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How Companies Can Adapt During Times of Political Uncertainty

Dec 1, 2021

Sudan is going through a political uncertainty situation, which includes too many crises that affect and influence businesses and firm owners, and the economic situation as a whole, so in this blog, we are going into details about what is exactly uncertainty is and how to Finding certainty in uncertain times :

 

What does political uncertainty mean?

 Politics is a main source of uncertainty because politicians design the institutional environment of firms by, for example, setting taxes and labor market and infrastructure regulations. Uncertainties associated with possible changes in government policy influence the behavior of firms. Scholars have shown that political uncertainty influences real economic outcomes

Political instability is defined as the propensity of a change in the executive power, either by constitutional or unconstitutional means. A high propensity of an executive collapse leads to slower growth and, conversely, whether low growth increases the propensity of a government change.

Political instability affects growth because it increases policy uncertainty, which has negative effects on productive economic decisions such as investment and saving. A high probability of a change of government implies uncertain future policies so that risk-averse economic agents may wait to take productive economic initiatives or might even “exit” the economy by investing abroad. Similarly, foreign investors are likely to prefer a stable political environment

And political uncertainty is an External factor that affects the business and has an impact on its success.

A business cannot control external factors. All it can do is react to them and make decisions to help it remain successful.

The acronym PESTEC is used to help remember the different types of external factors. These are:

  • political – For example, new legislation
  • economic – For example, inflation and unemployment
  • social – Changes in taste and fashion or the increase in spending power of one group, for example, older people
  • technological – For example, being able to sell goods online or using automation in factories
  • environmental – For example weather conditions affecting sales or production and growing interest in being ‘green’, for example by recycling
  • competitive – The impact of a rival firm which may have a similar product or which may lower its prices

Each of the external factors can affect a business positively or negatively. In some cases, it can even be both.

 how Political Uncertainty is set to affect Businesses:

Political instability can have an even greater impact on businesses and it may make them reluctant to invest in new capital or enter new markets. It may even encourage relocation of activities to a more stable and predictable area as business owners hate risk! Political instability in an area where a firm operates will mean that the firm has to be very flexible and adaptable; ready to change its operations at very short notice to reflect changes in the political environment.

also, social-political uncertainty has a major effect on the cost of work, cost of resources, and customer behavior. It threatens business routines and activities and the business may even have to stop their operations due to new foreign importing and exporting laws.

Finding certainty in uncertain times

1. Detailed Analysis of different outcomes is a MUST

To control the scope of uncertainty, it is imperative to evaluate the issues in order to adjust corporate tactics. You have to consider whether there is a big price jump due to the social-political situation if it jeopardizes the business continuity, or what position it currently is in the market. This analysis can depend on what type of business it is. When it comes to declining markets, entrepreneurs have to be careful with moving the business to a new location since it can be expensive. On the flip side, moving the business might be a good option since it protects the key activities during the crisis. However, if the market is growing then the business has opportunities and resources to be more prepared and ready for uncertainty.

2. Strategies to deploy in a declining market :

‘Hedging Strategy’ in which the activities are reorganized towards the people that can get past the political issues. This is used when firms are faced with uncertainty with economic conditions, such as human resources or internal control. What firms can do is lower the function prices and have a drop in sales. For instance, due to the Brexit, Sony decided to keep all its stores in the UK but moved its EU headquarters to the Netherlands in order to keep its key activities in a safer place.

3. Strategies to deploy in an uncertain market

The first strategy is to rebalance, meaning to relocate strategic and leadership assets to an alternative location that is nearby well-known growth engines. This can be very costly, but it is a practical method that focuses on the resources of the firm to be able to escape the consequences of uncertainty. The other strategy is to shift, which means relocating important parts of activities to another region starting with the functions that can easily be shifted with low costs. This is a thorough method since it is more organized, fast-paced, and its goal is to get rid of the uncertainty in the market.

 Political uncertainty in Sudan :

 with the internet cut, many businesses had struggled to reach their targeted audience because their main marketing channels are digital marketing and social media especially, which made them rethink and reprioritize and discover new ways to get to the market, in an uncertain country like Sudan, the business must always, evaluate the situation and put emergency and mitigation plan. 

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