Political Factors Affect Business Environment

There are many external environment factors affect business negatively and positively. Business managers must address these factors and make decisions that minimize the impact of external environment. These factors include political factors, economic, social, technological, legal and environmental also known as PESTLE Analysis.

Political factors and environment of a country impacts any business organization and can also introduce a risk factor can cause the business to suffer losses or compromise over its profit stream. Political environment can change because of the policies and actions of the prevailing government at every level, federal to local level. It is very important that a business should plan for the variability in the policies and regulations of the government to maintain a stable business environment.


Political factors are government regulations that influence business operation positively and negatively. Managers must keep a bird’s eye view over political factors. These factors may be current and impending legislation, political stability and changes, freedom of speech, protection and discrimination laws are factors affecting business operation and activities

How Political Factors Affecting Business Environment

Political factors can impact a business by making the market environment more or less friendly for that business. Typically, governments have a great deal of power over businesses and many times, there is not much that businesses can do about it.

Political factors can impact businesses in various ways. These external environmental factors can add in a risk factor which can lead to a major loss in business. These factors can change the entire results and hence, companies should be able to deal with both local as well as international political outcomes.

In addition to this, political factors not only have a direct impact but, it also impacts other factors as well which can have a significant effect on the business and its operating environment. There are certain factors that create inter-linkages in several ways like:

  • Political decisions affect the socio-cultural environment of the country.
  • Political decisions have an impact on the economic environment.
  • Politicians can also influence the acceptance of new technologies.
  • Politicians can also influence the rate of development of new technologies.

What Political Factors Affect Business Environment

With a change in administration policies, there arise political factors that can change the entire business scenario. These changes can be economic, legal or social and can include the following factors:

  • Tax and economic policies: Increasing or decreasing rate of taxes is a good example of a political component. Government regulations may raise the tax rate for some businesses and can lower the same for others due to specific reasons. This decision will directly impact businesses. This is why maintaining a strategy which can deal with such situations is very important.
  • Political stability: Lack of political stability within a country can significantly impact the operations of a business. This can especially be true for businesses that are operating on the global scale. For instance, a hostile takeover can take over a government. Eventually, such a situation will lead to looting, riots and general disorder within the environment. Such situations can disrupt business operations and activities which can have a major impact on its bottom line.
  • Foreign Trade Regulations: Every business has a need to expand business operation to other countries. However, political background of a country can influence the desire for a business to expand its operations. Tax policies that are particularly controlled by the government can induce a particular business to expand operations in different regions whereas; other tax policies can hinder the process of business expansion for some industries. Government initiatives, which have been designed to support local businesses, might work against international companies when the question is of their competitiveness in a foreign region.
  • Employment Laws: Employment laws are made to protect the rights of employees and include every aspect of employer/employee relationship. Employment law is an aspect that is very complex and involves several pitfalls as well. When businesses’ are in touch with the latest developments in this law, they can manage to take their business in the right direction however, those who get it wrong needs to be completely prepared for the expensive results it will generate. In modern corporations, employees are almost 98% of the company for the accomplishments or lack thereof and any changes within employment law will, of course, have a great impact on the business operations.

Example Political Factors Affecting Nike

Conducting a macro environment analysis, a good example of how political factors have affected a business can be associated with Nike. Nike is a globally recognized athletic apparel, footwear, sports accessories and equipment. Nike has been very fortunate as the government of the United States have formulated such policies that will foster the growth of businesses. The company is enjoying stable currency and low-interest rate conditions along with very competitive tax arrangements that help the company in advancing growth. US government has taken initiatives with respect to transparency in the global value chain and Nike has greatly benefited from this. However, Nike is facing hard times in its outsourced manufacturers in other regions like Indonesia, Thailand and Vietnam where there is an increase in political unrest.