Implications of Political Factors on Decision Making - Example

Implications of political factors on decision making Student’s Name Subject Professor University/Institution Location Date Introduction In businesses, management accounting helps in making of effective decisions that will help the business realize the set goals and objectives. Management accounting does the work of controlling, directing, organizing and decision-making. It assists the managers of a company in decision-making by ensuring availability of relevant and necessary information. Decision-making is identifying and choosing of an alternative course of action. It is all about what is to be done and what is no to be done. It is a very important element in management. Right information is very necessary in order to make an effective decision. Those responsible for decision-making should have quality information at hand before making any decision. ( Bazerman & Moore 2012) This is to ensure that a good decision is made and that which will add value to the firm. There are several factors that influence making of a decision by managers of organizations. The factors are into two forms namely, Internal and external environmental factors of a business. Political factors are among the external factors affecting the decision-making. The study therefore seeks to analyze the effects of political factors on decision-making. Some of the political factors include the taxation, tariffs, trade barriers, political stability, monetary policies, environmental regulations and labour laws among others. Therefore, the change in these factors has implication on the decision making process. Legislation and regulations and Customer protection rule There are various legislation put in place by the government and implemented. These may be laws concerning the general environment within a country whereby laws are enforced in a bid to ensure that environmental standards meet the internationally agreed standards ( Aplin & Hegarty 1980). A government may put an initiative of waste recycling that has a legal backing. Therefore, a business should have to comply with this directive. The compliance to such regulation means that a business or a firm has to make a decision that will lead to fulfillment of that law. Generally, laws and regulation of a country keep on changing thereby influencing the decision-making processes of various firms. Therefore, decision-making should factor in any changes in laws and regulations. Government may come up with regulations concerning pricing of commodities. These regulations may be in line with consumer protection whereby low pricing is required. The firms affected therefore should have to make critical decisions in all of their operations that will enable reduction of production cost, which will enable them, charge low prices for their products and still generate profits. (Vaughn 1993). Employment law and Health and safety The government may establish laws that are targeting labour sector. The laws are directed toward protection of workers whereby various conditions and requirements have to put in place before any employment transaction is done. This may cut across to both the employee and the employer. The law may require the potential employee to have fulfilled certain conditions before securing any form of employment. This can be a directive that all workers to have taken both medical cover and insurance cover. Therefore, any firm that seeks to employ workers should ensure that decisions for hiring people comply with the laid down rule. According Costanza et al (1992) due to health concerns, a government can impose laws and regulation targeting various sectors in a country. This may be rules that seek to improve the working environment standards by ensuring that certain health and safety standards measures are met. The firms or industries may be required to provide the stipulated working gears to its employees depending on the sector of operation. They may be required to provide medical cover or insurance to their employees. There could be set standard for any working environment that firms should comply. Therefore, these regulations influences the way firms make decisions. This is because decisions formed should factor in those external regulations. Subsidies, Trade barriers and Tariffs’ Sometimes governments provide subsidies to various commodities in the economy. This may be a strategy to boost a certain factor in the economy. For instance, government may offer subsidies to fertilizer in a bid to encourage more production. A Subsidy to consumer goods aim at lowering prices of consumer goods. Thus, decisions made by firms will seek to ensure that the firm is able to cope with such changes. The firm will have to strategize on how to adapt to those changes without affecting its profitability. When government subsidizes certain commodities there may be serious implication to profit making organization that deals with such. These are trade restrictions imposed by a government. They oppose the free trade and include things like import licenses, embargo, import quotas, voluntary export restraints among others. a firm or a business need to be fully informed of the restrictions that a government has put in place. This is necessary if the firm or the business wants to engage in export or import transactions. Therefore, any decision made must ensure compliance of such restrictions to minimise the incidences of penalty of violation. Thus, trade barriers have an implication on making of a decision in firms. Because of that, firms or businesses have to come up with decisions that enable them to comply with such kind of policies. (Bureau, Marette and Schiavina 1998) Tariffs are tax levied on imported goods. They restrict importation of goods. A country uses tariffs when it wants to protect the local industries from stiff competition from foreign products. Foreign goods come into the local market at relatively lower prices thereby pushing the domestic producers out of the market. Therefore when making decision, some firms have to rely on whether there are tariff imposed on the products. This is especially by firms dealing with imports. When tariff are imposed then a decision to increase the prices has to be made in order cater the cost incurred from that tariff. When tariff are waived then a change of decision has to be made in order to get along with the change in taxation. Thus tariffs are significant in influencing the decision making in a number of firms. Expropriation This is an instance where a government takes away a private property with an aim of fulfilling of public interest. This usually happens without any compensation (Hamelin 2011). There a business that wants to engage in foreign market should therefore conduct a research on the likely countries where incidences of expropriation are not common. Therefore, a decision to operate in foreign market will be on whether there are incidences of expropriation. If a country has many expropriation practices, then a business or a firm will not decide in conducting a business in such a country. Thus, expropriation will influence a firm on making a decision to invest abroad. Political stability Businesses do well when a country has stable political environment. Firms’ experiences fast growth both in profit margins and in scale of operations. This is because of the smooth flow of operations with minimal disturbances. All factors of production are in reach and markets are easily accessible. Decisions made in this kind of environment are usually routine and have no major changes. However, in the case of political instability in a country, decisions made should seek to contain or address the situation. The decision may seek to change the marketing strategies to cope with the now volatile environment. In extension political instability limit the firms from making long lasting decisions. (Arriola 2009) Monetary policies These policies include nation’s currency exchange rate in relation with other nation’s currencies. They also include the money supply in an economy, which affect inflation. Thus, various level of the exchange rate affects the prices of commodities in a country. For instance if the country exchange rate is high the consumer pay lower prices on goods that are imported. The same applies, when the exchange rate is low imports goods are charged high prices. Thus, decisions made by firms should factor in these changes. When there is more money in circulation, the level of inflation goes up and has an effect on demand and supply forces. Therefore, decisions made by firms must consider the level of inflation and thus come up with a strategy that will cope with the situation.(Evans & Honkapohja 2003) Labour laws These are laws that concern the employer and the employee. They agitate for the rights of employees and stipulate the minimum acceptable conditions that employees are to work. They seek to prohibit child labour and to monitor the conditions under which employees work in. minimum wage regulation is part of the labour law. It also highlights cases of dismissal, discrimination and hours of working. All these have to factor in when making decisions in a firm. This is because; failure to comply will lead to serious penalties. Some labour laws stipulate that all the employers to join at least one trade union. Therefore, a firm has to join the trade unions or else face threat prosecution. Taxation Myles (2000) posits that taxations always influence the operation of various businesses in a country. Raising or lowering of taxes has many implications on various sectors in an economy. For instance if a government increases the Value Added Tax on goods the firms producing goods of concern have to raise the prices of those commodities. This decision made to increase the price of the products is because of the change made on that tax. Therefore changes in tax policies influences how decisions are made in firms or across all sectors of an economy. Thus, any change in taxation policies mean that a change in the approach to which decisions will be made. Possible change of political environment When tensions appear in the political environment making of decision is inevitable. This is especially when an expectation of instability in a country. This kind of environment instills fear not only to the existing businesses but also to the potential investors (Henisz 2000). This usually occurs during the election year whereby a new regime is to be voted into power. There is fear among the businesspersons on whether the new regime will treat them in a fair manner or will seek to exploits them. If it is perceived to occur conflicts then an interested investor in that country will then make a decision not to go for fear of losing the investments. a firm may also decide to stop some of the operations. Summary This paper provides a clear view of how various political factors affects the process of decision making function of the business firms. When the government makes laws or legislations about the consumers they directly affect businesses. Decision making, as discussed is a major element in any firm or company, since it the one that determines the direction in which the firm should take. For this reason in order for the firms to achieve the best, managers ought to have in mind all the threats as well as the strengths of the business by considering some of the factors within her environment before making any decision. In this study political factors have critically been looked into to find out how they affect the company’s decision making. Political instability is one of the major threats in decision making. Firm’s managers are forward-looking when making organizations decisions, therefore if they sense any form of political unrest in the future they may not be in a position to make long lasting decisions because they are uncertain about the future. Other factors such as consumer protection laws, taxes and subsidies as well as labour laws there are worthy to be considered when performing decision making function of management accounting. References Aplin, J C, & Hegarty, W H 1980 Political influence: Strategies employed by organizations to impact legislation in business and economic matters Academy of Management Journal, 233, 438-450. Arriola, L R 2009 Patronage and political stability in Africa Comparative Political Studies, 4210, 1339-1362. Bazerman, M, & Moore, D A 2012 Judgment in managerial decision making. Bureau, J C, Marette, S, & Schiavina, A 1998 Non-tariff trade barriers and consumers' information: The case of the EU-US trade dispute over beef European Review of Agricultural Economics, 254, 437-462. Costanza, R, Norton, B G, & Haskell, B D Eds 1992 Ecosystem health: new goals for environmental management Island Press. Evans, G W, & Honkapohja, S 2003 Expectations and the stability problem for optimal monetary policies The Review of Economic Studies, 704, 807-824. Hamelin, A 2011 Small business groups enhance performance and promote stability, not expropriation Evidence from French SMEs Journal of Banking & Finance, 353, 613-626. Henisz, W J 2000 The institutional environment for economic growth Economics & Politics, 121, 1-31. Myles, G D 2000 Taxation and economic growth Fiscal Studies, 211, 141-168. Vaughn, R G 1993 Consumer Protection Laws in South America Hastings Int'l & Comp L Rev, 17, 275. Read More