes foster vigorous economic
growth and a dynamic global economy
-consider issues like corporate governance, health care, and civil justice reform

Political action committees

independently incorporated organizations that can solicit contributions and then channel those
funds to candidates seeking political office

Economic leverage
occurs when a business uses its economic power to threaten to leave a city, state, or country
unless a desired political action is taken

Stakeholder coalitions
businesses try to influence politics by mobilizing various organizational stakeholders to support
its political agenda

Advocacy advertising
advertisements that focus on a company's views on controversial political issues

Trade associations
coalitions of companies in the same or related industries used to coordinate business' grassroots
mobilization campaigns

Legal challenges
business seeks to overturn a law after it has been passed

Levels of business political involvement

Level 3: aggressive organizational involvement - direct and personal
-executive participant
-involvement with industry working groups and task forces
-public policy development
Level 2: organizational involvement - indirect yet personal
-organizational lobbyist
-employee grassroots involvement
-stockholders and customers encouraged to become involved
Level 1: Limited organizational involvement - indirect and impersonal
-contributions to political action committee
-support of a trade association or industry activities

Managing the political environment

-the role of the public affairs department is to manage the firm's interactions with governments
at all levels and to promote the firm's interests in the political process
-8 out of 10 most frequently performed activities by public affairs officers and departments

involve a political action tactic

-more than half of the senior public affairs executives, 55% sit on the corporation's strategic
planning committee

A global challenge
-critical that managers be aware of the opportunities for and restrictions on business involvement
in the political processes in other countries
-other governments struggle with same issue as US - participation in the political environment,
campaign financing, and maintaining a fair ethical climate throughout the public policy process
-has resulted in campaign finance reform in many other countries

Business political action abroad

lobbying in China
-questionable actions by individuals employed at lobbying forms prompted government to close
offices
Interest groups in Japan
-major actors like big business, agriculture, and labor participate in the public policy process
Parliamentary elections in Lebanon
-candidates offered their competitors huge sums to withdraw from the race

Political Factors Affecting Business

There are many external environmental factors that can affect your business. It is
common for managers to assess each of these factors closely. The aim is always to take
better decisions for the firms progress. Some common factors are political, economic,
social and technological (known as PEST analysis). Companies also study environmental,
legal, ethical and demographical factors.
The political factors affecting business are often given a lot of importance. Several aspects
of government policy can affect business. All firms must follow the law. Managers must find
how upcoming legislations can affect their activities.
The political environment can impact business organizations in many ways. It couldadd a
risk factor and lead to a major loss. You should 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.
Changes in the government policy make up the political factors. The change can be
economic, legal or social. It could also be a mix of these factors.
Increase or decrease in tax could be an example of a political element. Your
government might increase taxes for some companies and lower it for others. The decision
will have a direct effect on your businesses. So, you must always stay up-to-date with such
political factors. Government interventions like shifts in interest rate can have an effect on
the demand patterns of company.
Certain factors create Inter-linkages in many ways. Some examples are:

Political decisions affect the economic environment.

Political decisions influence the countrys socio-cultural environment.

Politicians can influence the rate of emergence of new technologies.

Politicians can influence acceptance of new technologies.

The

political

environment

is

perhaps

among

the

least

predictable

elements in the business environment. A cyclical political environment develops, as

democratic governments have to pursue re-election every few years. This external element
of business includes the effects of pressure groups. Pressure groups tend to change
government policies.
As political systems in different areas vary, the political impact differs. The countrys
population democratically elects open government system. In totalitarian systems,
governments power derives from a select group.
Corruption is a barrier to economic development for many countries. Some firms survive
and grow by offering bribes to government officials. The success and growth of these
companies are not based on the value they offer to consumers.
Below, is a list of political factors affecting business:

Bureaucracy

Corruption level

Freedom of the press

Tariffs

Trade control

Education Law

Anti-trust law

Employment law

Discrimination law

Data protection law

Environmental Law

Health and safety law

Competition regulation

Regulation and deregulation

Tax policy (tax rates and incentives)

Government stability and related changes

Government involvement in trade unions and agreements

Import restrictions on quality and quantity of product

Intellectual property law (Copyright, patents)

Consumer protection and e-commerce

Laws that regulate environment pollution

There are 4 main effects of these political factors on business organizations. They are:

Impact on economy

Changes in regulation

Political stability

Mitigation of risk

Impact on economy
The political situation of a country affects its economic setting. The economic environment
affects the business performance.
For example, there are major differences in Democratic and Republican policies in the US.
This influences factors like taxes and government spending, which ultimately affect the
economy. A greater level of government spending often stimulates the economy.

Changes in regulation
Governments could alter their rules and regulations. This could in turn have an effect on a
business.

After the accounting scandals of the early 21st century, the US SEC became more attentive
on corporate compliance. The government introduced the Sarbanes-Oxley compliance
regulations of 2002. This was a reaction to the social environment. The social environment
urged a change to make public companies more liable.

Political Stability
Lack of political stability in a country effects business operations. This is especially true for
the companies which operate internationally.
For example, an aggressive takeover could overthrow a government. This could lead to
riots, looting and general disorder in the environment. These disrupt business operations.
Sri Lanka was in a similar state during a civil war. Egypt and Syria faced disturbances too.

Mitigation of Risk
Buying political risk insurance is a way to manage political risk. Companies that have
international operations use such insurance to reduce their risk exposure.
There are some indices that give an idea of the risk exposure in certain countries. The
index of economic freedom is a good example. It ranks countries based on how politics
impacts business decisions there.

2015 Economic Freedom Heat Map [Courtesy of Heritage.org]

The importance of observing the political environment

Firms should track their political environment. Change in the political factors can affect
business strategy because of the following reasons:

The stability of a political system can affect the appeal of a particular local

market.
Governments view business organizations as a critical vehicle for social reform.

Governments pass legislation, which impacts the relationship between the firm

and its customers, suppliers, and other companies.

The government is liable for protecting the public interest.

Government actions influence the economic environment.

Government is a major consumer of goods and services.

Example: How political factors affect Nike

Studies show that Nike has earned high profits from the growth orientated policies of US
government. The policies maintained low-interest rates. Currency exchange stability and
internationally competitive tax arrangements were also maintained. The company has also
benefited from government initiatives in terms of transparency in the global value chain.
One example of this is in membership of the Clinton administrations 1997 Apparel Industry
Partnership. Nike enjoyed changes in the political factors in many ways. However, political
pressures had a negative impact on Nikes employment practices.
The Political Environment
The political environment in countries throughout Europe and Asia is quite different from that of the United States. In the U.S.,
government intervention in marketing tends to be relatively minimal compared to other countries.
the U.S. is capitalist society, it operates an economic system where both the government and private enterprise direct the
economy. In other words, the U.S. government combines free enterprise with a progressive income tax, and at times, steps in to
support and protect American industry from competition from overseas. For example in the 1980s the government sought to
protect the automobile industry by "voluntary" export restrictions from Japan.
Nevertheless, governments outside the U.S. take this involvement one step further by influencing marketing programs within
organizations in the following ways: contracts for the supply and delivery of goods and services; the registration and enforcement
of trademarks, brand names, and labeling; patents; marketing communications; pricing; product safety; and environmental
issues.
Political Stability
Business activity tends to grow and thrive when a nation is politically stable. Although multinational firms can still conduct
business profitably, political instability within countries negatively affects marketing strategies.
Monetary Circumstances
The exchange rate of a particular nation's currency represents the value of that currency in relation to that of another country.
Governments set some exchange rates independently of the forces of supply and demand. If a country's exchange rate is low
compared to other countries, that country's consumers must pay higher prices on imported goods. Exchange rates fluctuate
widely and often create high risks for exporters and importers.
Trading Blocs and Agreements
US companies make one-third of their revenues from products marketed to countries in Asia and Latin America. The North
American Free Trade Agreement (NAFTA) also boosts export sales by enabling companies to sell goods at lower prices due to
reduced tariffs.
Regional trading blocs represent groups of nations that join together and formally agree to reduce trade barriers among
themselves. NAFTA is such a bloc. Its members include the US, Canada, and Mexico. No tariffs exist on goods sold between

NAFTA member nations. However, a uniform tariff is assessed on products from unaffiliated countries. In addition, NAFTA seeks
common standards for labeling requirements, food additives, and package sizes.
One of the results of trade agreements like NAFTA is that many products previously restricted by dumping laws - laws designed to
keep out foreign products - can be marketed. Dumping involves a company selling products in overseas markets at very low
prices, with the intention to steal business from local competitors. These laws were designed to prevent pricing practices that
could seriously harm local competition, as well as block large producers from gaining a monopoly by flooding markets with very
low-priced products and raising those prices to very high levels.
Almost all the countries in the Western hemisphere have entered into one or more regional trade agreements (see ). Such
agreements are designed to facilitate trade through the establishment of a free trade area customs union or customs market.
This eliminates trade barriers between member countries while maintaining trade barriers with non-member countries.

Treaties of the European Union

These treaties together have worked to form the political and economic bloc known as the European Union.

Tariffs
The most common form of restriction of trade is the tariff, a tax placed on imported goods. Customs unions maintain common
tariffs and rates for non-member countries. A common market provides for harmonious fiscal and monetary policies while free
trade areas and customs unions do not.
Protective tariffs are established in order to protect domestic manufacturers against competitors by raising the prices of imported
goods. Not surprisingly, US companies with a strong business ties in a foreign country may support tariffs to discourage entry by
other US competitors.
Expropriation
Expropriation occurs when a foreign government takes ownership of plants and assets. Many of these facilities end up as private
rather than government organizations. Because of the risk of expropriation, multinational firms are at the mercy of foreign
governments, which are sometimes unstable and can change the laws they enforce at any point to meet their needs.

Source: Boundless. Political Environment. Boundless Marketing. Boundless, 26 May. 2016. Retrieved 11 Jul. 2016

from https://www.boundless.com/marketing/textbooks/boundless-marketing-textbook/the-marketing-environment-3/externalfactors-31/political-environment-165-7603/

Political Risks in Philippines

Political risks are moving higher as a result of negative impact that rising rice
and other food prices are likely to have on society.. Although corruption is a
major problem in a number of Asian countries, it is more politicized in the
Philippines than in most.

The rise in food prices potentially poses an even bigger challenge for the government than corruption scandals. It has plenty of experience
fending off allegations of graft, but the need to respond to a growing number of people who are having difficulty putting food on the table could
be especially challenging. Cost pressures are likely to drive even more Filipinos to leave the country in search of better paying jobs abroad,
while at home there will be pressure to offer relief to the poorest Filipinos ,relief that government really cannot afford in economic terms but
which it might feel it has no choice but to provide due to political pressures.

Defects in the Political System

Continued graft and corruption in key agencies

Lack of transparency and accountability in governance

Regulatory capture agencies captured by vested interests

The weakness of the electoral processes prone to cheating and manipulation of results

Dynasties and traditional politics

Armed conflict

Worsening human rights situation, particularly extra-judicial killings of journalists and activists of the left

Apathy or withdrawal from political engagement especially at the national level.

Political Initiatives

Electoral Reforms.

Advocacy for Human Rights

Advocacy for Peace and Development

Anti-Corruption Advocacy

What Is the Political Environment in International

Business?
The political environment in international business consists of 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.

Common Political Factors

Let's look at some common political factors that influence the international business landscape. The type ofeconomic
system a country builds is a political choice. Foreign countries often will have different economic systems from your
domestic market and adjustments often need to be made to take these differences into account.
For example, a country may operate in a market economy where private individuals own most of the property and
operate most of the businesses. A market economy is usually the best economic environment for a foreign business
because of the protection of private property and contract rights.
Some countries lean more towards a socialist economy where many industries and businesses are owned by the
state. Operating businesses in this environment will be more difficult, but products can still be produced and sold as
people still pick their jobs and earn money.
A few countries operate under a communistic economic system where the state pretty much controls all aspects of
the economy. Conducting business in this environment ranges from difficult to impossible.
Of course, the reality is that all economies are mixed economies that take parts from two or more of the 'pure'
economic systems. For example, you can conduct business in communist China in Hong Kong and other special areas
where a market economy is allowed to operate.
Businesses also must often contend with different governmental systems. Examples include democracies,
authoritarian governments, and monarchies. Some governments are easier to work with than others.Democracies,
for example, are answerable to their citizens and the rule of law.
Authoritarian regimes are usually answerable to no one, including the law. It is less risky to conduct business in
democracies and constitutional monarchies, a monarchy with a constitution that protects the public and subjects
the monarch to the rule of law, than in countries with authoritarian regimes.
The next major factor is trade agreements. Countries often enter into trade agreements to help facilitate trade
between them. If your country has entered into a trade agreement with another country, conducting business in that
country will usually be easier and less risky because the trade agreement will provide some predictability and
protection. One great advantage, for example, is that your products will be subjected to fewer trade barriers that
serve as obstacles to exporting your products into the country.
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.
Businesses may also have to deal with informal trade barriers. Governments may impose regulations that aren't
primarily promulgated as barriers to trade but have the same effect. Examples can include specific product standards
and health and safety standards that businesses will be required to meet before the products can be sold.