What is meant by business environment?
Business environment refers to all the external forces including economic, political, social, technological and legal that affect the performance of a business organisation. It is the sum total of all the individuals, the control of a business enterprise but has the power to affect its performance.
How does understanding of business environment help in improving the performance of a business?
An understanding of business environment help in improving performance of a business due to the following reasons:
a. It helps to identify the best opportunities and getting the first-mover advantage. It is better to analyze the market and grab the opportunity rather than losing it to the competitors. It can prove to positively contribute to the business.
b. A detailed analysis of the business environment helps in the identification of thread which may have a negative effect on the functioning of the Enterprise. They can become an early warning signal and help the Enterprise to formulate adequate steps to cope up with it.
c. The environment provides various resources that are helpful to the business for its running in the long term environment. In return, the environment is provided with output in the form of goods and services by the Enterprise. So the environment is considered to be both a source of demand and the source of resources. So the Enterprises must arrange for the best possible resources which can be done only after a detailed studying of the business environment.
d. The environment is constantly changing in terms of technology, government policies, taste and preference of the consumer, etc. The manager of the firm must analyze the business environment to cope up with the changes.
e. It also helps in formulating new plans and policies according to the current scenario. This, in turn, helps to improve the overall performance of the Enterprise
Give an example to show that a business firm operates within numerous interrelated factors constituting the business environment.(Hint: an example highlighting the interrelatedness of dimensions of the business environment).
• All the elements of the business environment including its various dimensions of economic, legal, political, technological and social are closely interrelated to each other. A change in one of these will lead to a corresponding change.
• For example, the Government of India has introduced a new policy which focuses on using eco-friendly products for safeguarding the environment. This is a part of the political dimension of the business environment. Now the different organizations would invest in Technologies to produce efficient eco-friendly goods. This is a part of the political dimension of the business environment.
• Another example is that people are now focusing on using organic food products for health concerns. This is a part of the social dimension of the business environment. However, it presupposes an economic dimension that the people now have more disposable income than before.
Thus we can say that all the business dimensions are interrelated to each other.
Krishna Furnishers Mart started its operations in the year 1954 and emerged as the market leader in the industry because of their original designs and efficiency in operations. They had a steady demand for their products but over the years, they found their market share declining because of new entrants in the field. The firm decided to review their operations and decided that in order to meet the competition, they need to study and analyze the market trends and then design and develop their products accordingly. List any two impacts of changes in the business environment on Krishna Furnishers Mart’s operations. (Hint: an increase in competition and Market orientation).
The two impacts of changes in the business environment on Krishna Furnishers Mart’s operation are:
a. a. Increased competition- the competition for Indian firms has greatly increased due to the result of liberalization, privatization, and globalisation. Krishna furniture Mart is also facing it because of the expansion of the current market scenario.
b. b. Market orientation- Krishna furniture mart earlier produced goods and then sold in the market later. This was a production-oriented market setup. Now the focus has changed to the concept of customer is King. The company now has to analyze the market and understand the needs of the customers and accordingly design its products
Name any two Specific forces of business environment affecting business.
Specific environment refers to those external forces that affect an organisation directly. These are specific to a particular organisation. For example, a delay in the supply of raw material from the supplier directly affects the production of the company. Another example, is a change in the customer’s taste of the good produced by the company.
Why it is important for business enterprises to understand their environment? Explain.
Business environment refers to all the external forces including economic, political, social, technological and legal that affect the performance of a business organisation. It is the sum total of all the individuals, the control of a business enterprise but has the power to affect its performance. It is important to udnerstand of the business environment because of the following reasons:
a. Business environment includes all the forces, factors and Institutions which can directly or indirectly affect the performance of the business. It is an aggregate of all the external forces.
b. All the forces and the factors which can affect the business organisation are interrelated to each other.
c. The business environment is dynamic in nature. It is flexible and constantly changing. For example, the taste and preferences of the customers continue to change.
d. The business environment is uncertain in nature. It is not easy to predict the future.
e. It is relative in nature. It differs from a region to another region. For example, the political conditions may differ from one region to another.
f. The business environment is the aggregate of various forces. This makes it complex and difficult to understand. It is easier to understand the effect of the individual forces but not of the aggregate forces.
Explain the following terms:
a. Liberalisation
b. Privatization
c. Globalization
Liberalization refers to the removal of all the unnecessary controls and restrictions on the Government of a country. These controls include any form of license, permit, and quota. In 1991, India has introduced its new economic policy. It had liberalized the industrial sector in the following forms:
a. Industrial licensing was abolished. The license was required only for the six industries of cigarettes, liquor, defense equipment, dangerous chemicals, industrial explosive, and drug and Pharmaceuticals.
b. The trade restrictions of quantitative terms, customs, duties, and tariffs were removed on the movement of goods and services.
c. The companies had the liberty to decide the size and scale of production along with the price of its products.
d. The government encouraged foreign direct investment and steps with taken to attract FDI from other countries.
e. The government also reduced the tax rates on various goods.
f. The procedure for import and export was simplified.
b. Privatisation: Privatization refers to the transfer of ownership of state-owned enterprises from the public sector to the private sector. It implies a greater role to the private sector undertakings. Privatization was followed in the given manner:
a. The government sold a part of the equity of the public sector undertaking the and strategic sale of the public sector undertakings. This was called disinvestment.
b. Many companies were sold off such as Maruti Udyog Limited and modern Foods India.
c. The government has established the board of Industrial and financial reconstruction for the revival of the sick industries.
d. The government had given the award of Navratnas to the nine high-performing public sector undertaking. This help to bring about professionalism and to enable them to compete effectively in the market.
e. The number of industries that will be reserved only for the public sector reduced from 17 to 8. Only railway, atomic mineral, and atomic energy sectors were reserved for the public sector.
c. Globalization: Globalisation is the process of rapid integration and interdependence of the various economies of the world. The following policies were undertaken in regard to globalization:
a. The government has reduced and eliminated many duties and taxes on the import and export of goods for the promotion of free trade.
b. The government had also reduced many tariffs and customs duties.
c. Many steps were also taken to encourage foreign capital investment such as the introduction of Foreign Exchange Management Act and setting up of Special Economic Zones.
Briefly discuss the impact of Government policy changes on business and industry.
The impact of government policy changes made on business and industry are:
a. a. The new economic policy of liberalization, privatisation, and globalization, the level of competition among the industries increased. This competition was mainly observed in the telecommunication, insurance sector
b. b. The customers had a wide range of goods and services to choose from due to the increased competition. The improved quality of goods increased the demands.
c. c. With access to new technology, the goods and products began to be improved as well. The customers benefited from the improved quality of the products.
d. d. A skilled and trained human personal was required to cope up with the rapid changes in the economic environment. The human resources also began to be developed
e. e. The detailed study of customer's demand, as well as the market, became extremely important. The companies begin to analyze both of them and make the products according to the needs of the market. The production had become market-oriented.
f. f. The public sector had to depend on their own generated resources to be more efficient because now they received less budgetary support from the central government.
g. g. The new market conditions had been extremely dynamic, so the companies had to continuously modify their operations for their survival.
National Digital Library of India (NDL India) is a pilot project initiated by the HRD ministry. It works towards developing a framework of virtual repository of learning resources with a single-window search facility. It provides support to all academic levels including researchers, life-long learners and differently-abled learners free of cost. State the dimensions of business environment highlighted above.
The dimensions of business environment is technological environment. It consists of all the technological changes and improvements. It provides new opportunities to the enterprises but is also a threat for the enterprises which are using obsolete technologies. For example, with technological innovations, it is now easier to book a railway ticket through online medium. NDL Indi has also used technology for the development of a learning framework.
State the impact of demonetization on interest rates, private wealth and real estate.
Demonetisation refers to the withdrawal of the status of legal tender to the currency in circulation. It occured in India from the midnight of November 8, 2016. The government of India announced Demonetization of ₹ 500 and ₹ 1,000 currency notes and they ceased to be legal tender from that date. New currency notes of the denomination of ₹ 500 and ₹ 2,000 were issued by Reserve Bank of India after the announcement.
Its impact is explained below:
Interest rate- The deposit held in the bank increased. There was also an increase in the financial savings. The number of cash transactions reduced considerably.
Private wealth- Private wealth declined. Some of the high demonetized notes were not returned and the prices of the real estate fell.
Real estate- The prices of the real estate fell.
How would you characterize the business environment? Explain with examples, the difference between general and specific environment.
Business environment refers to all the external forces including economic, political, social, technological and legal that affect the performance of a business organisation. It is the sum total of all the individuals, the control of a business enterprise but has the power to affect its performance. The features of the business environment are explained below:
a. Business environment includes all the forces, factors and Institutions which can directly or indirectly affect the performance of the business. It is an aggregate of all the external forces.
b. All the forces and the factors which can affect the business organisation are interrelated to each other.
c. The business environment is dynamic in nature. It is flexible and constantly changing. For example, the taste and preferences of the customers continue to change.
d. The business environment is uncertain in nature. It is not easy to predict the future.
e. It is relative in nature. It differs from a region to another region. For example, the political conditions may differ from one region to another.
f. The business environment is the aggregate of various forces. This makes it complex and difficult to understand. It is easier to understand the effect of the individual forces but not of the aggregate forces.
Specific environment and general environment:
Specific environment refers to those external forces that affect an organisation directly. These are specific to a particular organisation. For example, a delay in the supply of raw material from the supplier directly affects the production of the company.
General environment refers to those external forces which affect all the organizations. They do not have any effect on a particular organisation. For example, a change in the political condition that affect all the companies.
How would you argue that the success of a business enterprise is significantly influenced by its environment?
An organisation cannot function in complete organ isolation. There are many external factors such as technological and social changes which affect the working of the enterprise. The external forces are extremely important for the success of the enterprise. The following points highlight the importance of the environment for the success of a business organisation:
a. It helps to identify the best opportunities and getting the first-mover advantage. It is better to analyze the market and grab the opportunity rather than losing it to the competitors. It can prove to positively contribute to the business.
b. A detailed analysis of the business environment helps in the identification of thread which may have a negative effect on the functioning of the Enterprise. They can become an early warning signal and help the Enterprise to formulate adequate steps to cope up with it.
c. The environment provides various resources that are helpful to the business for its running in the long term environment. In return, the environment is provided with output in the form of goods and services by the Enterprise. So the environment is considered to be both a source of demand and the source of resources. So the Enterprises must arrange for the best possible resources which can be done only after a detailed studying of the business environment.
d. The environment is constantly changing in terms of technology, government policies, taste and preference of the consumer, etc. The manager of the firm must analyze the business environment to cope up with the changes.
e. It also helps in formulating new plans and policies according to the current scenario. This, in turn, helps to improve the overall performance of the Enterprise
Explain, with examples, the various dimensions of business environment.
The various dimensions of the business environment explain below:
a. Economic environment- economic environment refers to all the changes in the economic policies by the government of India. The Reserve Bank of India plays an extremely important role in this. 8 consists of various economic variables such as interest rate, stock market, money supply, the functioning of banks etc. For example, an increase in the income of the consumer means an increase in the demand for the goods and services of the Enterprises.
b. Social environment- social environment refers to all the social force in such as customs, traditions, social values, and social trends. For example, the youth of India is bending towards the Western Lifestyle which has led to an increase in the demand for Fast Food.
c. Technological environment- it consists of all the technological changes and improvements. It provides new opportunities to the Enterprises but is also a threat for the Enterprises which are using obsolete Technologies. For example, with technological innovations, it is now easier to book a railway ticket through online medium.
d. Legal environment- it refers to the legislation and rules passed by the government of the country set up the Companies Act. It is essential for an enterprise to have thorough knowledge about the legal environment to avoid any legal trouble. For example, an export-import company in India has to comply with the rules under the EXIM policy and the foreign trade act 1992.
e. Political environment- political environment refers to all the political conditions such as law and order, and peace and stability. For example, the Government of India had introduced the new economic policy in 1991 which led to many business opportunities for the companies.
The government of India announced Demonetization of ₹ 500 and ₹ 1,000 currency notes with effect from the midnight of November 8, 2016. As a result, the existing ₹ 500 and ₹ 1,000 currency notes ceased to be legal tender from that date. New currency notes of the denomination of ₹ 500 and ₹ 2,000 were issued by Reserve Bank of India after the announcement.
This step resulted in a substantial increase in the awareness about and use of Point of Sale machines, e-wallets, digital cash and other modes of cashless transactions. Also, increased transparency in monetary transactions and disclosure led to a rise in government revenue in the form of tax collection.
a. Enumerate the dimensions of business environment highlighted above.
b. State the features of Demonetization.
a. The above case explains the economic environment of the business. The economic environment of the business refers to the changes in the system due to the economic policies made by the government. The Reserve Bank of India is an important regulator of the country's economic development.
b. Demonetisation refers to the withdrawal of the status of legal tender to the currency in circulation.
The features of demonetization are:
a. Demonetisation aimed at eliminating the stock of black money in the economy. Black money is unaccounted money. The people had to declare their unaccounted money and pay the tax as a penalty.
b. Since black money is there a root cause of bribery. This social evil was targeted to be removed from the foundation itself.
c. It also aimed at eliminating the counterfeit money. This type of money destabilizes the economy and increases the money in circulation leading to inflation.
d. It also targeted at keeping a check on the money laundering which refers to the hidden transfer of funds across the country.
e. It was expected to promote digital transactions in the economy. Fire the level of digital transactions means lower the level of cash transactions. It would shift the economy from a cash economy to a cashless economy
What economic changes were initiated by the Government under the Industrial Policy, 1991? What impact have these changes made on business and industry?
The economic changes were initiated by the Government under the Industrial Policy, 1991 are:
a. Industrial licensing was abolished. The license was required only for the six industries of cigarettes, liquor, defense equipment, dangerous chemicals, industrial explosive, and drug and Pharmaceuticals.
b. The trade restrictions of quantitative terms, customs, duties, and tariffs were removed on the movement of goods and services.
c. The companies had the liberty to decide the size and scale of production along with the price of its products.
d. The government encouraged foreign direct investment and steps with taken to attract FDI from other countries.
e. The government also reduced the tax rates on various goods.
f. The procedure for import and export was simplified.
g. The government has reduced and eliminated many duties and taxes on the import and export of goods for the promotion of free trade.
h. The government had also reduced many tariffs and customs duties.
i. Many steps were also taken to encourage foreign capital investment such as the introduction of Foreign Exchange Management Act and setting up of Special Economic Zones.
The impact have these changes made on business and industry are:
h. a. The new economic policy of liberalization, privatisation, and globalization, the level of competition among the industries increased. This competition was mainly observed in the telecommunication, insurance sector
i. b. The customers had a wide range of goods and services to choose from due to the increased competition. The improved quality of goods increased the demands.
j. c. With access to new technology, the goods and products began to be improved as well. The customers benefited from the improved quality of the products.
k. d. A skilled and trained human personal was required to cope up with the rapid changes in the economic environment. The human resources also began to be developed
l. e. The detailed study of customer's demand, as well as the market, became extremely important. The companies begin to analyze both of them and make the products according to the needs of the market. The production had become market-oriented.
m. f. The public sector had to depend on their own generated resources to be more efficient because now they received less budgetary support from the central government.
n. g. The new market conditions had been extremely dynamic, so the companies had to continuously modify their operations for their survival.
What are the essential features of:
a. Liberalisation,
b. Privatization and
c. Globalization?
a. Liberalization: Liberalization refers to the removal of all the unnecessary controls and restrictions on the Government of a country. These controls include any form of license, permit, and quota. In 1991, India has introduced its new economic policy. It had liberalized the industrial sector in the following forms:
a. Industrial licensing was abolished. The license was required only for the six industries of cigarettes, liquor, defense equipment, dangerous chemicals, industrial explosive, and drug and Pharmaceuticals.
b. The trade restrictions of quantitative terms, customs, duties, and tariffs were removed on the movement of goods and services.
c. The companies had the liberty to decide the size and scale of production along with the price of its products.
d. The government encouraged foreign direct investment and steps with taken to attract FDI from other countries.
e. The government also reduced the tax rates on various goods.
f. The procedure for import and export was simplified.
b. Privatisation: Privatization refers to the transfer of ownership of state-owned enterprises from the public sector to the private sector. It implies a greater role to the private sector undertakings. Privatization was followed in the given manner:
a. The government sold a part of the equity of the public sector undertaking the and strategic sale of the public sector undertakings. This was called disinvestment.
b. Many companies were sold off such as Maruti Udyog Limited and modern Foods India.
c. The government has established the board of Industrial and financial reconstruction for the revival of the sick industries.
d. The government had given the award of Navratnas to the nine high-performing public sector undertaking. This help to bring about professionalism and to enable them to compete effectively in the market.
e. The number of industries that will be reserved only for the public sector reduced from 17 to 8. Only railway, atomic mineral, and atomic energy sectors were reserved for the public sector.
c. Globalization: Globalisation is the process of rapid integration and interdependence of the various economies of the world. The following policies were undertaken in regard to globalization:
a. The government has reduced and eliminated many duties and taxes on the import and export of goods for the promotion of free trade.
b. The government had also reduced many tariffs and customs duties.
c. Many steps were also taken to encourage foreign capital investment such as the introduction of Foreign Exchange Management Act and setting up of Special Economic Zones.