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Political and Economic Factors for Business Essay


Political Factors

The political factors that influence the manner in which business is conducted by organizations are basically the extent to which a government influences a country’s economy. There are several fronts from which a government can influence a country’s economy. These include political stability, formulation and implementation of social policies, trade regulation, tax policies, and entry mode regulation (Chaneta 2011, p.11).

The political stability or instability of a country is a key determinant of what happens in the business environment. When political temperatures are high in a country, the business environment becomes uncertain (Njanja, Ogutu, and Pellisier 2012, p. 196). Countries in which politically instigated violence occurs often experience high commodity prices. This rise in prices is due to the constraints in the supply and manufacture of the commodities because of the difficulty and risk involved in obtaining raw materials. As a result, businesses raise commodity costs to cover the risks involved. Additionally, due to the decline in the supply of commodities or raw materials during warfare, prices rise because the demand exceeds supply. When this happens, organizations are compelled to adjust their marketing mix to synchronize with the prevailing circumstances (Njanja, Ogutu, and Pellisier 2012). Thus the political stability or instability of a country causes a shift in the demand and supply balance thus affecting the pricing element of the marketing mix.

Another political factor that influences the marketing mix decisions of an organization is the formulation and implementation of social policies. These policies are formulated and implemented by governments to protect citizens from unscrupulous business activity (Chaneta 2011). Some organizations engage in business activities that sometimes do not auger well with the social well being of the people of a country. Under such circumstances, the government has to take the initiative of ensuring that necessary social policies are formulated to protect the citizens. For instance, a government may restrict the advertisement of alcoholic drinks on mass media or call on the manufactures of such drinks to indicate on the packages that the drinks are harmful to human health (Chaneta 2011, p. 15). Such policies influence the promotion media business can use and the extent to which the promotion can be done. They may also cause fluctuations in prices and dictate where a commodity can be sold.

The government determines the taxes to be paid by business organizations (Chaneta 2011). Depending on the country in question, different levels of government may have different tax regimes. This implies that some taxes can be levied at the national level while the others can be changed only at the local government level or in some cases at both levels. Taxes have a direct effect on prices because they are like additional expenses incurred in the process of getting a commodity in the market (Flannery and Protopapadakis 2002, p. 756). In effect, they cause businesses to raise prices to maintain their profits. This implies that the tax regime operated by a government influences the pricing of commodities. This way, the number and rate of taxes eventually determine commodity prices.

Trade and entry mode regulation are also among the political factors that influence the marketing mix of business. The government regulates the business environment across all the industries to ensure that business activities are carried out within the established legislations (Chaneta 2011). There are trading activities that are considered illegal in some countries while they are legal in others. A good example is the European advertising scene; it is marked with a lot of inconsistencies in legislation. For instance, it is illegal to advertise tobacco in Scandinavian countries or alcohol in France (Njanja, Ogutu, and Pellisier 2012, p. 199). Germany, on the other hand, bans any advertisement considered inappropriate. This shows that any organization seeking to operate within the various European countries has to adapt its advertising to fit in with the laws of the country of operation. There are commodities that can be produced and sold in Europe but cannot be advertised. As a result, organizations have to adjust their marketing mix in order to ensure that even without promotion; they are still able to sell.

Economic Factors

Like the political factors that have just been discussed, economic factors also have their own way of affecting or influencing the marketing mix decisions of organizations. This takes place through the action of elements such as the disposable income of buyers, credit accessibility, unemployment rates, interest rates, and inflation.

The disposable income of buyers determines their purchasing power (Page and Luding 2003, p. 151). This implies that buyers may be willing to purchase given commodities but their income cannot support the purchases. Under such circumstances, the business fraternity ends up with a population that is willing to buy but is not able to. This may force organizations doing business in such jurisdictions to ensure that the package and price their commodities in quantities and prices that are within the means of the disposable income of the target market. In so doing, the business fraternity is forced to adjust to the income levels of the target market (Page and Luding 2003). This adjustment basically means that the trading organizations’ marketing mix decisions are influenced by the disposable income of a target market.

Accessibility of credit both to the business fraternity and the population is another important economic factor that influences business. With access to credit facilities, businesses are in a position to conduct business without financial strain (Flannery and Protopapadakis 2002). As a result, the pricing, distribution, and promotion can be conducted with ease and at reasonable costs. The same applies to the people; if they have access to credit facilities, their purchasing power is enhanced such that they can purchase desired commodities with ease. However, it should be noted that the ease of using credit facilities is pegged on interest rates (Page and Luding 2003, p. 152). When financial institutions offer credit facilities at high-interest rates, they elicit little or no interest in the financial aid from businesses or individuals. This implies that reasonable interest rates lead to higher access to credit facilities and a positive influence on the conduction of business. Therefore the marketing mix of business will differ when interest rates are high and when they are low.

Apart from the disposable income and interest rates, the rate of unemployment is also an economic factor that influences the marketing mix decisions of organizations. Unemployment rates work in more or less the same way as disposable income. The unemployed are incapacitated in terms of their ability to purchase the commodities of their desires (Chaneta 2011). This implies that like in the case of disposable income, the target market may contain many willing buyers who lack purchasing power. In such a scenario, organizations have to fashion their business activities to accommodate the group. This dictates the manner in which marketing is carried out by businesses. In other words, it implies that a business has to carefully decide on which of the 4P’s to prioritize in order to succeed in trading within such an environment.

References

Chaneta, I 2000, , Web.

Flannery, MJ. and Protopapadakis, AA 2002, “Macroeconomic factors do influence aggregate stock returns”, Review of Financial Studies, vol.15, no. 3, pp. 751–782.

Njanja, WL, Ogutu, M & Pellisier, R 2012, “The Effects of the External Environment on Internal Management Strategies within Micro, Small and Medium Enterprises; Kenyan Case”, International Journal of Business and Management, vol. 7, no. 3, pp. 194-205.

Page, C & Luding, Y 2003, “Bank managers’ direct marketing dilemmas–customers’ attitudes and purchase intention”, The International Journal of Bank Marketing, vol. 21, no. 2, pp. 147-163.

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IvyPanda. (2020, October 10). Political and Economic Factors for Business. Retrieved from https://ivypanda.com/essays/political-and-economic-factors-for-business/

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IvyPanda. "Political and Economic Factors for Business." October 10, 2020. https://ivypanda.com/essays/political-and-economic-factors-for-business/.

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IvyPanda. 2020. "Political and Economic Factors for Business." October 10, 2020. https://ivypanda.com/essays/political-and-economic-factors-for-business/.

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IvyPanda. (2020) 'Political and Economic Factors for Business'. 10 October.

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