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How Do Political Issues Affect International Business?

by Latisha AndersonJune 16, 2021
How Do Political Issues Affect International Business?

The business environment is very dynamic, and governments can change on a dime to suit the needs of their constituents. Businesses must be able to adapt quickly in order not to lose profit or worse go out of business because they were unable to effectively plan for these changes. In this article, we are going to discuss how do political issues affect international business.

Impact of political issues on the Economy

The economic environment can affect the performance of an international business organization. The United States has seen different policies from Democrats and Republicans, which means that your taxes may be higher or lower depending on who is in office. If you want to grow as an individual entrepreneur, then it's important for you to pay close attention to how government spending might change under either party!

Changes in Regulation

Governments are often the most powerful governing body in a country. They have rules and regulations that can affect businesses, such as when they become focused on what's happening with compliance or introduce new laws to make companies more accountable for their actions. One example is from 2002 after accounting scandals happened throughout America - Congress passed the Sarbanes-Oxley Act compliance regulation which was a response to public outcry over corporate corruption

Political Stability

This is a very serious topic and you should never underestimate the power of political instability. What might seem like just an uprising, could be much more than that if it gains traction in other parts of the country or spills over into nearby countries. When this does happen your business will face dire consequences with rioting, looting, and general disorder hampering operations.

In order to avoid such pitfalls - make sure your company’s international footprint covers all potential hot spots.

Mitigation of Risk

One way to manage political risk is to buy political risk insurance, which organizations with international operations use in order to mitigate their risks stemming from any sort of instability. There are indexes that can show you the degree of governmental interference an organization might experience within certain countries; for example, there's an "Index on Economic Freedom" which ranks countries based on how much they allow businesses' decisions to be dictated by politics and not economics or free trade agreements.

Analysis Tools

A company should always anticipate the effects of government policies on their business. PEST analysis is a model that analyzes political, economic, social, and technological factors which could affect your cost or difficulty with doing business in an area. The input side includes things like politics whereas there are indirect influences from a policy such as technology or legal enforcement for example - these all have to be taken into consideration when looking at any possible risks according to what you want out of it!

FAQ’s

How do political factors affect the business?

The political environment has the potential to create risks for your business and impact operations in a number of ways. For example, you might see changes in taxation policies that will either increase taxes on some businesses or lower them for others.

What are the two types of major international business risks?

For businesses, the major international risks include political risks and foreign exchange. Foreign exchange risk is actually the risk of fluctuation of currency value, usually related to appreciation in the domestic currency that is relative to a foreign one.

What are political factors?

The laws and regulations that govern the activities of a business are often outside of its control, but they can be beneficial to know when looking at your company's long-term goals.

How do legal factors affect a business?

Legal factors are important to a business. They can affect how an organization interacts with the customer, their inventory and product line, or even what they sell altogether!

What is exchange rate risk in international business?

When trading internationally, it is important to understand the risks that are associated with foreign exchange. Foreign Exchange Risk refers to losses incurred due to currency fluctuations and can affect investors who trade in international markets as well as businesses engaged in an import/export of products or services across multiple countries.

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