Political Environment

Poppy S. Winanti
Email: poppysw@ugm.ac.id
Website: http://poppysw.staff.ugm.ac.id

OVERVIEW
Context
Understanding Business Environment
Key environment of Indonesian business
Understanding Politics
Political system & environment
Interaction of Business, Government, and the Public
Group assignment

UNDERSTANDING BUSINESS ENVIRONMENT

Environment is the total of several external and internal

forces that affects the functions of business.

Every business organisation principally consists of

internal environment factors and set of external
environmental factors.

Environment factors influence to business directly and

indirectly that control, manage and administration of
business activities in the organisation.
(Hirriyapa, 2008)

THE KEY ENVIRONMENT OF INDONESIAN

BUSINESS
Economic
development
Domestic
Political

Demography

International
Political

Social and
Cultural

Firm
Monetary and
Fiscal Policies

Governmental

Information
and
Processing
technologies

Industrial and
Sectoral
Policies

Regional
Economy

Natural
Environment

POLITICAL SYSTEM

ENVIRONMENT

N
P

Demands

Feedback
Conversion

Support

Feedback

Decisions
Policies
Laws

U
T
P
U
T

ENVIRONMENT
[Source: Masoed, n.d]

BUSINESS-GOVERNMENT RELATIONS

Recognition of the role

that nonmarket factors
play in competitive
strategy and firm
performance

Firms actively utilise

political strategies to
influence government
policy and obtain an
advantage

(Shaffer & Hillman, 2000)

GOVERNMENTS ROLE IN INFLUENCING

BUSINESS
Prescribes the rules of the game for business

Purchases business products and services

Uses it contracting power to get business to do things it
wants
Is a major promoter and subsidizer of business
(Bakhsheshy, n. d)

CONTD
Is the owner of vast quantities of productive
equipment and wealth
Is an architect of economic growth & a
financier.
Is the protector of various interests in society
against business exploitation
Directly manages large areas of private
business.
Is the repository of the social conscience and
redistributes resources to meet social objectives
8

GOVERNMENTS PERSPECTIVE
How to regulate businesses in an eective way

What governments need to do in order to guarantee

public goals legal obligations
How governments can be responsive in order to
promote business creation and stimulate economic
growth by making high quality business regulations
(Nijsen, et. al: 2009)

REASONS FOR REGULATION

Natural
monopolies

Ethical arguments:
achieve social goals

Negative
externalities
Market
failure

(Bakhsheshy, n.d)

10

TYPES OF REGULATION: ECONOMIC

Economic regulations: aim to modify the normal operation of
the free market and the forces of supply and demand
Includes regulations that:
Control prices or wages
Allocate public resources
Establish service territories
Set the number of participants
Alocate resources

(Bakhsheshy, n.d)

11

TYPES OF REGULATION: SOCIAL

Social regulations: Aimed at such important social goals as
protecting consumers and the environment and providing
workers with safe and healthy working conditions
Includes regulations which apply to all businesses:
Pollution laws
Safety and health laws
Job discrimination laws
And others that only apply to certain businesses
Consumer protection laws for businesses producing and selling
consumer goods

(Bakhsheshy, n.d)

12

BUSINESS PERSPECTIVE (1)

How does a rm decide what its position on a public
policy should be?
How does business-government relations inuence
the corporate performance?
How do individual business units compete for
resources to implement political strategies, including
both capital and managerial eort?

13

BUSINESS PERSPECTIVE (2)

Political capital is an important and scarce business
resources
political capital the ability to inuence government policy
Political capital may be considered a specic form of
reputational capital.
Political capital depends on a number of interdependent
factors: (1) rms public reputation and social legitimacy
(2) size and nancial resources

14

BUSINESS PERSPECTIVE (3)

Specific dimensions of political influence include:
access to policy-makers
knowledge of the public policy arenas in which the
firm operates
expertise in crafting effective strategies.
The principal nonmarket capability that cannot be
replicated is the knowledge expertise, and skill of
managers in addressing nonmarket issues (Baron,
1995: 61).

15

Interaction of Business, Government, and the

Public
Lobbying

Regulations

Business
Social
monitoring

Government
Political Process
Voting
Interest Groups
Advocacy

Advertising
Public Relations

Public

(Source: Bakhsheshy, n.d)

Regulations

GROUP ASSIGNMENT
Short essay on business and political environment
including business-government relations
Essay must focus on: problems identification; the
impacts on business; business opportunities and
threats
The length of the essay is between 1.000 1.500
words (or 4 5 pages, Times New Roman, 12 fonts,
1,5 lines)
Essay must be submitted on 16 October 2015