Political Risks in Fast Food

In the modern world, business is an entity in which a specific workforce co-operates with each other to achieve the aim of the business organisation and deliver the products or services to the potential customers of the business. In the modern era, businesses are facing lots of challenges due to the changes in the business policies of various countries, strict tax rules in different locations of the world, high level of corruption in different countries and business is also influenced by the political connection of different companies (Cera et al., 2019). The business organisation which has good political ties with the local government of the area is often provided with legal support, strategic benefits and financial resources. With the help of strategic benefits, a firm can diversify its business from one period to another period. In the modern era, business organisations can be affected due to political factors like upcoming elections, factional conflict, popular support, inflation, currency instability, per capita income, changes in policies, and over-investment (Chang et al., 2019). Various political risks like in the process of nationalisation government can acquire the private properties of companies. The government can reject the various contracts of the organisation in the new area, which can create a big impact on the policy and investment of the company. Due to the political risks in a country, various investors don’t invest in the businesses and assets because political risks can affect the invested company. The risk of the country is referred to as the risk of political stability, and due to the political instability, product prices can fluctuate, tax rates can be high, and crime can also increase in a country (Spasojevic and Tosovic-Stevanovic, 2017). In this research, all the political factors which affect the companies will be discussed, along with these various ways to overcome the political risk challenges.

1.2 Problem statement

In the emerging markets of the world, business groups function as diversified entities in various industries. The establishment of businesses is a complex process, and it can be affected due to various factors like clause economics, open economics, closed politics, open politics, and political instability. The political instability of a region can also create an impact on the stock market returns, which affects the performance of the businesses operating under the stock market (Ijaz and Sarwar, 2020). It is very important to understand the political factors before the establishment of business in a new region and measure their positive and negative impact on the performance of the business.

1.3 Aim

The research study aims to demonstrate the problems that fast-food organisation is facing due to political factors.

1.4 Objective

The objectives of the research work are -

To understand the political factors which shed impact business performance.
To analyse both the negative and positive impact of political issues in establishing a successful business within McDonald’s- Romford
To recommend an effective strategy to overcome the political risk factors faced by McDonald’s.

1.5 Research questions

The main research questions are -

What are the political factors that can affect business performance?
Which political factors have caused both negative and positive impacts on McDonald’s for establishing a successful business?
How can McDonald’s overcome the political risk factors in the business?

1.6 Research significance

Every business organisation has to focus on various factors like economic, cultural, political and social factors, which can impact the performance of business operations and impact the profitability of a company. The challenges in the market are increasing gradually for business organisations. Various companies are facing challenges and complexity in operating business activities in a dynamic world. This research work aims to demonstrate the problems which are faced by the fast-food organisation due to political factors. Every country has its different politics, which impact the businesses of that country, like Brexit. It was a challenge for the United Kingdom due to the separation from the European Union, which impacted the businesses of the United Kingdom. In this research work, various political factors which impact the performance of the business will be discussed, and it will provide a better understanding of political risks associated with business organisations. This research work on the positive and negative impact of political issues which are faced during the establishment of successful businesses. This research work is significant because it will also provide an effective strategy to overcome the political risk factors faced by McDonald's.

1.7 Structure of dissertation

This research dissertation will be divided into 7 parts which are an introduction, literature review, methodology result, discussion limitations and conclusion. In the introduction part of the dissertation background and introduction of the topic will be presented along with the aim and research position of the research work. In the literature review part, previously published articles and research papers will be used to provide the theoretical framework related to research problems. In the methodology section, a description of chosen methods for analysis and evolution of the pros and cons of the selected method will be presented. In this section, the reliability and validity of the data will be presented, along with the ethics and limitations of the research work. In the results section of the work, the findings of the research work will be presented with the help of graphs and tables. In the discussion section of the research work, the interpretation of results will be presented, and interpretation will be linked to the literature part of the work. In the limitations part, all the limitations of the study will be presented, and all the objections to the study will be addressed. In the conclusion section, all the main points will be summarised and concluding comments will be provided.

Chapter 2: Literature review

2.1 Political factors affecting business performance

In the modern world, a business can only be successfully operated if it is not affected by various factors like environmental factors, political factors, economic factors and cultural factors. In the modern world, the political element of a country is the least predictable. According to Irshad (2017), the political structure of a country affects the stock market of that region. Various businesses of a country are listed on the stock exchange of that respected country. A stock market is a place that is highly influenced by the political activities of a country. The increment and decrement in the prices of stocks affect the performance of the business. The instability of politics can help different companies; however, instability in politics can be loss-making for various companies. Due to the changes in the government of a country, various laws and regulations are also changed, which can impact the performance of a business. In addition, Nazeer and Masih (2017) stated that political instability is a serious problem that is affecting the economic performance of a region. Political instability can occur in the region due to the extensive conflict and competition between various political parties or for the change of government in a region due to different issues. Due to political instability, various policymakers have changed macroeconomics policy. Foreign direct investment is an approach of investing in a country by the person or a business organisation in the form of business establishment or acquisition of assets in another country. The political instability in a country also affects foreign direct investment because various investors avoid investing in a country that doesn't have government stability or a high corruption rate in the government sectors. Corruption in the government sector produces various operational inefficiencies in the businesses, and moral obligation is also affected due to corruption. Corruption is a problem that is spreading in the various government sectors of various countries, which affects the successful implementation of the laws and regulations along with tax laws and health & safety regulations.

According to Akpoviroro and Owotutu (2018), business is a human activity that is integrated with the production and distribution of various services and goods across the world or a specific region. A business entity can be affected due to external environments like economic environment, political environment, technological environment, social and cultural environment, natural environment and ethical environment. The political instability of a country affects the planning of a business organisation because if a company wants to open its outlet in a different region, then the political environment of that reason should be stable, and trade relationships should be strong. The political instability can affect the business in terms of taxes and charges along with various indirect impacts like loss of opportunity and the high cost of business settlement. However, Malik et al. (2019) demonstrated that the decision of the United Kingdom to leave the European Union is referred to as Brexit. Due to the decision of the United Kingdom, various business organisations have to think about and create strategies regarding the future of business in different international locations. The decision of Brexit can create a positive impact on the United Kingdom as countries can make their own decisions without any interference. The United Kingdom can also create trade alliances with other countries independently. Due to this decision, the negative impact on the businesses of the United Kingdom can be seen as a decrease in productivity due to the shortage of labour, a decrease in aggregate demand and a downfall in the price of sterling. The exit of the Uk from the European Union will impact the various trade routes and strategic partnerships of businesses. Regional political integration has various advantages like benefits from the international trades, reduction in the prices of raw materials, improvement of welfare and decrement in the risk of war. The construction industry of the United Kingdom can be affected due to the destruction in the supply chain and increment in the prices of raw materials. The construction industry will also face a shortage of labourers due to Brexit. This decision of the United Kingdom will cost their businesses in terms of infrastructure costs because various businesses have to remove their infrastructure from other countries. According to Jiang et al. (2018), political risks can create an impact on the value of multinational companies, international expansion decisions, foreign investment decisions and ownership of the company in the location. An unstable political environment can create an impact on the investors, and various investors have to spend more during the investment. However, Asif et al. (2018) stated that various political factors like government stability and external conflicts could create an impact on foreign direct investment. The investment profile and internal conflict can also create an impact on the host country's companies. The law and corruption in a country also create an impact on the companies operating with the investment of foreign money.

2.2 Negative and positive impacts of politics on McDonald’s for business establishment

In the modern world, various people are establishing businesses in different countries and locations. The political risk factors can create positive impact and negative impacts on the establishment process of a business. According to Cuervo-Cazurra et al. (2018) internationalisation of a business is a process of growing business operations in different countries rather than in a single country. If a business organisation is operating in the emerging market of the world, then the company will face political instability and different risks related to changes in the policies of the country. When the company wants to establish its business in another country, then the company will be prepared for the changes in government policies and political interference. Due to uncertainty in the home region of a business organisation, various types of skills will be developed by the managers of the company, like uncertainty management, change management and working in challenging situations. A company can also handle the different political systems and manage big changes in its operations. However, Krammer and Jimenez (2020) demonstrated that the political connection of various companies could be very beneficial for business organisations because corporate political strategy refers to the actions which are taken by the organisation to influence the public policy created by the government according to the business operations. The political connection in the country worked as an agent between personal and institutional linkage, and political connection can also be used to change the rules and regulations in favour of business organisations. Effective political connections can assist in increasing the rate of profitability and increasing the valuation of the market. The political connection can also be used in gaining a competitive advantage in the sector. The authors also stated various negative opinions about the political connection of business organisations because companies can face its effect on the wealth of organisations and misallocation of resources. Various politicians can do corruption by reducing the influence and effectiveness of legal market sanctions. A company can take advantage of the close ties with the politicians because it will help in securing all the government contracts and obtain a bailout from the government from a financial issue. A company can also reduce the regulatory enforcement and secure the rights of the properties by paying a low task than other companies in the same sector. A company can also receive subsidies from the government side, which can be beneficial in managing the business operations. A business organisation can also get legal protection from the side of government side (Aldhamari et al., 2020). A close connection with the politicians can create a positive impact on the firm in terms of various advantages; however, the company can face negative impacts due to the connection with politicians and corruption in various government bodies.

According to Bahoo et al. (2020), corruption is the biggest issue in international business because various types of companies have to bear the pressure in the foreign markets and have to engage in the corruption practice for the joint ventures of native companies. Different companies face ethical issues due to the high level of corruption in government bodies and the lack of transparency in the government systems. The author stated that in a high level of corruption environment, the multinational company with a high level of ethics bargains with the government of the country; however, less ethical companies use political connections to engage in corruption. The countries with high corruption rates reduce the chances of foreign direct investment in businesses. The countries with weak legal systems and less responsible for corporate social responsibility are the only nations that invest in the country with a high level of corruption. However, Akbar et al. (2019) demonstrated that the tourism industry is also facing issues due to the negative political environment of the tourism destination because the political environment of a destination is the most important part which is considered during planning, controlling and implementing the sustainable tourism development. The businesses of the tourism sector are impacted due to the negative political environment of the region, like tourism development is not supported by the organisation of the area. The local people of the area have not benefited from the development of tourism in the region, and local people are rarely informed about the development of tourism activities by the government. For that reason, if the tourism businesses of the area are monopolised by a small number of powerful political people. Suppose a powerful person who is connected to the politics of the area will spread negativity about new business which is going to be established for the development of tourism.

2.3 Ways to overcome political risk factors

The management of economic, political and social uncertainty is the biggest challenge among different managers of organisations because of the dynamic and complex nature of problems. According to Fernandes et al. (2019), political risk management can be done with the help of a systematic and comprehensive approach that assists in identifying the key drivers of political risk. A security risk committee should be created which assesses the political risk management plan. For the interaction driver of the political risk, a company should create various relationship management approaches to maintain the corporate messages. Political risk mitigation can reduce the investment of a company; however, it will support the decision-making process regarding the future investment of the business organisation. Legislative monitoring can also predict the behaviour of the external environment. Effective monitoring of all the legislation at different time frames can assist the company to stay up to date with new laws and change the policies according to them. However, Giambona et al. (2017) demonstrated that the political risks affect foreign direct investment in the country. Various types of risks like conflict risks, social unrest, quality of the host country, electoral uncertainty, and corruption can affect the investment. Companies can overcome the political risk by avoiding investment in risky countries. According to Iftinchi and Hurduzeu (2018), various political risks are domestic political violence, regulatory change, the act of terrorism, breach of contract and expropriations, which can impact multinational companies. If a company is establishing a business in the other country, then the company should maintain access to cheap resources and balance the transactions in the home country so that it can be beneficial in managing political risks in the international location. For managing the risks of politics, the company should create a good relationship with the international parties and influence them for support in various locations. Having a good relationship at the international level can be beneficial because an international entity can create pressure on the government body of an area so that all the business operations can operate effectively. However, Oetzel and Miklian (2017) demonstrated that the managers should not mind the political risk and focus on the new product development in the region, which can increase profit in the region. The company should also hold significant social and political capital in the region so that it can be unlocked with the help of peacebuilding into risk management. A company should select a local partner who is consistent in the market and trade the product through them. With the help of the local partner, the company will also not break the law of the area and gain profit from the market. The partnership or franchising can be beneficial if proper terms and conditions are signed by both parties.

References

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Political Factors Affecting Fast-Food Businesses: A Case Study of McDonald's

Table of Contents

Chapter 1: Introduction

1.1 Background