Political and Legal Environment

(Three)
The political environment of business
may be defined
• As the sum total of the political events and
conditions that have direct or indirect bearing
on the growth and development of business.
• A democratic political system, stable
government and rule of law are the
foundations for the development of business
in a country
• A stable political system and government
creates business opportunities.
• Political stability promotes policy stability
which is very essential for the growth and
development of the business sector.
• The frequent changes in government creates
drawbacks, as it brings changes in policy,
bureaucracy, rules and regulations
 Significance of political environment
for business
• The political environment of a business consist
of set of political factors and government
activities that can either facilitate or hinder a
business ability to conduct business activities
• Business should be always ready to deal with
the outcomes of national as well as
international politics
• The increasing global interdependence among
economies, markets, governments and
organization makes it imperative that firms
consider the possible impact of political
variable on the formulation and
implementation of competitive strategies
 Following are the major political
factors affecting business
• Bureaucracy
• corruption level
• freedom of the press
• tariffs
• government stability and related changes
• government involvement in trade unions and
agreement
• consumer protection
• Tax policy ( tax rates and incentives)
• Education law, data protection law, copy rights,
health and safety law, discrimination law etc.
 The above factors affects business
sector in three ways
• Impact on economy
• changes in regulation
• political stability
 Impact on economy

• The political situation of a county affects its

economic structure and performance which
are directly related to business performance
• A greater level of spending and lower tax rate
often stimulates the economy creating a
number of business opportunities
 Changes in regulation
• Government amends and formulate rules and
regulations.
• Changes in patent laws, tax rates and
lobbying activities can affect business
significantly
• Business regulations are the source of
opportunities or threats
 Political stability
• The degree of political stability in a country
affects the business operation
• Instability causes ample of business risks
• Nepalese business sector has been adversely
affected due to political instability over the
years
 Political structure in Nepal
• Political Ideology
• Constitution
• Government and its Branches
• Political Parties
• Constitutional Bodies
 Political Ideology

• Political ideology is largely concerned with the

allocation of power and resources.
• It is defined as set of ideas, principles and
philosophy
• Different types of ideologies exist in the world
– Democratic
– Totalitarian
 Democratic
• The power is vested on people
• A democratic system is always governed by
the elected representatives of the people.
• Multi party exists
• Human rights is always at the center of
democratic ideology.
• Nepal has federal democratic republican system.
• It ensures the use of democratic rights by
operating relationship among federal units based
on local autonomy, decentralization and
proportional principles in governance.
• It also aims to establish a welfare state by
– Maintaining justifiable system
– independence and integrity at the highest level and
preserving the life, property, equality, participation
and social justice.
 Totalitarian
• Under this the power is centralized to the
government that does not tolerate parties of
differing opinion
• It exercise dictatorial control over many
aspects of life.
• the private sector doesn’t flourish
• North Korea, china, Syria are the countries
with this ideology
 Constitution
• It is the fundamental law of the country.
• Any law inconsistent with its is void.
• It is the duty of every citizen to follow the
constitution
• The constitution of Nepal 2015 was endorsed
on September 16, 2015 by the second
constituent assembly meeting by more than
third majority.
• It has 35 parts and 308 articles.
 State Policies
Related to economy and commerce
– To enhance national economy through partnership and
independent development of the public, private and
cooperatives sectors.
– To promote the cooperative sector and mobilize it in
national development to the maximum extent
– To protect the interest of consumers by maintaining
trade fairness and discipline
– To encourage foreign capital and technological
investment in areas of import substitution and export
promotion
– To make equitable distribution of the available means
and resources and benefits of economic benefits.
 State policies
Related to Labor and employment
– To make competent and professional labor force
– To guarantee social security,
– To abolish all forms of labor exploration
– To encourage mobilizing the capital skills,
technology and experience gained from foreign
employment in productive sectors in the country
• The main goal is to gain sustainable peace,
good governance, development and
prosperity through the federal democratic
republican system.
 Fundamental rights
• Rights to live with dignity
• Right to freedom
• Right to equality
• Communication
• against torture
• to information
• privacy
• clean environment
• right of child
• right to labor
• senior citizens
• ………….(31)
 Government and branches
Executive
• Refers to the organ of the state that is responsible
for the overall administration of the nation
• The executive of Nepal, according to constitution
of Nepal 2015, consist of
• Federal government
– It is the central government
– The council of minister led by the prime minister has
the executive power of Nepal.
– IT is responsible for issuing general directives,
controlling and regulation the administration
 State government
• The executive power of the state shall be
inherent in the council of ministers of the
state led by the chief of state
Local government
• The executive power of the local level are
vested in the village executive or the
municipal executive
 Judiciary
• It refers to the court of law
• It is responsible for settling disputed and
interpreting the rules and laws if required
• The judiciary of Nepal is committed to this
constitution by recognizing the concept,
norms and values of the independent judiciary
and the spirit of democracy
• Supreme court: it has the final authority to
interpret this constitution and laws
• High court: there shall be one high court in
each state
• District court: one court in each district. It has
jurisdiction over the local cases
• Specialized courts: they are established for
the purpose of hearing special types of cases
 Legislative
• Is formed by the representatives of people
• It is also called parliament
• Its main responsibility is formulation and
enactment of law
• It has 601 members, out of them, 240 are
elected through direct election and 335 are on
proportional basis and 26 are nominated by
the council of ministers
 Political parties
• Political parties are regarded as pillars of
democratic system
• The number of political parties in Nepal has
grown tremendously over the years.
• there are around 100 political parties in Nepal
• Major Political parties
– Nepali congress
– UNL ( communist party of Nepal)
– Maoist
– RPP
– Madehsi Prajantra party
– Madesi jana adhikar forum etc.
 Constitutional bodies
• Commission for the investigation of Abuse of
authority
• Auditor general
• Public service commission
• Election commission
• National human rights
• National dalit commission
• indigenous nationalities, Madhesi, Tharu and
Muslim
 Business Government Relationship
• The congenial relationship between the government
and business creates a number of opportunities for
the overall development of country
• It formulates a number of policies and regulations
• Provides infrastructures for the development of
business
• Source of Information
• Peace and security of the business
• Complementary to each other
• Pay tax, create employment, involve In social
responsibility
 Role of Government in Business
• Regulator of Business
• Promoter of Business
• As an Entrepreneur
 Regulator of Business
• It provides legal framework of the
establishment and operation of business.
• The purposes or regulatory role involve;
protect rights of business, consumers,
employees and shareholders
• Encourage the business to follow ethical
practices
 Promoter of Business
• It involves providing finance to industry, granting
various incentives and , creating infrastructure
facilities for industrial growth and investment
• It helps the process of balanced development and
thereby removes regional disputes.
• Some of incentives given by Nepalese government
are
– No royalty is imposed if any industry generates
electricity for its use
– No cottage industry is levied sales tax, income tax etc.
 As an entrepreneur
• It acts as an entrepreneur to enhance
national economy, mobilize public savings,
crates employment, help control private
sectors monopoly, eliminate discriminatory
practice in society
• The role of the government aims in achieving
national economic, social and political goals
 Political Risk
• Political risk may be defined as the adverse
effects of political changes that are likely to
affect the business operations
• Political risk emerge from the government
actions an well as other outside conditions
• Various actions regarding enactment of new
laws, changes in policies, change in tax rate may
crate risks to business firms
 Political Risk factors of Nepalese
business
• Political and policy instability
• Labor conditions
• Traditional Hostilities and terrorism
 Political and policy instability
✔ Political instability has been common in Nepal.
✔ The political events are very complex
✔ It has created a lot of confusions
✔ It has deteriorated the confidence of
investors
 Labor conditions
• Labor force is also a source of political risk
factors especially when they have strong
political motives and work for the political
parties.
• They acts as sister organization of the political
parties
• The general mentality is rights can be
obtained through muscles not mind
• Many manufacturing industries in Nepal are
closed due to this condition
 Traditional Hostilities and terrorism

• Hostility among different communities is a

source of political risk
• The signs of terrorism can be clearly seen in
Nepal
• Forced donations, killing of businessmen,
kidnapping, bandh, dharna ar frequent in
Nepal
 Risk Assessment of Political
Environment
• Business confront with a number of political
risks.
• Hence, they should identify and analyze the
political risks to defend the business from
adverse conditions.
 The widely used method
• Grand tour: Under this, company representatives
visit the host country or potential places of
business operation to get a sense of the political
and business climate
• Old hand: It involves looking unstructured
advice from the experts ( such as journalists,
executives with experience, social workers etc)
• Delhi technique: It aggregates expert opinion to
obtain overall indices or measures of political
risks.
 Nepalese political environment
• The Nepalese political environment has
shown changes over the years
• With the end of Maoist armed rebellion and
monarch, Nepal is declared as the federal
democratic republican nation
• The new political system has brought both
opportunities and challenges.
• It has raised a number of issues
 Emerging Issues of PE in Nepal
Belongings to the New constitution
– The constitution of Nepal 2015 has been
promulgated and enacted
– It has been expected that the constitution would
be milestone in bringing peace and prosperity.
– However, some political parties mainly based on
Madhes are protecting against some provisions.
– the Political crisis in deepening
 Governance
• Is about the best possible processes for making
and implementing decision.
• Governance is about accountable, transparent,
responsive, equitable, participatory etc.
• According to Transparency international
(2015), Nepal is ranked 130 out of 168 countries
in corruption index.
• Low level of governance in Nepal
• Political instability
• Lack of broader vision on political parties
• Poor understanding among political parties
• Lack of democratic thoughts
• Over dependent private sector
• Employers’ Association
 Business Law
• Law affects a business directly or indirectly.
• It guides business activities
• It either promotes or restricts a business.
• It is necessary for the business manager to
have knowledge of the laws having direct
bearing on the business activities.
• Business laws are the source of opportunities
and threats
 Purpose of Law
• To protect the rights of the business as well as
consumers
• To encourage the business to follow ethical
practices
• To develop the business in sustainable way
• To enhance the contribution of the business
sector toward national development
 Business Legislation in Nepal
• General Business legislation
• Labor related legislation
• Finance and investment related legislation and
• Consumer protection legislation
 General Business legislation

• Private firm Registration act 1958

• Partnership act 1964
• Company act
• Industrial act
 Labor related
• Bonus act, 1974
• Labor act, 1992
• Trade union act, 1992
• Foreign employment act ,1992
• Child labor 2000
• Industrial training act 1982
 Finance and investment Related
• Foreign investment and technology transfer
act (FITTA), 1992
• Foreign exchange regulation act 1961
• Income tax, 2002
• Value added tax act ,1997
 Consumer protection Legislation
• Black market and other social crime
punishment act, 1977
• Food act, 1966
• Consumer protection act,1988