How Political Factors Affect Business Activities in Asian Countries

. Contents .

1. Introduction………………………………………………………………………..……..3 2. Political Factors That Affect Business………………………………………...4 1) The Case of Toyota Motor Corporation………………….….……..5 2) The Case of Taiwan………………………………..…………….…….…….8 3. Conclusion…………………………………………………………..…………………..…9 4. References……………………………………………………………………………..….10

Introduction
For every business, internal factors, such as the company’s culture, vision, and its own products are extremely important for their success. However, the external factors are also so important that every business should pay special attention to them. A model has been invented to describe those external factors that influence business activities. This model is called the “PESTLE Analysis”, which is formally known as “PEST”, and was first invented by Francis Joseph Aguilar, in his book “Scanning the Business Environment”. PESTLE Analysis is a model to analyze external factors that may have impact on business activities. P stands for Political, E,S,T,L,E, stand for Economic, Social, Technological, Legal and Ecological.(Francis, 1967)
In this model, the first factor, the political factor, can impact most aspects of our society, whether for individuals or organizations, in developing countries or developed countries. The reality is that any strict policies, tense political situations, or even a little transformation may cause the business to suffer a lot, and even go bankrupt. Such as the sovereignty dispute of South China Sea in 2013-2014, the anti-foreign riot in Vietnam in 2013, and the controversial election in Indonesia and India in 2013, in recent years, political factors do affect in Asian business activities in many aspects.
This project will first explore what political factors are and why political factors could affect business activities. In the second section, I will analyze the specific case of the Toyota Motor Corporation, and prove how political factors influence business activities. Some solutions and evaluations will also be given for the Toyota Motor Corporation in this section. Then I will give a study case of Taiwan to describe how political factors affect a third-party country. In the last part of the project, I will give some other examples of political factors influencing business activities, and provide several suggestions to avoid negative influences. By doing this, I aim to analyze the results that political factors bring to business activities and give some advice for other businesses.

Political Factors That Affect Business
There are strong arguments to support the idea that political factors have a strong impact on business activities. First of all, there can be little question that government policies can directly affect business activities. Positive policies, such as open policies and trade policies, will definitely encourage the development of business activities while negative policies, such as government control policies or trade protection policies, will be very big obstructive factors for business activities. Second, the inter-country relationships or attitudes can also affect business activities a lot. In such a buyer’s market, customers can freely choose products from their own needs, which will vary unexpectedly among different countries. Third, political situations, such as wars and conflicts, elections, terrorism, and government change, cannot be ignored when doing business. From the huge economic bust during the Second World War, to the unbalanced trade situation during the cold war between the United States of America and the Union of Soviet Socialist Republics, there is never lack of cases to prove that specific political situations have a tremendous and lasting impact on business activities. Besides that, other political factors also play important roles in business, such as internal or international pressure groups, funding, grants and initiatives, government structures, and so on. The following story of the Toyota Motor Corporation is a good example of how political factors, such as policies, inter-country relationships or attitudes and political situations work on business activities in target markets.

The Case of Toyota Motor Corporation
The Toyota Motor Corporation, which is one of the world’s most popular and largest automotive manufactures, has its own factories in most parts of the world to manufacture or assemble vehicles for local markets. Especially after the initiating of the “Innovative International Multi-purpose Vehicle” project (IMV), Toyota not only optimized its manufacturing and supplying systems in its developed markets such as Australia, India, Canada, Poland, South Africa, Turkey, Colombia, the UK, the USA, France, Brazil, and Portugal, but also paid more attention to satisfying and exploring new markets in Argentina, the Czech Republic, Mexico, Malaysia, Thailand, Pakistan, Egypt, China, Vietnam, Venezuela, the Philippines, and Russia. IMV called for diesel engines to be made in Thailand, gasoline engines in Indonesia and manual transmissions in India and the Philippines (Toyota-global Website, 2014).
In fact, Toyota entered the market of southeastern Asia, especially China, at a very early time, but Toyota’s expansion plan for China has been limited for a long time because of the low market demand. It is some political factors that blocked the progress of Toyota in China. The most influential factor is the strict control from the Chinese government. For example, China has extremely high tariffs，which might reach to 110% for some imported cars. (China Customs Website, 2014) As a result, most Chinese people cannot afford imported cars. Therefore they will choose homemade cars instead. Another important factor is the historical and political conflicts between the Chinese and the Japanese government. Most Chinese people, especially the older people who have stronger purchasing power, have a deep bias towards Japan. Therefore, they would choose German cars or American cars rather than Japanese cars. For example, after the island dispute in 2012, the sales of Toyota dropped 48.9% in one month. (The Guardian Website, 2012) To a great extent, the strained relationship and unstable situation between these two governments has limited their business and commercial communications. Due to the government control and the political conflicts, the sales of Toyota cars in China didn’t perform well for a very long time.
However, this is not the same in other Asian countries. Thailand, similarly, is also an Asian developing country, as is China. On the contrary, the market in Thailand had made spectacular improvements and shown much potential. Surprisingly, the biggest opportunity is also a political factor. Toyota’s expansion plan for Southeastern Asia had no progress until 1997. But after a big hit by a drastic currency crisis, Thailand accelerated the process of market opening. The government carried out a series of policies to encourage foreign investment in Thailand and free trade. Thanks to these policies and Toyota’s new expansion plan, Thailand became the core market and manufacturing center of Toyota in Asia at that time. (Phallapa and Lalit ,2008) What is more, auto manufacturing has become Thailand’s third largest industry and Thailand even has a name as “Detroit of the East”. (Yoko and Kentaro, 2014)
However, a coin has two sides, and so do political factors. It is also the political issues in Thailand in 2013 that changed Toyota’s oversea plan again. Owing to political conflicts, Thailand fell into an unstable and dramatic situation that might not be controlled. Especially after the ousting of Yingluck(Thailand’s former Prime Minister), this country has been declared to be “credit-negative”, and GDP growth forecasts for 2014 have been in free fall since December. Statistics show that the sales of imported cars in Thailand have fallen by 7.7% in 2013. Due to the unexpected political situation in Thailand, Toyota has warned it could rethink further investment plans in Thailand. Kyoichi Tanada, the president of Toyota's Thai unit, stated at a news conference that ”Our new investment in Thailand may not happen if the current political crisis goes on longer," And what is worse, a 609-million-dollar investment plan may be stopped as well. (Manunphattr, 2014)
There are a number of possible solutions to the problem Toyota faces in Thailand. In terms of internal causes, Toyota’s “lean manufacturing” production system leads to the “0 stock” model, resulting in its poor ability to deal with emergency circumstances. In such a quickly changing society, Toyota needs to increase the stock properly. (Dae-oup, 2006) With respect to external causes, owing to the unstable factors in Asian countries, it might help if Toyota could decentralize manufacturing and purchasing. If Toyota divides its manufacturing and purchasing functions among several countries, once some countries are influenced by uncontrollable factors, the other markets can still go on with their work. By making these efforts, the losses of other markets’ accidents can be reduced.
The solutions have both plus points and drawbacks. Due to the uncontrollability, unpredictability and instability of political factors, it is impossible to solve the political problems thoroughly. Therefore, finding internal solutions is more realizable. However, as a multinational company that has large scope, it costs a lot to make transitions or expand into new markets. What is worse, these solutions may bring new drawbacks, such as an increase in the transportation and management costs.
From this case, we can easily find that in Asian countries, political factors, such as government control, political conflicts and the political situation in target countries, have a big impact on business activities, and sometimes even can change the business’s original plan. In fact, the political factors of a third-party country could even affect a business. This is especially the case with the issue of Taiwan.

The Case of Taiwan
The FTA (Free Trade Area) agreement signed by the Chinese President Xi Jinping and the South Korean President Park Geun-hye in Seoul in 2014 raised the capacity and competitiveness of both China and South Korea. As a result, it is definitely a positive factor for business activities in these two countries. However, Taiwan, as a third-party country, seems to be affected a lot by this agreement. “Korean and Taiwanese manufacturing firms have been competitors for a long time,” notes Ma Tieying, a DBS economist covering Taiwan. “Both of them have large exposure to the Chinese market and the product structure of their exports is also identical.” Taiwan President Ma Ying-jeou also has expressed his fear that the deal will cut into Taiwan’s market share in China. “The signing of the Korea-China FTA will certainly pose challenges for Taiwan”, he said. (Ralph, 2014) In the case of Taiwan, it can be proved that political decisions in one country can affect the business situations in another countries.

Conclusion
In conclusion, I believe that the evidences clearly show that political factors affect business activities in Asian countries. The case of the Toyota Motor Corporation proves that policies, inter-country relationships or attitudes, and political situations in the target market will affect multinational companies, especially their plans for oversea markets. What is more, the case of Taiwan shows that even a third-party country will be influenced by the government policies of other countries. Therefore, for business, especially multinational companies, besides considering their company culture, vision, products, budget and other internal factors, it is also important to think about the external side and follow political trends. Although political factors can lead companies to unexpected situations, political factors can be advantages in the right way. I believe that by getting to know, forecasting, and getting the utmost out of political factors, we can cut the losses caused by political factors and even make use of them.
References:
1. China Customs Official Website, available from: <http://www.china-customs.com/ customs-tax/>, [28/08/2014]
2. Dae-oup C.(2006)Labour in Globalising Asian Corporations: A Portrait of Struggle, Hong Kong: Asia Monitor Resource Centre.
3. Francis J.A. (1967) Scanning the Business Environment, New York: Macmillan.
4. Manunphattr D. (Jan 20 2014) Toyota may rethink Thai investment plans if crisis lingers, Reuters, available from: <http://www.reuters.com/article/2014/01/21/us-thailand-auto- toyota-idUSBREA0K00120140121>, [28/08/2014]
5. Phallapa P. and Lalit M.J. (2008) Localization drivers in an emerging market: case studies from Thailand, Management Decision, Vol.46, p1403
6. Ralph J. (07/07/2014 ) New Obstacle In Strained Taiwan-China Talks: South Korea, FORBES, available from: <http://www.forbes.com/sites/ralphjennings/2014/07/07/new-obs tacle-in-strained-taiwan-china-talks-south-korea/>, [28/08/2014]
7. The Guardian Website (Tuesday, 9 October, 2012) Japanese car sales plunge in China after islands dispute, available from: <http://www.theguardian.com/business/2012/oct/09/ japanese-car-sales-china-islands-dispute>, [28/08/2014]
8. Toyota-global Website, available from: <http://www.toyota-global.com/>, [28/08/ 2014]
9. Yoko K. and Kentaro S.(Jan 21 2014)Toyota warning on Thai crisis reveals frustration, limited options, Reuters, available from: <http://www.reuters.com/article/2014/01/21/us- japan-autos-thailand-idUSBREA0K0TL20140121>, [28/08/2014]