Political, Economic, Social, and Environmental Factors Affecting Businesses

Political factors

The political factors affecting businesses are government policies, political stability, wars, and trade regulations. Government policies impede or facilitate international trade. For example, government policies restricting imports adversely impact businesses exporting goods to that country. Furthermore, trade regulations affect businesses. For example, the retaliatory trade policies between the U.S and China impact firms in the two countries. It limits Chinese companies from investing in the U.S and vice versa. Political stability and wars influence the global business environment. Political stability allows businesses to operate uninterrupted.

In contrast, political instability and wars undermine international trade. For example, the Yemen war affects the global oil supply when Houthi rebels attack Saudi’s oil reserves. Low oil supply due to attacks on oil facilities causes global fuel prices to rise, resulting in an overall rise in prices of goods and services. War or political instability in one country or region can affect businesses worldwide.

Economic factors

The economic factors affecting businesses include interest rate, employment, inflation, and exchange rate. Favorable interest rates allow companies to acquire funds, creating an overall economic boom. In contrast, unfavorable rates undermine businesses by limiting access to finances. Low unemployment rates generate demand for goods and services as more people have a steady income to spend. An increase in purchasing power due to employment opportunities allows local and foreign businesses to increase sales and profits. The exchange rate plays a role in international trade. It impacts business decisions such as when to buy goods and which countries to import or export goods.

Social factors

The social factors affecting businesses are education, religion, lifestyle, and cultural traditions. Education levels determine the nature of the business to start or products to offer in a specific country. For example, low education levels persuade international schools to enter a country and start offering education services. On the other hand, low education levels discourage tech companies from investing in such as market due to a lack of skills.

Conversely, high education levels attract businesses to sell technology products or exploit the skilled labor force. Religion such as Islam blocks companies specializing in fashion, including Versace and Gucci. The demand for modern fashion trends in such countries is low because most people wear traditional, religious attires. Likewise, cultural traditions influence the nature of goods and services that a business can introduce in a market. A clothing ban in one country can affect businesses in other countries that relied on that market.

Environmental factors

The environmental factors affecting businesses include climate change, weather, and natural disasters, or otherwise. Climate change causes drought and famine, impacting diverse businesses, including the hospitality industry. Due to drought, restaurants are susceptible to a decline in food products, forcing them to serve fewer customers and prepare limited dishes. Some restaurants in developed countries rely on agricultural products from developing countries, meaning that a drought in the latter affects businesses in the former. Weather conditions have a similar impact on businesses.

Furthermore, extreme weather conditions such as snowstorms and hurricanes impact businesses in diverse ways. For example, a snowstorm in Alaska affects the global supply chain by preventing cargo planes from landing or taking off from one of the primary global logistic hubs. This affects the shipments of products to customers around the globe. Disasters natural or otherwise impact business performance and operations. For example, the Ever Given ship disaster at Suez Canal affected businesses in Europe, Africa, and Asia by delaying goods delivery. https://www.cnbc.com/2021/03/29/suez-canal-is-moving-but-the-supply-chain-impact-could-last-months.html.

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