The political environment can change radically. In 2018, President Donald Trump had a trade war with China. It has set tariffs and other trade barriers on Chinese goods. He believes that China`s unfair trade practices are responsible for the increase in the U.S. trade deficit, the theft of intellectual property and the forced transfer of U.S. technology. What companies need to focus on is how a country`s political system affects the economy, as well as that business and industry. To determine how local policies, rules and regulations affect their activities, they need to assess the balance. Depending on the expected duration of a business in a country and how easily it enters and leaves a country, a company can also assess the political risk and stability of the country. In fact, in order to attract foreign investment to their country, the government should make efforts for political stability. Companies need to assess whether a country believes in free markets, government control, or heavy interference in industry. In the United States, laws passed by Congress and numerous regulators cover areas such as competition, minimum wages, environmental protection, workplace safety, copyright, and patents.
For example, Congress passed the Telecommunications Act of 1996 to deregulate the telecommunications industry. As a result, competition has increased and new opportunities have emerged as traditional boundaries between service providers have blurred. Today, the dramatic growth of mobile technology has shifted the direction of telecommunications, which now face challenges in terms of broadband access and speed, content streaming, and much-needed network infrastructure improvements to meet ever-increasing data transfers. Below is a list of critical variables in the political environment: the party that obtains an absolute majority forms the government under the two-party system, while the party that obtains a relative majority forms the government in cooperation with other political parties. Candidates who do not have a majority form the opposition. Q: Only international companies should conduct a study of the social environment before entering the market. True or false? A: This statement is false. Local and national businesses also need to be aware of the social environment in which they will work. Sometimes their products could violate the social practices or culture of the population. This could cause a lot of harm to their product and their entire brand. Therefore, all enterprises should, as far as possible, examine the social environment of the economy in which they operate.
Countries as a region that are able to regulate or heavily arm companies to adhere to their rules and regulations, which could be directly enforced by the government based on their political and legal philosophies. This political system governs a comprehensive set of rules, regulations, institutions and attitudes. To determine how local policies, rules and regulations affect their activities, they need to assess the balance. A company can also assess the political risk and stability of the country to find out how long a company expects to operate in a country and how easy it is for it to enter and leave a country. 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 main political structure of the People`s Republic of China consists of two vertically integrated but interlocking institutions. China, as a country that proves that it is a fairly advanced country in Asia, has a unique form of political risk that occurs in China, and that is the constant struggle between the central state government and provincial and local governments over the applicable law and its compliance or non-compliance. China`s political stability has affected the level of foreign trade activity in many areas, including tourism and foreign investment.
While companies that do not yet operate in China are reluctant to invest in China, countries already involved in investment activities seem to be waiting for a quiet period during which economic progress will resume, believing that China will not expel foreign investors in the meantime. But at the same time, China`s economic growth and reforms since 1978 have dramatically improved the lives of hundreds of millions of Chinese, increased social mobility, and expanded the scope of personal freedom. This meant greater freedom of movement, employment opportunities, educational and cultural research, career and housing choices, and access to information. The political environment refers to factors outside the company that relate to the government or public affairs of a country and influence the companies. The government is very important in this regard. It may refer to central government, regional government, government agencies, independent government institutions such as Bank Indonesia and the Financial Services Authority. In some cases, transnational institutions such as the World Trade Organization, the IMF and the World Bank also fall into this category. In a broader sense, the term also includes various institutions that have the power to introduce directives and regulations. Changes in the political climate can pose significant risks. They can jeopardize the company`s strategy. War, political unrest and corruption are examples.
Others also have positive effects such as privatization and strict law enforcement. Federal agencies play an important role in business operations. If Pfizer wants to bring a new heart disease drug to market, it must follow the testing and clinical trial procedures established by the Food and Drug Administration and receive FDA approval. Before issuing shares, Pfizer must register the securities with the Securities and Exchange Commission. The Federal Trade Commission will punish Pfizer if its advertising promoting the drug`s benefits is misleading. These are just some of the ways in which the political and legal environment influences business decisions. Political-legal institutions: These are the parts of the non-economic environment of companies. The functioning of the legislative, executive and judicial bodies of government has a direct and indirect impact on the business environment. A strong legal system is essential to the success of any business. A country must therefore have a strong and functional legal system with laws that protect both consumers and manufacturers.
There are various other issues such as company law, licensing law, patent law, intellectual property rights. Companies, especially international companies, always study a country`s cultural and social environment before entering the market.
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