Political Environment Of International Business

The political environment of a country is a critical component for international business. International law will recognize the sovereignty of a nation and by extension can allow foreign firms to conduct business in that country or deny foreign firms be right to conduct business in that country.

There are political factors which affect the recognition of sovereignty or the lack of recognition. Some of these political factors include legal and political differences, legal forces, trade and investment restrictions, government policies and regulations, restraining forces, and the political environment. The political and legal environment varies from a domestic environment. Complexity increases as the number of countries that a business chooses to conduct business increases. One of the most important considerations for firms is the political and legal forces that operate in a country where they currently conduct business or plan to conduct business. Certain foreign governments maybe unstable and at times there may be frequent and unpredictable changes in the regime. When this occurs certain industries can be nationalized, private property can be destroyed or seized, and normal business operations could be suspended.

A government that imposes restrictions on free exchanges of goods or services can be cumbersome to business success. Companies may be hindered in their successful abilities to function in a foreign country if there are no copyright protection loss, if the country has restrictions on licensing or franchising, or if there are strict restrictions on foreign direct investment. Companies can also struggle if there are strict import policies or various levels of testing and standards. Standards for one country may not be the same standards as another. Globalization can also be hampered by government policies that restrain cross-border businesses or restrain the internal factors of an organization. Government policies and regulations can hinder foreign companies from importing or exporting, or investing in a foreign country. Some companies may want to move their practice to a foreign country due to environmental laws or strict regulations which may or may not exist in an alternative country.

The political environment can create important policies including fiscal policy, foreign trade, industrial policy, and policy toward technology and foreign capital. It is important that businesses consider the current and potential future political environment of companies before they consider investing in them or moving their current operations overseas. These are all imperative considerations in order to maintain company assets and ensure profitability in the new country.

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