Factors of Microenvironment that Help Business Growth
Discuss about the Political Factors Affecting Business.
The aim of this essay is to discuss the importance of analyzing microenvironment in the context of global business of the world. There are four chief factors that help the business grow in the international market. These are political, economic, social and legal factors that describe a framework of the microenvironment factors utilized in environmental scanning components of the strategic management (Collins 2018). The successful global organizations conduct a strategic analysis and market research before they enter any country’s market and use this tools for their external analysis. It this macro-environmental factors help the companies to understand the market growth, business position direction as well as potential for their operations. These factors are important to be analyzed as they may affect the business both positively or negatively. As the aim is to make better decisions for the firms, the managers want to minimize the impact of the external factors on business (Vahlne and Johanson 2017). Therefore, the importance of external environment analysis is so important. The aim of this essay is to discuss the importance of political factors in the decision making process and the success of the firms.
The political factors or environment of any country have strong impact on the business organizations and capable to introduce risk factors which cause the business to suffer huge losses and compromise over their profit stream. This factor among all is most important because political environment of a country can be changed at any point of time. with the change of the government, the existing policies along with associated actions also change at every level (Müller et al. 2017). Therefore, it is mandatory for the firms to plan following the variability in the policies and regulations of the government for maintaining a stable business environment.
Despite the fact the other macro environmental factors are also important but these economic, social and lead gal issues all depend on the change of government and the policies (Devereux 2018). Economic growth of a country relates with the interest rates, exchange rates and inflation rates which are the directly connected with the business operations. This is because interest rates affect the companies’ cost of capital which regulate the growth and expansion of the companies. The exchange rate accepts the costs of exporting goods, supply and price of imported goods in the economy but all will have positive impact in the growth of the firms when the government policies will be positive (Mont 2018).
Importance of External Environmental Analysis for Effective Business Decisions
Social factors include population growth rate, age distribution, cultural aspects and career attitudes. The social trends of the country can affect the demand of the companies’ products as well as the operations of the firms. However, the companies can adapt different management strategies to cater the demands (Rogers 2018). However, the political factors are closely linked as the education and career opportunities of the population which build effective workforce for the firms. Government ownership affect the demand of the population and people have to buy what the government want or make available for buying.
Technological factor of a country in this global context has an important place. This is because the process of automation in the firms, technology incentives and the rate of technological changes are vital for the firms to grow in production and processing their products and services. These may determine the barriers to entry in the markets, minimum efficient production level as well as encourage the outsourcing decisions (Shirodkar and Mohr 2015) In addition to this, the technological changes can effectively manipulate the costs, quality and innovation. However, changing the firms’ procedure and shift to advanced technology greatly depend upon the policies and regulations of the government without which the global companies cannot introduce advancement in their production processes.
Political factors influence the business of the country in such a way that many a cases, the business do not have much to do about it. These factors can add extra risk in the business which may lead to major loss in the business (Khuong and An 2016). On the contrary the government policies can be supportive for the companies too. According to the theory of Porter, there are chiefly five forces which shape the competition within the industry of a country which are regulated by the trade barriers and powers of the companies and the markets. These elements are purely regulated by the government policies which provide some predictability and protection. Through trade agreements, the countries facilitate the trade among themselves by which the foreign countries get opportunities to enter the new markets (White 2018). Moreover, political support helps the companies face fewer trade barriers to export their products in other countries.
Tax and economic policies are completely dependent on the political decisions. Government regulations can raise tax rates or lower them which directly affect the sales and profit of the companies (Collins 2018). The employment laws are made by the governments to protect the rights of the employees. This is a quite complicated aspect which may affect the business decisions of the companies. Through protecting the employee rights, the business can move in a right direction and can be free from the issues of forced labor or unpaid labors. The government policies to offer educated, skilled yet cheap labors can attract the business organizations which support the interests of both the governments as well as the organizations. In addition to this, the government policies regulate the trade barriers which balance the competition in the markets (Shearer 2018). Through tariffs, the government can close the entry of the foreign companies to enter the domestic market. This is the reason why the countries need to be always ready to face such challenges and adopt to overcome such barriers.
Political Factors: Most Important and Its Impact on Business
The article Amazon has lots of company as Trump slams ‘stupid’ businesses by Michael D. Shear and Cecilia Kang published in 4 April 2018 has described the recent political issues occurring in the USA which have greatly affected the global business organisations including Amazon (Kang 2018). To the authors of this article, the political criticism on the performance of the global brands has a far reaching effect than can be perceived. The US president’s idea of business has proved to be a negative factor for the business firms operating in all over the world include g the US. The tremendous pressure on the tech firms, automobile industries, military contractors, financial firms, mobile phone corporations, drug companies, air-conditioner manufacturers, media companies, sports leagues and most importantly the Wall Street giants have changed the face of the political benefits which these firms have been enjoying so forth. To the authors, “Lately, Trump’s anti-business rants have become particularly menacing and caused the stocks of some companies to plunge”. Despite the fact that many of the political leaders have clash with the business industries ns interests but what the IUs president has been doing in defaming the global brands are not supported by the US chamber of commerce. To the experts, this issues of antitrust have seriously harmed the reputation of these firms which has affected the sales of these companies. This political issues can have an important impact on the market where the other global companies will not eager to enter the US market.
On the contrary, the article named “ACT businesses most confident in Australia, survey finds” by Blake Foden published in 17 April 2018, has described how the governmental policies can change the face of business as well as the regional economy (Foden 2018). In this particular article one can find how political stability and support can be beneficial for both the companies as well as the country. Australian Capital Territory government has started to implement new policies which is proving the businesses the certainty that they expect from every regional markets. Though a strong education system the government has been ensuring career opportunities so that the skilled labors do not leave the place for unemployment. Despite the fact that the government has been facing the issues of tax increases and worker’s compensation, the business certainty has shown big jump in the survey conducted in December 217. According to the author, “The survey, which reflects the view of 1000 small and medium-sized Australian businesses, shows businesses in the ACT and Tasmania share the most positive outlook at +54 on the index”.
Other Macro-Environmental Factors are also Important
Therefore, it can be concluded that the political factors are the most important environment which may affect positively or negatively. Companies must always be ready to deal with this local, national as well as international consequences of politics. Any type of changes in the government policy can make up the political factors which can impact on the factors like economic legal and social. As discussed in these two articles, criticism by the highly influential political leader can be effective to enhance risk factor from the companies doing business in the global market. Similarly, political stability and support can increase the certainty level of the trade which benefits the companies as well as the economy of that region.
References:
Cohn, T.H., 2016. Global political economy: Theory and practice. Routledge.
Collins, T. 2018, What would political reforms mean for the Ethiopian success story? Ethiopia’s economic success over the last 20 years has been based on a state-led model, but now, as talk of political reform emerges, economic change could also be in the air, IC Publications Ltd.
Devereux, M.J., II 2018, “The Impact of Tax Reform on Moldmaking”, MoldMaking Technology, vol. 21, no. 3, pp. 38-39.
Foden, B. (2018). ACT businesses most confident in Australia, survey finds. [online] The Sydney Morning Herald. Available at: https://www.smh.com.au/business/the-economy/act-businesses-most-confident-in-australia-survey-finds-20180417-p4za04.html [Accessed 12 May 2018].
Kang, M. (2018). Amazon has lots of company as Trump slams ‘stupid’ businesses. [online] The Sydney Morning Herald. Available at: https://www.smh.com.au/business/companies/amazon-has-lots-of-company-as-trump-slams-stupid-businesses-20180404-p4z7px.html [Accessed 12 May 2018].
Khuong, M.N. and An, N.H., 2016. The factors affecting entrepreneurial intention of the students of Vietnam national university—a mediation analysis of perception toward entrepreneurship. Journal of Economics, Business and Management, 4(2), pp.104-111.
Mont, J. 2018, China conundrum: balancing risk and reward: From White House intervention to tough new cyber-security laws, doing business in China is becoming even more difficult. Joe Mont has more, Wilmington Compliance Week, Inc.
Mosco, V., 2014. Political Economy. In The Routledge Companion to Global Popular Culture (pp. 35-44). Routledge.
Müller, S.D., Saunders, C.S., Mathiassen, L. and Kræmmergaard, P., 2017. Political Maneuvering During Business Process Transformation: A Pluralist Approach. Journal of the Association for Information Systems, 18(3), p.173.
Rogers, E. 2018, Democrats Unhappy Over Trump Economy; President’s Pro-Business Policies And Attitude Have Had Turbo-Charging Effect; OP-ED, Hartford, Conn.
Shearer, P.S. 2018, Will steel tariffs lead to trade war?, Penton Media, Inc., Penton Business Media, Inc. and their subsidiaries, Minneapolis.
Shirodkar, V. and Mohr, A.T., 2015. Explaining foreign firms’ approaches to corporate political activity in emerging economies: The effects of resource criticality, product diversification, inter-subsidiary integration, and business ties. International Business Review, 24(4), pp.567-579.
Vahlne, J.E. and Johanson, J., 2017. The internationalization process of the firm—a model of knowledge development and increasing foreign market commitments. In International Business (pp. 145-154). Routledge.
White, J. 2018, Russia launches tax amnesty before CRS comes into effect, Euromoney Trading Limited, London.
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