The last point is very important as more than anything else businesses prefer the policies that were followed during a governments tenure to be continued even when there is a change of government. Indeed, some states in India offer more stability than the others as well as continuity of policies. In contrast, India is in the recent past fallen out of favor with businesses that prefer doing business elsewhere and taking their investments to countries that offer political stability.įurther, the case of India also resembles China in so far as the competition for businesses to setup their operations is concerned. Indeed, the attractiveness is so intense that different regions of the country compete and vie with each other for businesses to set up their operations there. Though there are sporadic instances of social unrest that recur in some volatile regions and provinces of the country, on the whole, the country is attractive to foreign businesses. Turning to the contrasting examples of China and India, the former attracts foreign capital and businesses, as the country is relatively stable politically and socially. The Contrasting Examples of China and India Further, businesses like to operate in an environment that is not marred by frequent strikes, social unrest, and chaos as their operations would be hit adversely due to these factors. As the case of India and China, which we shall discuss in detail in the next section, illustrate, businesses flock to regions and states where there is political stability. This is the reason why many emerging markets in Asia and Africa either attract or repel foreign investors.įor instance, until recently, African countries were shunned because of the civil war like situation there whereas some Asian countries were similarly avoided by businesses because of the political uncertainty due to frequent regime changes and even coups. However, as much as businesses factor in uncertainty, the one thing that wants to avoid at all costs is the instability in the macro environment that results from political gridlock, extremism, and political dysfunction. Businesses operate according to forecasts and scenarios about the future that comprise surprises as well as certainties. If there is one thing that business leaders and entrepreneurs hate that is instability in the macro environment.

The Perils of Political Instability and Uncertainty

Political factors affecting business