Political Environment

Definition >The political environment of the company includes national and international political factors which can affect its operations. >This category also includes the methods of thinking, and beliefs of all natures which can influence the behavior of governments and citizens opposing the company without them emanating directly from a government example: nationalism).

The Political Environment SYSTEM STABILITY POLICIES Legal and Political Environment

SYSTEM Political System Includes the structures, processes, and activities by which a nation governs itself. Political System Totalitarian state Democratic state

SYSTEM Totalitarian state Imposed authority Lack of constitutional guarantees Restricted participation Companies might need to pay bribes to government The business law is vague (Vogue = Uncertain ) Democratic state Freedom Rights Stable business environment thanks to laws  Freedom and no censorship Doing business seems to be a risky proposition Doing business in a democratic state seems to be safer than in a totalitarian state

SYSTEM Political Ideology Capitalist system Socialist system Private ownership of business is encouraged Socialist System Public ownership of business is the norm The political ideology affects - foreign government attitude towards profit repatriation(Return). - foreign government attitude towards foreign direct investment

Political relationships SYSTEM Political relationships Favourable political relationships foster(promote) stable business environments increase international cooperation in many areas lead to increase business opportunities and lower risk The World Trade Organisation can facilitate political relationships The WTO ensures that trade flows as smoothly, predictably and freely as possible.

4 types of political risk STABILITY Political Stability : « A subjective governance indicator aggregated from a variety of sources and measuring perceptions of the likelihood of destabilization. » Political Risk « The risk that political decisions or events in a country negatively affect the profitability or sustainability of an investment. » 4 types of political risk

STABILITY Distributive Political Risks « When countries revise their distribution policies to capture greater benefits from foreign companies. » Catastrophique(horrible) Political Risks « This is the Political developments that adversely affect the operations of all companies in a country. »

POLICIES TAXATION Governments use income and sales taxes which can vary from country to country.

POLICIES Intellectual Property « Property that results from people’s intellectual talent and abilitie. » Industrial Property « Industrial property includes patents and trademarks. » Copyrights « Copyrights give creators of original works the freedom to publish or dispose of them as they choose. » The problem is that laws in some countries are softer than in others

PRODUCT SAFETY AND LIABILITY POLICIES PRODUCT SAFETY AND LIABILITY « Product liability holds manufacturers, sellers, and others, including individual company officers, responsible for damage, injury, or death caused by defective products.  The United States has the toughest product liability laws in the world following by Europe. Enforcement of product liability laws differs from nation to nation.

Three Institutions The political system under democratic dispensation, like ours, comprises three vital institutins. Legislature Government Judiciary

Business Responsibility to Government Taxes Voluntary programmes Providing Information Government contracts Government service Political activity

Government Responsibility to Business 1. Establishment and Enforcement of Laws 2. Maintenance of Order 3. Money and credit 4. Orderly Growth 5. Infrastructure 6. Information 7. Small industries 8. Technology

Example

Hong Kong Facts British crown colony became Chinese territory in 1997 China is a Communist nation that values stability over individual freedoms Hong Kong is a Special Administrative Region Population: 6,980,412 (July 2007 est.)

Hong Kong Political Environment Capitalist System or Socialist System China has signed the "one country, two systems" formula 50 years contract until 2047 Relatively high political stability

Hong Kong Political Environment Totalitarian state or Democratic state Limited democracy The legal system based on the English common law Basic Law which approved in 1990 “Mini-Constitution"

Conclusion The political environment has an important impact on the business There is a large field with many factors which the companies have to consider if they want to expand overseas Political environment is not stable and can change quickly The political environment creates advantages and disadvantages