Detailed, Step-by-Step NCERT Solutions for 12 Business Studies Chapter 3 Business Environment Questions and Answers were solved by Expert Teachers as per NCERT (CBSE) Book guidelines covering each topic in chapter to ensure complete preparation.
Business Environment NCERT Solutions for Class 12 Business Studies Chapter 3
Business Environment Questions and Answers Class 12 Business Studies Chapter 3
Multiple Choice Questions
Which of the following does not characterise the business environment?
Which of the following best indicates the importance of business environment?
(b) Improvement in performance
(c) Coping with rapid changes
(d) AI1 of them
(d) All of them.
Which of the following is an example of social environment?
(a) Money supply in the economy
(b) Consumer protection Act
(c) The constitution of the country
(d) Composition of family
(d) Composition of family.
Liberalisation means ………….
(a) Integration among economies
(b) Reduced government controls and restrictions
(c) Policy of planned disinvestments
(d) none of them
(b) Reduced government controls and restrictions.
Which of the following does not explain the impact of government policy changes on business and industry?
(a) More demanding customers
(b) Increasing Competition
(c) Change in agricultural prices
(d) Market Orientation
(c) Change in agricultural prices.
Short Answer Type Questions
What do you understand by business environment?
Definition and Meaning of Business Environment According to Arthur M. Weimer, “Business environment encompasses the ’Climate’ or set of conditions, economic, social, political or institutional in which business operations are conducted.”
The business environment is the collection of all conditions and forces surrounding the business enterprise. It is required of every manager to take steps to Understand, face and control all these conditions of the environment and bring about a change in the enterprise accordingly, otherwise it cannot survive and grow. Different components of business environment can be shown by means of the following diagram
Why it is important for business enterprises to understand their environment? Explain briefly.
Importance or Benefits of study of Business Environment
Business environment is highly dynamic and uncontrollable. It keeps the entire business active and prudent. It is necessary that there should be congenial and harmonious social, economic and political environment around the business environment. Thus business environment has following benefits.
(1) Helpful in Formulating Future Strategies
A study of changing business environment is helpful in formulating future strategies. .
(2) Helpful in Adapting to Environment
A study of environment reveals various internal and external environment factors affecting the enterprise. Effect of each such factor can be separately identified and changes can.be made in the enterprise accordingly. . .
(3) Helpful in-Recognising Opportunities
A study of business environment helps us to ascertain whether the change in environment will provide some good opportunities for business or not.
(4) Helpful in Recognising Threats, Hostilities and Dangers
A study-of business environment helps to recognise the threats, challenges, risks and dangers likely to.be faced by at) enterprise. By getting a prior knowledge it can prepare itself to overcome the same.
(5) Helpful in Providing Infomation Relating to Strong Points and Weak Points
A study of business environment reveals the strong points weak – points of the business to face the business environment. Management ( can then identify the areas which need immediate attention.
(6) Helpful in Estimating the Expectations of Various Groups:-
Many groups both within and outside the enterprise, Contribute to the well-being of the enterprise. As such, they have various expectations also from the enterprise. These groups may be employees, customers, suppliers, financiers, shareholders, government and the society in general. A study of business environment helps to know the expectations of these groups so that they may be reasonably fulfilled.
Mention the various dimensions of business environment.
Dimensions of Business Environment
(i) Economic Environment
Economic environment is of great significance to the business. It consists of macro-level factor related to the means of production and distributution of wealth. It includes all such forces of economic development which effect the marketing scope of the enterprise. The important constituents of the economic environment are
(a) Economic Conditions Economic Conditions are those conditions which are related to the possibilities of the economic development of a country.
(b) Economic PoliciesThe economic policies are laid down to provide direction to the economic activities.
(c) Economic Systems Knowledge of economic system helps in understanding the economic environment of the country. Economic system is of three types.
- Capitalistic System
- Socialistic System
- Mixed System
(ii) Socio-Culture Environment The social environment of business includes social institutions, social groups population and its composition, social beliefs and customs, education system, literacy level, cultural heritage etc.
(iii) political Environment Every business operates within the laws and regulations determined by the political system. The political system provides the framework within which the business functions.
(iv) Legal Environment Legal environment consists of the framework of laws, regulations and court decisions which guide and control business activities.
(v) Technological Environment Science and technology exercise a direct influence on business. New techniques of production and distribution have implications on operating casts and capital investment.
Briefly explain the following’.
The economic reforms that were introduced were aimed at liberating the Indian business and industry from all unnecessary controls and restrictions. Liberalisation of the Indian industry has taken place with respect to :
- Abolishing licensing requirement in most of the industries except a short list.
- Freedom in deciding the scale of business activities i.e. no restrictions on expansions or contraction of business activities.
- Removal of restrictions on the movement of goods and services.
- Freedom in fixing the prices of goods an services.
- Reduction in tax rates and lifting of unnecessary controls over the economy.
- Simplifying procedures for imports and experts, and
- Making it easier to attract-foreign capital and technology to India.
The new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector. This was a reversal of the development strategy pursued so far by the Indian planners.
To achieve this, the government redefined the role of public sector in the New Industrial Policy of 1991, adopted the policy of planned disinvestments of the public sector and decided to refer the loss making and sick enterprises to the board of Industrial and financial Reconstraction.
The term disinvestments used here means transfer in the public sector enterprises to the private sector. It results in dilution of Government in the public enterprise. If there is dilution of Government Ownership beyond 51 percent, it would resection transfer of ownership and management of the enterprise to the private sector.
GlobalisationGlobalisation 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
- licensing of imports
- tariff restrictions and
- quantitative restrictions.
The new economic reforms : aimed at trade liberalisation were directed towards import liberalisation, export promotion through rationalisation of the tariff structure and reforms with respect to foreign exchange so that the country does not remain isolated from the rest of the work’. Globalisation involves an increased level of interaction and interdependence among the various nations of the global economies.
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 government. Through the policy of 1991, the government of India moved the country to this globalisation pattern.
Briefly discuss the impact of Government policy changes on business and industry.
Impact of Government Policy changes On Business and Industry
The government policy ofTiberalisation, privatisation and globalisation has made a definite impact on the working of enterprises in business and industry. Indian corporate sector has come face-to- face with.several challeges due to government policy changes. These challanges can be explained as follows :
- Increasing competition
- More demanding customers
- Rapidly changing technological environment
- Necessity for change
- Need for developing human resource
- Market Orientation
(i) Loss of budgetary support to the public sector .On the whole, the impact of Government policy changes particularly in respect of liberalisation, privatisation and globalisation has been positive as the Indian business and industry has shown great resilience in dealing with one new economic order. Indian enterprises have developed strategies and adopted business processes and procedures to meet the challenge of competition.
Long Answer Type Questions
How would you characterise Business Environment? Explain, with examples, the difference between general and specific environment.
Characteristics of Business Environment
(a) Totality of External forces The term business environment
is the sum total of all things external to business firms and, as such, is aggregative in nature.
(b) Specific and general 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 effect an individual firm only indirectly. ‘
(c) Inter-relatedness Different elements or parts of business environment are closely inter-related. For example increased life expectancy of people and increased awareness for health care have increased the demand of many health products and services like diet coke, fat-free, cooking oil, and health resorts New health products and services have, in turn, changed peoples life style.
(d) Dynamic Nature Business environment is dynamic in’ nature that it keeps on changing whether in terms of technological improvements, shifts in consumer preferences or entry of new competitions in the market.
(e) Uncertainity Business environment is largely uncertain as it is very difficult to predict the future happenings, especially when environment changes are taking place too frequently as in the case of informtion technology or fashion industries.
(f) Complexity Since business environment consists of numerous interrelated and dynamic conditions on force which arise from different sources,’ it becomes difficult to comprehend at once what exactly constitutes a given environment. In other words, environment is a complex phenomenon that is relatively easier to understand in parts but difficult to graspin its totality. For example, it may be difficult to know the extent of the relative impact of the social, economic, political technological or legal factors an change in demand of a product in the market.
(g) Relativity Business environment is a relative concept since it differs from country to country and even region to region. Political conditions in U.S. A, for instance differ from those in China or Pakistan. Similarly demand for sarees may be fairly high in India whereas it may be almost nonexistent in France.
How would you argue that the sucess of a business enterprise is significantly,influenced by its environment?
Importance of Business Environment Just like human beings, business enterprises do not exist in isolation. Each business firms is not an island into itself; it exists, survises and grows within the context of the element and forces of its environment.
While the individuals firms may be able to do little or nothing to change or control these forces it has no alternative to responding on adapting according to them. A good understanding of environment by business managers enables them not only to identify and evaluate, but also to react to the forces external to their firms.
(i) Enabling the identification of opportunities and getting the first mover advantage Opportunities refer to the positive external trends or changes.that will help a firm to improve its performance. Environment provides numerous opportunities for business success. Early identification of oppotunities helps an enterprise to be the first to exploit them instead of losing them to competitors.
(ii) Helping in the identification of threats and early warning signals. Threats refer to the external environment trends and changes that will hinder the firms performance. Besides opportunities environment happens to be the source of many threats. Environmental awareness can help manager to identify various threats on time and serve as an early warning signal.
(iii) Tapping Useful Resources Environment is a source of various resources for running a business. To engage in any type of activity, a business enterprise assembles various resources called inputs like finance, machines, raw materials, power and water, labour etc; from its including financer, government and suppliers decide to provide these resources with their own expectation to get something in return from the enterprise.
The business enterprise supplies the environment with its outputs such as goods and survices for customers, payment of taxes to government, return on financial investment to investors and so on.
(iv) Coping with Rapid changes Today’s business environment is getting increasingly dynamic where changes are taking place at a fast pace. It is not the fact of change itself that is so important as the pace of change. Turbulent market conditions, less brand loyality, divisions and sub-divisions (fragmentation) of markets, more demanding customers, rapid changes in technology and intense global competition are just a few of the imges used to describe today’s business environment.
(v) Assisting In Planning And Policy Since environment is a source of both opportunities and threats for a business enterprise, its understanding and analysis can be the basis for deciding the future course of action (planning) or guidelines for decisions making (policy).
Explain with examples, the various dimensions of business environment?
Dimensions of, or the factors constituting the business environment include economic, social, technological, political and legal conditions which are considered relevant for decision making and improving the performance of an erlterprise. In contrast to the specific environment these factors explain the general environment which mostly influence many enterprises at the same time.
However, management of every enterprise can benefit from being aware of these dimensions instead of being disinterested in them. For instance, scientific research has discovered a technology that makes it possible to produce an energy efficient light bulb that lasts at least twenty, times as long as a standard bulb. A brief discussion of the various factors constituting the general environment of business is given below:
(a) 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 in the general environment 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 longer-term rates are beneficial because they result in increased spending by consumers for buying homes and cars on borrowed money.
(b) Social Environment Included in the social environment are social forces like traditions, values, social trends society’s expectations of business, and so on. Traditions define social practices that have lasted for decades or even centuries. For example, the celebration of Diwali, ID, Christmas and Guru Parv in India provides significant financial opportunities for Card companies, sweets or confectionary shops, tailoring, outlets and many other related business.
(c) Technological EnvironmentTechnological 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. From propeller airplanes to jets, and from typewriters to computer-based word processors, have all been responsible and creating new business.
(d) Political Environment
Political environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representative hold towards business. The significance of political conditions in business sucess lies in the Predictability of business activities under stable political conditions.
On the other hand, these may be uncertainly 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.
(e) Legal EnvironmentLegal Environment includes various legislations passed by the government administrative orders issued by government authorities, court, judgements as well as the decisions rendered by various commissions and agencies at every level of the government-centre state or local.
In India, a working knowledge of Companies Act 1956; Industries (Development & Regulations) Act 1951; Foreign Exchange Management Act and the Imports and Export act (Control Act) 1947; Factories Act 1948; Industrial Disputes Act 1947; Trade Union Act 1926; Workmen’s Compensation Act 1923; Consumer Protection Act 1986; Competition Act 2002 and host of such other legal enactments as amended from time to time by parliament, is important for doing business Impact of legal environment can be illustrated with the help of government regulations to protect consumers interests.
What economic changes were initiated by the Government under the Industrial Policy, 1991? What impact have these changes made on business and industry?
Economic Environment In India The economic environment in India consists of various macro level factors related to the means of production and distribution of wealth which have imform on the business and industry. These include:
(a) Stage of economic development of the country.
(b) The economic structure in the form of mixed economy which recognises the role of both public and private sectors.
(c) Economic policies of the Government including industrial monetary and fiscal policies.
(d) Economic planning including five year plans, annual budgets and so on.
(e) Economic indices like national income, distribution of income, rate and growth of GNP, per capita income, disposal personal income, rate of savings and investments, value of exports and imports, balances of payment and so on.
(f) Infrastructural factors, such as, financial institutions, banks – modes of transportation,communication facilities, and so on. As a part of economic reforms, the Government of India announced a new industrial policy in July 1991.
The broad features of this policy are as follows :
- The Government reduced the number of industries under compulsory licensing to six.
- Many of the industries reserved for the public sector under the earlier policy, were dereserved. The role of public sector was limited only to four industries of strategic importance.
- Disinvestments was carried out in case of many public sector industrial enterprises.
- Policy towards foreign capital was liberalized. The share of foreign equity participation was increased and in many activities 100 percent foreign direct investment (FDI) was permitted.
- Automatic permission was now granted for technology agreements with foreign companies.
- Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India.
What are the essential features of
(i) Economic Liberalisation: The process of economic liberalization began in India in July 1991 . when a package of economic reforms has been introduced for market mechanism like deregulation, greater autonomy of private investment, less restrictions on the convertability of the, rupee etc. The purpose of economic liberalization is to unlock the economic potential of the country by encouraging private sector and mutinational corporations to invest and expend. Economic liberalization comprises both privatization and Globalization.
(ii) Privatization : Privatization aims at disinvestment of equity of public sector understandings and to subject there udertakings of competition. Privatization is the process of reducing the role of public sector in economic activities of a country. It involves induction of private ownership, private management and control in public sector enterprises. It includes de-nationalization and Transfer of control and management of public sector undertakings to private sector. It also covers dilution of government equity in public enterprises.
Management of concerned enterprise should be taken in confidence at the time of disinvestment. The interests of workers and consumers should be legitimately protected.
(iii) Globalization :
Globalization means “to make Global” havings the entire world as one market. It is a process of increasing economic integration and growing economic inter-dependence between countries in the world economy. It involves not only cross-border movement of goods and services, capital, technology, Information and personal, but also an organisation of economic activities which crosses national boundaries. Globalization is essential due to following reasons:-
- Technological restrictions
- Growing similarities of countries in terms of basic infrastructure, distribution channels and marketing approaches.
- Restructing the ‘production and trade’ pattern in favour of labour intensive goods and technologies.
- International competition between the firms takes place due to globalization.
- It increase the inflow of foreign capital and technology and stimulate exports.
- Employment opportunities will also be increased in the long run due to opening of foreign banks and financial institutions.
1. Lately many companies have planned for significant investment in organised retailing in India. Several factors have prompted their decisions in this regard.Customer income is rising. People have developed a taste for better quality products even though they may have to pay more. The aspiration levels have increased. The government has also liberalised its economic policies in this regard and permitted even cent percent foreign direct investment in some sectors of retailing.
Identify changes in business environment under different heads – economic, social, technological, political and legal that have facilitated the companies decisions to plan significant investments in organised retailing.
Economic Environment :
The business enterprises in India do realise the importance of economic environment so company has decided to invest and organised retailing.
Social Environment :
As it includes social forces like social trends. The aspiration level of customers have also increased so the company realised the importance and has planed to invest in retailing.
Technological Environment :
It relates to scientific improvements which provide new ways of producing so foreigners have planed invest in retailing.
Political and legal Environment : Now general stability and peace is there in India and various legislations passed by the government administrative orders issued by government so the foreigners have decided to do trade with India and invest inretailing.
What has been the impact of these changes with regard to globalisation and privatisation?
Impact of globalisation and Privatisation . The new set of economic reforms aimed at giving greater role to the private sector in the nation building process. On the other hand till 1991 the government of India had followed a policy of strictly regulating imports in value and volume terms, these regulations are with respect to licensing, tariff restrictions etc.
The new economic reforms aimed at trade liberalisation and gave export promotion. This has been made possible by the liberal trade policy by the government so the foreign trade with India and to invest in retailing has a great impact on Indian economy.