Introduction
Most multinational corporations analyse the political risks associated with investing in a particular country in order to avoid the risk of financial losses.
However, it should be noted that, effectively managing political risk can also be beneficial to companies in that it can help them take advantage of opportunities that they may not have identified if they had not carried out the risk analysis.
This political risk assessment of the US business environment by Honda Corporation will therefore be carried for two purposes; to identify the risks facing the company and to identify the benefits that the company might realise in the event that they invest there (Jakobsen, 2010).
Political environment
It is very clear that country politics and the politicians do not operate separately from other affairs of a country and therefore most of the political changes that are experienced in a country are as a result of the various changes in the economic, social and cultural aspects of the country.
This shows that even though most regulatory measures such as tax rates are decided upon by politicians, these regulations and considerations will generally be based on the economic conditions such as the economic status of the country and the effect these new regulations will have on the economy as a whole.
This shows the importance of analysing the political environment of a country in relation to its effect on the operations of a multinational company planning to invest there.
Rules and regulations established by politicians in the course of normal legislative duties impact on the activities of a business in terms of influencing the operational costs. These regulations also influence the marketing and distribution strategies adopted by a company in that particular country (Jensen, 2006).
In the US, one of the major features of the economy is the way the private sector is allowed a lot of freedom to the extent that most of the economic decisions that determine the direction and the extent of production of the economy are made by members of the private sector.
This is made possible due to the relatively low levels of regulations on business activities and the low levels of government intervention on the activities of the private business sector. The court system is also a major contributor to this freedom as it is charged with the responsibility of enforcing contracts and protecting the intellectual property of business entities.
This freedom has contributed to the growth of businesses in the US and to the rapid growth of the economy of the country (Jensen, 2008).
One of the major influences of political regulations in the US is the enactment of the Sarbanes-Oxley – 2002 which brought about stringent regulations on the financial reporting of companies operating in the country (Jain & Rezaee, 2006).
This has the implication that if the management of Honda decides to invest in the US, then they have to comply with the requirements of this act. Analysing the business environment of the US today reveals that the government has always tried to develop the country’s economy based on free competition and capitalism.
This has been done through establishing laws and regulations that promote business operations in the country as well as the entry and operations of multinational corporations like Honda.
Conclusion
Based on the evaluation of the current business environment in the US, Honda Corporation can enter the US market because the country provides a good political environment for the business operations of multinational corporations.
However, the management of the company must prepare to comply with the regulations of the Sarbanes-Oxley Act 2002 which requires the restructuring of the financial reporting process to allow more openness and transparency.
Competition is also stiff in the US and therefore Honda must develop quality products and services in order to survive in business.
References
Jain, P. K., & Rezaee, Z. 2006, The Sarbanes-Oxley Act of 2002 and capital-market behavior: Early evidence. Contemporary Accounting Research, vol. 23 no. 3 pp. 629-654.
Jakobsen, J. 2010, Old problems remain, new ones crop up: Political risk in the 21st century, Business Horizons, vol. 53 no. 5, pp. 481-490.
Jensen, N. M. 2006, Nation-states and the multinational corporation, Princeton, New Jersey: Princeton University Press
Jensen, N. M. 2008, Political Risk, Democratic Institutions, and Foreign Direct Investment, Journal of Politics, vol. 70, no. 4, pp. 1040-1052.