Read the passage and answer the following questions.

Dynamic Horizons Ltd., a global brand, is known for its innovative approach to manufacturing and selling smartwatches. Recently, the company decided to launch its operations in two new markets- a developing country and a European nation. In the developing country, the company faced challenges such as unstable policies, a lack of proper infrastructure, limited purchasing power among the local population and an unfavorable attitude from the government. However, they noticed that the younger population was showing a growing interest in smartwatches, providing a potential market segment to target. But, the European nation presented an entirely different scenario with stringent laws and an established consumer base with high purchasing power and intense competition from local brands with similar watches. The smartwatch, which was desirable for populations in developing countries, was just another watch in European countries. Dynamic Horizons understood that they should adapt their products to the preferences of Europeans to gain a foothold here. So, the company in both the markets, leveraged advanced technological solutions including Al (Artificial Intelligence) technology and a tracking application in the smartwatch to enhance the customer experience. However, they faced challenges due to fluctuations in inflation rates which impacted raw material costs and transportation expenses. It is also imperative for the management of the enterprise to obey the law of the land.

Dynamic Horizon faced instability and an unfavorable attitude from the government. Which dimension of the business environment is reflected in this statement?

Political environment

The correct answer is option 1- Political environment.

The political environment refers to government policies, political stability, and the overall attitude of the government toward businesses. The mention of unstable policies and an unfavorable attitude from the government clearly indicates that the political environment is the dimension affecting Dynamic Horizons in this scenario.

Political Environment: Political environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business. The significance of political conditions in business success lies in the predictability of business activities under stable political conditions. On the other hand, there may be uncertainty of business activities due to political unrest and threats to law and order. Political stability, thus, builds up confidence among business people to invest in the long term projects for the growth of the economy. Political instability can shake that confidence. Similarly, the attitudes of government officials towards business may have either positive or negative impact upon business.