A state government has powers to carry out any political process, which is beneficial to the public and the entire economy. Domestication is a move by the government to control and utilize its local resources for the purpose of creating independence. This process is important for the nation since it prevents exploitation from foreigners. On the contrary, domestication plays an important role in improving the economy through exportation of goods. Expropriation, on the other hand, will entail taking control of privately owned property by the state government for public interest. This move will negatively affect the economy as it discourages private property ownership. Expropriation implies that foreign investors will avoid investment ventures in that particular nation. When foreign investors leave a country, they reduce foreign direct investments causing an outflow of incomes from the country. Therefore, it is more appropriate for a country to adopt domestication rather than expropriation. Domestication has a positive impact on the economy and encourages citizens to act independently through the utilization of the available local resources. In most countries, domestication is common as state government explores its resources to earn foreign exchange (Haber, Maurer and Razo 64).
In undertaking foreign business venture, there must be an authority from the state government allowing such business enterprise to conduct activities. This is one of the government's power and supremacy to control the economy. The government is responsible for undertaking various activities within its territorial boundaries. The state government makes crucial decisions in the interest of the public. As a result, permitting a foreign investor in the country is always beneficial for the nation and the entire economy. Therefore, the government has the power over such foreign business venture. This ranges from adherence to social, legal, political, and economic aspects of such a country to undertake operations within the stipulated jurisdiction. The government will always have power over foreign investors in order to avoid exploitation of its citizens. As a result, the implementation of rules and regulations the government ensures foreign investors adhere and operate under a given jurisdiction (Alsen, Veiga and Jos 69).
The assessment of the dominant political climate in any country is imperative in evaluating the corrective measure to employ in order to restore the normal condition. In evaluating political environment, some factors have to be put into consideration. For instance, political parties, party leaders, boundary conflicts, relationship with other countries, political processes such as elections, and the form of government practiced in the respective country. Political parties play a domineering role in the determination of a political climate in any country. Conflict over politics and leadership positions among the leading and opposing parties may get soar, leading to incitement and subsequent chaos. Political conflicts in a country translate into political instability while peaceful co-existence in the political arena signifies political stability within that nation. The co-relation of the country with others also plays a part in evaluating dominant political climate within a nation. A country that has a stable political environment will have good relations with other countries. On the contrary, a country that has consistent conflicts with other countries over issues like territory and leadership will witness political instability. Elections and the form of government are important determinants of finding out political environment in the country. A country that carries out a peaceful political process such as an election can be described to be politically stable.
A change in a political party can have some effects to an investor within a nation. The government is responsible for making political, social, and economic regulations for the purpose of public interest. On this front, changes in the political system will translate into changes into previous rules and regulations. These changes may have both positive and negative effects on the investor. For instance, change of government into capitalist will ensure that private ownership of property. Therefore, foreign investors will be encouraged to invest in the respective country when such changes are made in the economy. Changes in a political party, on the other hand, can translate into political instability within the country. This will have adverse effects on the investor as it will lead into a loss of customers. Investors are always attracted in regions where the political climate is calm, and there are no frequent changes in the ruling political party. Changes in a political party carry a significant impact on investors and subsequent economy. Business investment relies, mostly, on the political climate facing a nation. Frequent shocks in the ruling political party have a negative impact on business organization. There are myriad political risks of establishing a business venture in a politically unstable country. A calm political climate will attract additional investors while unstable political governance will keep off investors in a country (Bernal-Verdug 34).
There are various causes of instability in many nations that will have a significant impact on the social, politic, and economic aspects in the country. Political instability is caused by political processes within a country that lead to disruption of the normal government activities. For instance, during an election process, rival political parties may engage in incitements that could lead to violence. There have been cases where countries have engaged in post-election violence as a result of different political interests among rival parties. This leads into political instability within the country. Another cause of political instability could be a fight over territorial boundaries between neighboring countries. There have been some cases where neighboring countries engage in war over political boundaries. This results into political instability in that region as governments are forced to bring in their military forces to take over the alleged piece of land. Political instability can also range from changes in the ruling political party. A nation where there is political instability will affect economic structures adversely, which will make investors avoid the country (Bernal-Verdug 59).
Government instability has a negative effect on marketing. Investors are always keen in making investment decisions. As a result, they put their capital investments in a nation where there is political stability. This will ensure certainty of investment returns for investors due to encouraging political climate. Political tensions within the country will affect economic stability in the country, therefore, affecting the market. Investors aim at increasing business profits while reducing market risks. Political instability creates a lot of turmoil in a country, leading to the loss of a potential market for investors. Marketing of goods and services in the country experiencing instability will be presented with challenges as customers are not willing to trade in a region where their security is not guaranteed. Political instability entails wars, and tension within the nation. As a result, investors will not risk their capital investments in such a region due to the possibility of an eruption of chaos and war (Rajagopal 38). It is, therefore, advisable that investors undertake a comprehensive research study on the political situation of the target market before establishing any business venture.
Alsen, Ari , Veiga and Francisco Jos. How Does Political Instability Affect Economic Growth? Braga: International Monetary Fund, 2011.
Bernal-Verdug, Lorenzo E. The Dynamic Effect of Social and Political Instability on Output. New York: International Monetary Fund, 2013.
Haber, Stephen , Noel Maurer and Armando Razo. The Politics of Property Rights. New York: Cambridge University Press, 2003.
Rajagopal. International Marketing, 1E. Mumbai: Vikas Publishing House Pvt Ltd, 2009.