Government policies like fiscal, monetary, industrial, labour, and export import policies are influenced by specific legal enactments and framework towards the business organisations. There are three important elements that are associated with the political and legal environment,
a) Government: Government policies, rules and regulations control and monitor the business enterprises and its activities in the state. Secondly, the type of government administration of the state and the business policy of state is another fact that needs to be considered. These things should be evaluated by the strategist from the business point of view. Strategists should study about the changes in the regulatory framework of the government and its impact on the business. Government tax policies are critical and has a huge effect on the business organisation
b) Legal: Sound legal system is the basic requirement for a successful business operating within the state. Strategists should be aware of various business laws which are protecting consumers, competitors, and the organisation itself. Business organisations should be aware of the laws which are relevant to companies, competitors, intellectual property, foreign exchange, labour and so on as it might be costly to conduct business in countries where there are poor legal standard or poor property rights.
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c) Political: Political system also has an influence to business and its activities. Political pressure groups influence the government and in this way to some extent also control and regulate business activities within the region. However, several acts like consumer rights or minority rights have been established to avoid uncertain circumstances.
Political Environment of KOREA and USA:
Korea is a democratic republic, led and governed by a President and National Assembly, whose representatives are elected by popular vote.
The Korean Government has placed substantial effort in creating an improved trade and investment climate in which a great deal of opportunity exists for Australian products, services and investment.
Korea has also significantly opened up its economy to foreign investment over the last few years, which is modernising the economy and creating many opportunities for new products and services.
The majority of Australian exports to Korea consist of primary products; yet there is extensive room for export market expansion in areas including automotive, biotechnology, building and construction, dairy, defence, fruit and vegetables, information and communications technology, seafood, textiles and clothing and wine (Austrade.gov). Refer to (Appendix A) for existing trade relationship between Australia and South Korea.
The Korean President was elected amidst pledges of economic reform including further deregulation of the economy and a tightening on illegal labour activities by unions. The President is expected to lower corporate taxes and reduce unnecessary administrative restrictions on investment and business operations.
Local media reports that President Lee is a strong supporter of free trade agreements with foreign countries. It is hoped these reforms will make Korea more attractive to foreign investors.
However, foreign investors may face various difficulties, caused by political and economic situations of a country in which they operate, besides normal business risks. Given the risk factors, Korea has implemented regimes to protect foreign investors. Meanwhile, Regulations on Foreign Investment and Technology Introduction prescribe the restraints and subsequently restricted businesses. (The Australian 2012)
Out of a total of 1,145 categories of business under the Korean Standard Industrial Classification (KSIC), foreign investment is not permitted in 60 categories of business including public administration, diplomacy, and national defence (unpermitted category of business), while foreign investment is partially permitted in 29 categories of business (restricted category of business), as prescribed by the Foreign Investment Promotion Act (Invest Korea 2012). However, the industry of concern, textile manufacturing is excluded of the list.
On the other hand, United States has a capitalist mixed economy, which is fuelled by abundant natural resources, a well-developed infrastructure, and high productivity. It is the largest importer of goods and second largest exporter, though exports per capita are relatively low. The market-oriented economy and the strong traditions in competition and enterprise have made the USA the world's leader in many business sectors. (International Monetary Fund)
The United States has a stable democratic political system and a strong legal system. The United States has used expansionary fiscal policy to stimulate the economy, leading to a substantial increase in the budget deficit and a subsequent downgrade in its sovereign credit rating by one ratings agency. Lawmakers are working to rein in the fiscal deficit, but permanent progress has not yet been made. Interest rates are at historic lows due to expansionary monetary policy, which may resume if the economy shows signs of continued weakness.
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Amongst few restrictions of manufacturing garments, 'federal labelling requirement' is one of them. Textiles and apparel must list country of origin, fibre content and fabric care instructions. The Us Federal Trade Commission has produced a guide to help the organisations involved in this genre.(Austrade.gov)
Moreover, taxation in USA varies from state to state and many states often impose a sales tax at the point of sale. However, the Australia-United States Free Trade Agreement (AUSFTA) which came into force in January 2005 gives Australian businesses an expanded access to the world's largest importer and investor. Refer to (Appendix B) for Australian-USA trade fact sheet.