PESTLE Analysis

Political Factors of PESTLE Analysis Affecting Businesses

by Fahmina Ahmed Papia

What is Political Factor in PESTLE Analysis?

Political factors are the variables that directly affect business operations. The government and the political situation of a country are critical to analyzing while doing business. Because even a slight change in political circumstances can make the business environment vulnerable. That’s why countries with a politically stable environment are more flourished in business operations than countries with instability.

Political Factors of PESTLE Analysis Affecting Businesses

Political Stability Affecting Businesses

Political stability is very crucial for the betterment of a nation as well as its business sector. It affects the investment situation and consumer confidence. A politically unstable environment doesn’t let any business to grow. When political instability exists in a country, uncertainly rises, as no one gets a clue what will happen next and what precautions or measurements should be taken to avoid or mitigate the risks. Investors hesitate to put their money on business, production gets stopped, workers find it difficult to work, and people tend to spend less due to the uncertain situation. All these create obstacles to run a business.

Tax & Incentives Affecting Businesses

Tax is mandatory to provide by businesses and people of a country. And the amount of tax is decided by the government of a nation. States with less tax burden open scopes for businesses to grow and flourish, and the opposite happens when tax burden is heavier on businesses. It also encourages international companies to shift their business to another country, which affects the economy of a nation. It’s also essential to know how much and what kinds of incentives the government has to offer for managing new and small businesses even during the hard times. Businesses always expect the right balance of tax and incentives for any country.

Fiscal Policies Affecting Businesses

Through fiscal policy government of a nation controls the monetary policy and revenue and expenditure of the country. Fiscal policy is determined every year, where new rules, budgets, plans for aggregate demand, and supply are fixed. Predicting the flow of fiscal year is one of the significant tasks of businesses. Because this is how a government regulates the business operations of a nation. The policies affect the whole direction of consumer saving, investments, taxes, import and export, everything.

Type of Government Affecting Businesses

Different types of government rule countries around the world. Democratic, Autocratic, Communist, Theocratic, Totalitarian, etc. Each type has its own advantages and disadvantages. Although, at present most of the countries are under the democratic system where everyone gets the right to put their opinions. Businesses also fever this kind of government as it gives them the freedom to do things on their own, which couldn’t have been possible in an autocratic and totalitarian system. The type of government tells a business how it should take any steps or what will seem appropriate in the government’s eyes.

Trade Control Affecting Businesses

The political situation also determines the trade policies of a country. It can be a command economy, a mixed economy of capitalism. In a command economy, every control is on the hand of the government. No other businesses can do anything without the permission of the government. In capitalism, trade and industry are entirely under private/personal organizations. The government doesn’t intervene there. And in a mixed economy, some parts of the business are controlled by the government and some by private/personal organizations. That’s why, before doing any business, it’s necessary to understand the trade situation.

Regulation & Deregulation Affecting Businesses

It depends on the government how much power it will possess on itself and how much it will give to the businesses. Neither strict regulation nor complete deregulation is good for the business environment. It is better to keep a balance between these two so that no party can take unfair advantages. And it depends on the political situation of a country.

Corruption Level Affecting Businesses

A nation gets corrupted due to the fragile and selfish political environment. Corruption encourages unethical activities, and people seek to gets benefits through wrongful actions. It hinders the growth and entrance of new businesses, as power is transferred to only a bunch of people who does things that only for their own advantage. A corrupt nation fails to provide a healthy political environment that’s necessary for businesses.

Foreign Trade Regulations Affecting Businesses

Imports and export play an essential role in every country. But when the government imposes regulations and restrictions on foreign trade, it gets difficult for many businesses to operate their activities smoothly. Many countries around the world control the amount of product that’ll get exported or imported. As a result, many organizations or producers lack the chance to present their goods globally and earn foreign currency.

Bottom Line

Businesses can bring the political situation in their favor depending on the situation and relationship with the government. But it’s a tricky and risky part as government changes after a certain period and maintain a balance of every one of them is not easy. Also, the changes in government bring the chances of instability. That’s why it’s essential to keep an eye on the political factors for profitable business operations.

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References

  • http://www.mysecretatheistblog.com/political-factors-affecting-business.html
  • https://bizfluent.com/how-8369247-calculate-global-competitiveness-index.html
  • https://www.techgenyz.com/2020/02/11/social-and-political-issues-impact-businesses/
  • https://www.bbc.co.uk/bitesize/guides/zgfrpbk/revision/2