Political Factors in Business: Definition & Examples

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  • 0:02 Political Factors in Business
  • 0:19 Conceptual Framework
  • 2:45 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

Government actions and political realities often influence the success of a business. In this lesson, you'll learn about some of the political factors in business. You'll have a chance to take a short quiz after the lesson to test your knowledge.

What Are Political Factors in Business

Political factors, in the context of the external environment in which a business functions, are a type of external constraint acting upon a business. They're related to actions of governments and political conditions in the location where the business conducts business or seeks to conduct business.

Conceptual Framework & Examples

The definition sounds much more complicated than the concept really is. Let's break this down a bit. The first thing to recognize is that political factors constitute an external constraint on a business, which just means that the political factors that affect a business are often completely out of the company's control. For example, if war breaks out in a developing country where you just built a factory, there's not much you can do about the war, even though it is killing your business.

The second thing to recognize is the type of external constraint is political in nature rather than economic, even though the political can certainly affect the economic and vice versa. The most prevalent political factors relate to government activity and administrative practices of government. For example, legislation and regulations can force businesses to act in a certain manner or prohibit them from acting in a certain manner. Examples of laws that require a business to act in a certain way include the federal minimum wage law and occupational health and safety laws. An example of federal laws and regulations that prohibit certain business activities are environmental laws and regulations that limit the amount of pollution a business can generate at its factories.

As you probably know, there are exceptions to every general rule. Sometimes you can affect these political factors through lobbying the legislatures and regulators. In fact, some scholars claim that federal and state regulatory agencies are subject to regulatory capture. According to the theory, regulatory capture is a process where regulatory agencies become dominated and controlled by the very industries they are to regulate. For example, banking regulations are heavily influenced by the banking industry and often favor the banks rather than the consumers.

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