The political environment in which international business decisions are taken by a firm consists of three important elements, namely, the home country political environment, the host country political environment, and the global political environment. These political elements listed may have either direct or an indirect influence on international business decisions and may also have either favorable or hostile impact to the activities of the international firm. While making a decision on the international investment, the business managers would prefer a political environment that was fully supportive of the interests of business.
1. Home Country Political Environment – As per the characteristics of an ideal world …show more content…
Host Country Political Environment - The host country policies governing the business decisions of foreign firms can range from the welcoming and supportive to the outright hostile. The political atmosphere tends to be hospitable where both perceived and actual benefits of hosting foreign firms outweigh their costs. The host country may develop its policies for easy FDI money transfer, and simplifying the permissions for construction of manufacturing facilities, which create employment opportunities in the host country and create other social benefits in the host market as well as from labour organisations. Sometimes, if the foreign firms contribute little or nothing to the well being of the nation and its society, then this may create unacceptable hostile behaviour from the business community and labour organisations. In extreme cases, this may lead to either nationalisation or the expropriation of the assets of foreign firms from the host country government and create a black dot on international investment decisions of the firms. Similarly, a breach of a stipulated code of conduct by international firms in a host country market may attract penalties and severe punishments.
3. Global Political Environment - This includes combined political situations of the home, host and third countries. The political atmosphere in a third country can have a major impact on the activities of international firms in ways that may not be immediately apparent. Depending on the form of integration