POLITICS AS A LOCATION FACTOR: WHAT REALLY MATTERS?

The question of whether national politics can be a decisive factor when choosing a location is complex and often emotionally charged. In the European Union, 27 member states unite under a common umbrella — the principles and values of the EU. Yet, each of these states follows its own political currents, and even candidate countries bring their unique political landscapes into the mix. It is not our place to judge the politics of individual countries or to offer advice.

Nevertheless, the question remains: Is it reasonable to consider a country's political orientation when choosing a location? At first glance, perhaps not. But upon closer inspection, it becomes clear that political decisions, which form the basis for laws, can indeed be relevant. If laws are designed in a way that challenges fundamental principles such as the rule of law, democracy, security, and justice, political conditions can become a crucial factor in the decision-making process for selecting a location.

It's not about making political judgments but rather about carefully examining whether national legal frameworks or political decisions carry the risk of jeopardizing investments. In such cases, a country's political situation can indeed become a determining factor. This is precisely what this article aims to explore in more detail.

Political Conditions – A Risk to Investments? - Political conditions can pose significant risks to investments, especially when unpredictable developments disrupt financial planning or business operations. One example of this is state funding: it can be at risk if the responsible EU institutions freeze funds for a particular country because it has violated or is at risk of violating EU regulations. In such cases, the capital invested is at stake.

The independence of the judiciary can also play a decisive role. If courts do not act independently due to political influence, a fair legal process for investors is in jeopardy. Decisions may no longer be based on legal principles but rather politically motivated, leading to considerable uncertainty.

Collective labor law poses another risk. In countries without clear regulations, there could be unexpected strikes or even general strikes that severely disrupt business operations and halt production. The unpredictability of such situations can present companies with major challenges.

An often overlooked but equally important factor is the availability of talent. In politically unstable environments, where young talents are tired of constant political conflicts and power struggles, there may be an exodus of these valuable professionals and leaders. Many well-educated professionals and potential leaders prefer to move abroad, where they find a more stable environment, better earning opportunities, and a higher quality of life for themselves and their families — whether in the form of good education for their children or reliable healthcare. This brain drain leads to a shortage of qualified personnel in the country, which can significantly affect a company's long-term prospects.

What Indicators Can Identify Political Risks? - To identify political risks early on, it is necessary to closely monitor and analyze certain indicators that may point to potential uncertainties and dangers. There are numerous ways to identify political risks — starting with an on-site exploratory trip, which can provide valuable insights through conversations and close observation. In this article, however, we will focus on solid indicators provided by reputable institutions. A key reference point is the assessments and reports from the World Bank, which provide decision-makers with important information on political and economic conditions in various countries. Additionally, the renowned U.S. think tank "The Fund for Peace" offers valuable data, particularly through its annual "Fragile States Index," which rates countries based on their vulnerability to instability — see the chart. The EU Commission also provides a solid foundation for analyzing political risks, especially through its regular evaluations on the rule of law in member states, such as the "THE 2022 EU JUSTICE SCOREBOARD." These indicators enable companies and investors to identify potential risks early and make informed decisions.

IBG Management Consulting GmbH is an experienced partner in Location Assessment and supports technology companies in making the optimal location decision. Our extensive experience and in-depth market knowledge help our clients make sustainable investments — as numerous successful projects and satisfied clients demonstrate.

Conclusion - Choosing an appropriate location is a complex decision that goes far beyond simple cost considerations. Both hard factors like labor costs and productivity and soft factors like legal certainty and administrative efficiency are crucial. Only a holistic view of all relevant criteria ensures the long-term competitiveness and success of a company.

Eberhard Büttner?

IBG Management Consulting GmbH ?

Managing Partner & Location Assessment Expert