Political policies can impact businesses in several ways. When regional laws and regulations change abruptly, this can impact the growth and expansion of your business. That’s why entrepreneurs must familiarize themselves with the effects of political policies on their business.
Changes in governmental policies can have economic, legal, and social consequences. They can also take a toll on the productivity and finances of a company. Political policies could pose a risk factor and lead to significant loss. Here are a few policies that could impact your business domestically and internationally.
Taxes
Taxes can have huge implications on spending and business functions. Taxes can impact economic growth, employment rates, and entrepreneurship. A government can implement a tax policy that affects the business environment and growth. For example, complicated taxes mean more tax lawyer expenses for small businesses. Foreign investment, on the other hand, is thwarted by high taxes, which ends up driving out domestic investment, making it less profitable.
Tax exemptions on a particular business sector can trigger investment and growth, giving businesses more flexibility to do more with their money. High taxes on imported goods, for example, can encourage local production of the same imported goods. In contrast, increased local taxes on raw materials can hamper domestic production.
Political Stability
Political policies created in a stable country will differ from those formed in an unstable one. If a government is politically stable, it will make business-friendly decisions that attract investors and promote the expansion of local businesses. Political instability can contribute to riots, looting, and general disorder within the government. When such situations occur, they disrupt the daily operations of businesses and impact their financial prospects.
Foreign Trade Regulations
When a business wants to expand its operations to other countries, it must familiarize itself with foreign trade regulations and rules. Tax policies play a pivotal role in inducing the expansion of a business or hindering its growth.
Some governments have initiated policies to support local businesses, while others formed policies that worked against international companies, hindering foreign investment. Government initiatives that support foreign trade increase the number of markets available to companies to display their products, increasing the production and sale of products locally and internationally.
Change in Labour Laws
A change in the policy of labour laws can impact businesses in many ways. At times, a change in labour laws is demanded by workers. While other changes are pushed by the government itself. When a change happens in labour laws, businesses need to familiarize themselves with these laws and find ways to comply and adapt.
A change in political leadership can also impact labour laws. Not all changes in labour laws are determinantal for the growth of a business. Sometimes labour laws can push for a raise in the minimum wage. Others can provide enhanced protection for workers with disabilities, or enhance maternal rights.
Setting Interest Rates
Government policies can impact and influence interest rates. For example, an increase in interest rates can increase the cost of borrowing. A rise in interest rates can reduce a business’ ability to service and manage debt. The rising cost of higher interest rates can lead to decreased consumer spending. Low interest rates, on the other hand, can attract investment as businesses increase production.
Governments can also influence interest rates by printing more money, which could lead to inflation. When there is a high level of inflation, this increases the cost for businesses, and leads to higher consumer prices. Inflation has several ramifications on the growth of a business, often leading to an increase in the value of assets, making it difficult for companies to compete, which leads to lower profits.
Understanding the local governmental political policies is critical to the success of your business. Without knowing the impact these policies have on your business, you couldn’t expand locally or globally. Proficient knowledge of global political policies is imperative, especially if you want to take your business to the next level and compete with foreign companies.
When you familiarise yourself with these policies, you can develop an effective business strategy to mitigate financial loss and produce multiple growth opportunities!
David Messiha | Staff Writer
