CHAPTER 3 BUSINESS ENVIRONMENT (CLASS 12)CBSE

1. Business environment includes both ‘specific and general forces.’ List any four specific forces.

Business environment includes both specific and general forces. Specific forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and immediately in their day­ to ­day working. General forces (such as social, political, legal and technological conditions) have impact on all business enterprises and thus may affect an individual firm only indirectly. 

SPECIFIC FORCES

1. Customers -The aim of any business is to satisfy the needs of its customers. The customers is the king and the fulcrum around which the business revolves. Hence it is essential for any business to understand the needs of its varied customers like individuals, retailers, wholesalers, industries and government sector. Customer relationship management aims at creating and sustaining cordial relations with customers.
2. Competitors - all organisations face competition at all levels local, national and global. Competitors may be for the same product or for similar products. It is important for a business to understand its competitors and modify their business strategies in the face of competition.
3. Suppliers- In any organisation the suppliers who supply raw materials and other inputs play a very vital role. Timely procurement of materials from suppliers enables continuity in production and reduces the cost of maintaining stock/inventory. Organisations generally obtain supplies from a panel of suppliers instead of relying on a single source. Organisations have realized the importance of nurturing and maintaining good-relationship with the suppliers.
4. Investors- the investors of a business include shareholders, debenture holders and all other financial partners play a significant role in running the business. Their financial policies, strategies, attitude towards risk taking and financial management are all important to a business.

2. To face the situation of inflation, the RBI has reduced the bank rate. Which dimension of business environment is highlighted here?

Economic Environment is highlighted here. Interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee are some of the economic factors that can affect management practices in a business enterprise. Short and long term interest rates significantly affect the demand for product and services. For example, in case of construction companies and automobile manufacturers, low long term rates are beneficial because they result in increased spending by consumers for buying homes and cars on borrowed money. Similarly, a rise in the disposable income of people due to increase in the gross domestic product of a country creates increasing demand for products. High inflation rates generally result in constraints in business enterprises as they increase the various costs of business such as the purchase of raw materials or machinery and payment of wages and salaries to employees. 

3. Which aspect of business environment prohibits the advertisement of alcoholic beverages?

Legal Environment: Legal environment includes various legislation's passed by the Government administrative orders issued by government authorities, court judgments as well as the decisions rendered by various commissions and agencies at every level of the government— centre, state or local. It is imperative for the management of every enterprise to obey the law of the land. Therefore, an adequate knowledge of rules and regulations framed by the Government is a pre-requisite for better business performance. Non-compliance of laws can land the business enterprise into legal problems. In India, Constitutional Provisions; Companies Act 2013; Industries (Development and Regulations) Act 1951; Foreign Exchange Management Act and the Imports and Exports (Control) Act 1947; Factories Act, 1948; Trade Union Act; 1926; Workmen’s Compensation Act, 1923; Industrial Disputes Act, 1947, Consumer Protection Act, 1986, Competition Act, 2002 and host of such other legal enactments as amended from time to time by the Parliament, is important for doing business. Impact of legal environment can be illustrated with the help of government regulations to protect consumer’s interests. For example, the advertisement of alcoholic beverages is prohibited. Advertisements, including packets of cigarettes carry the statutory warning ‘Cigarette smoking is injurious to health’. Similarly, advertisements of baby food must necessarily inform the potential buyer that mother’s milk is the best. All these regulations are required to be followed by advertisers. 

4. Why customers have become more demanding due to changes in government policy?

The policy of liberalization, privatization and globalization of the Government has made a significant impact on the working of enterprises in business and industry. The Indian corporate sector has come face-to-face with several challenges due to government policy changes. More demanding customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services. 

5. In recent times the government has increased the prices of petrol and LPG. which value is being overlooked here?
Increase in LPG prices will lead to increase in domestic expenses making both the ends meet challenging for the poor sections of the society.
6. Why is understanding of business environment important for managers? State any five points.
Importance of business environment: Business environment and its understanding are important for

1. enabling the identification of opportunities and getting the first mover advantage,
2. helping in the identification of threats and early warning signals,
3. coping with the rapid changes,
4. assisting in planning and policy
5. to improve performance.

7. What is meant by Globalization? List out the various measures taken for globalization of Indian economy.
Globalization: Globalization means the integration of the various economies of the world leading towards the emergence of a cohesive global economy. Till 1991, the Government of India had followed a policy of strictly regulating imports in value and volume terms. These regulations were with respect to (a) licensing of imports, (b) tariff restrictions and (c)quantitative restrictions.

The new economic reforms aimed at trade liberalization were directed towards

• import liberalization,
• export promotion through rationalization of the tariff structure and reforms with respect to foreign exchange so that the country does not remain isolated from the rest of the world.

Globalization involves an increased level of interaction and interdependence among the various nations of the global economy. Physical geographical gap or political boundaries no longer remain barriers for a business enterprise to serve a customer in a distant geographical market. This has been made possible by the rapid advancement in technology and liberal trade policies by Governments. Through the policy of 1991, the government of India moved the country to this globalization pattern.

A truly global economy implies a boundary less world where there is:

• Free flow of goods and services across nations;
• Free flow of capital across nations;
• Free flow of information and technology;
• Free movement of people across borders;
• A common acceptable mechanism for the settlement of disputes;

8. Identify the dimension of business environment highlighted in the following cases:
1) Preference of 3G phones instead of 2G phones.

Technological Environment: Technological environment includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business. For example, recent technological, advances in computers and electronics have modified the ways in which companies advertise their products. It is common now to see computerised information kiosks, and World Wide Web multimedia pages highlighting the virtues of products. 

2) Demand for new clothes increases during festival season.

Social Environment: The social environment of business includes the social forces like customs and traditions, values, social trends, society’s expectations from business, etc. Traditions define social practices that have lasted for decades or even centuries. For example, the celebration of Diwali, Eid, Christmas, and Guru Parv in India provides significant financial opportunities for greetings card companies, sweets or confectionery manufacturers, tailoring outlets and many other related businesses. Values refer to concepts that a society holds in high esteem. 

9. What role does economic environment play in the business?

Economic Environment: Interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee are some of the economic factors that can affect management practices in a business enterprise. Short term and long-term interest rates significantly affect the demand for product and services. For example, in case of construction companies and automobile manufacturers, low longer-term rates are beneficial because they result in increased spending by consumers for buying homes and cars on borrowed money. Similarly, a rise in the disposable income of people due to increase in the gross domestic product of a country creates increasing demand for products. High inflation rates generally result in constraints on business enterprises as they increase the various costs of business such as the purchase of raw materials or machinery and payment of wages and salaries to employees. 

10. Why is it said that business environment is a relative concept?

Business environment is a relative concept since it differs from country to country and even region to region. Political conditions in the USA, for instance, differ from those in China or Pakistan. Similarly,

demand for sarees may be fairly high in India whereas it may be almost non-existent in France. 

11. Impact of Demonetization.
1. Money/Interest rates

• Decline in cash transactions
• Bank deposits increased
• Increase in financial savings

2. Private wealth Declined since some high demonetized notes were not returned and real estate prices fell.
3. Public sector wealth - No effect
4. Digitization Digital transactions amongst new users (RuPay/AEPS) increased
5. Real estate Prices declined
6. Tax collection Rise in income tax collection because of increased disclosure