CBSE Class 12 Business Studies Revision Notes Chapter 3: Business Environment

Q.1 What do you understand by economic environment?

Ans

Economic environment refers to the factors affecting the economy like the fiscal policy, monetary policy, industrial policy etc.

Q.2 List any two categories of non-economic environment.

Ans

Two categories of non-economic environment are:
1. Social environment
2. Political environment

Q.3 Explain any three features of Business Environment.

Ans

The features of business environment are as follows:
i. Dynamic – Business environment keeps on changing in terms of technology up gradation, consumer preferences and consumer behaviour.
ii. Totality of external forces – Business environment consists of all the forces, institutions and factors which directly or indirectly affect the business organisation.
iii. Uncertainty – Business environment is uncertain as it is difficult to predict future happenings.

Q.4 Identify the type or dimension of environment to which the following are related.
(i) Banks reducing interest rates on housing loans
(ii) An increasing number of working women
(iii) Booking of air tickets through internet
(iv) Alcohol beverages prohibited to be advertised on ‘Doordarshan’

Ans

i. Economic Environment
ii. Social Environment
iii. Technological Environment
iv. Legal Environment

Q.5 Explain the term ‘liberalisation’.

Ans

Liberalisation refers to end of license raj, quota and restrictions imposed on businesses by government in India. This was brought about by the New Economic policy 1991 by the Indian Government.

Indian companies obtained liberalisation in following aspects:

i. Abolition of license requirements in most of the industries, except a few

ii. Freedom in deciding the scale of operations

iii. Removal of restrictions on movement of goods and services

iv. Reduction in tax rates and lifting f unnecessary controls over the economy

v. Simplified procedures for imports and exports

vi. Simplified norms for getting more foreign investment and technology in India.

Q.6 What is the significance of understanding the environment in shaping the future of business?

Ans

The significance of understanding the business environment is as follows –i. Identifying opportunities – Scanning of business environment during initial stages helps the business in identifying the opportunities and gaining the first mover advantages.
ii. Tapping useful resources – Business environment helps firms to obtain inputs & in selling their output. The environment provides various resources for running the business like finance, machines, raw materials, power and water, labour etc and also helps firms to sell their outputs such as goods and services to customers, to give taxes to government, give return on investment to investors etc.
iii. Identifying warning signals – Threats from the environment refer to the trends & changes that may hinder business’s performance. Analysis of business environment helps businessmen in dealing with the constraints or hurdles and act as warning signals.
iv. Assisting in planning and policy making –The plans and policies in the organisation are formed keeping in mind the business environment as it helps in finding out the opportunities of business and policies can be made to grab these opportunities.
v. Coping with rapid changes – Business environment scanning helps companies to scan and understand the changes such as turbulent market conditions, less brand loyalty, changes in technology etc. Businessmen make changes in their internal environment to match the external environment.
vi. Improving performance – Continuous analysis of business environment can help companies to improve their performance. By changing the internal environment in relation to the external environment, organisations can prosper and improve their market.

Q.7 Explain the dimension of business environment that is related to increase/decrease in the inflation rate.

Ans

The component of business environment in case of increase/decrease in the inflation rate is economic environment. High inflation rate results 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.

Q.8 How can we say that environment is a complex phenomenon that is relatively easier to understand in parts but difficult to grasp in its totality?

Ans

Since business environment consists of numerous interrelated and dynamic conditions or forces which arise from different sources, it becomes difficult to comprehend at once what exactly constitutes a given environment. For example, it may be difficult to know the extent of the relative impact of the social, economic, political, technological or legal factors on change in demand of a product in the market.

Q.9 Explain ‘warning signal’ as an important feature of business environment.

Ans

Business environment helps in knowing the threats that may affect the organisation in future and helps in taking adequate steps to nullify the effect of possible threat.

Q.10 Explain globalisation.

Ans

Globalization is the integration of national economies into the international economy through trade, foreign direct investment, capital flows, migration and the spread of technology.

Q.11 Give any one objective of economic reforms in India.

Ans

The main objective of economic reforms in India is to connect the Indian economy with the world economy.

Q.12 Business environment is a relative concept. Explain.

Ans

Business environment is a relative concept since it differs from country to country and even region to region to region. Political conditions in the USA differs from those in China or Pakistan. In the same way, demand of sarees in India may be more but may be almost non-existent in USA.

Q.13 Two news items caught the attention of readers:

• RBI had reduced the bank rate to 8% from 7.5%
• Inflation was pegged lower at 3.10%

On reading this news, the Management of a prominent Private Bank called a meeting to reduce the interest rate charged on the loans extended to customers with immediate effect, since the bank rate had been reduced by RBI.

The revision had to be done immediately to make the interest rates attractive vis-à-vis competitors.

Examine the dimension of business environment which is affecting the bank.

Ans

The bank here is affected by Economic environment.

The economic environment consists of interrelated and interdependent factors such as:

• Gross Domestic Product
• Changes in disposable income
• Inflation rate
• Interest rate
• Value of currency, etc.

The bank needs to revise the interest on loans in view of need revision of bank rates by the RBI.

Q.14 How has the new government policy resulted in an increase in the competition?

Ans

The new government policy has allowed the foreign firms to easily do business in India, which has eventually increased the competition for Indian firms especially in service industries like telecommunications, airlines, insurance etc.

Q.15 Give any three features of New Industrial Policy.

Ans

The three features of New Industrial Policy were:

i. Carrying out of disinvestment in case of many public sector industrial enterprises.

ii. Liberalisation of policy towards foreign capital. The share of foreign equity participation was increased and 100% Foreign Direct Investment (FDI) was permitted.

iii. Setting up of Foreign Investment Promotion Board(FIPB)to promote and channelize foreign investment in India.

Q.16 It may be difficult to know the extent of the relative impact of the social, economic, political, technological or legal factors on change in demand of a product in the market. Identify and explain the features of business environment highlighted by this statement.

Ans

The features highlighted by this statement are ‘complexity’ and ‘dynamic’ nature of business environment.

Business environment consists of numerous interrelated and dynamic conditions or forces which arise from different sources. Hence, it is difficult to comprehend at once what exactly constitutes a given environment.

Moreover, a business environment is dynamic, it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market.

Q.17 Understanding of business environment gets a first mover advantage, acts as a warning signal for adverse conditions and sensitise the management. Discuss.

Ans

Importance of understanding business environment:

1. First mover advantage: Environmental awareness can help an organisation to capitalize on early opportunities rather than losing these opportunities to competitors.
2. Warning signal: The study of business environment helps in identifying the possible threats an organisation may face in future and take corrective actions to nullify their effect.
3. Sensitise the management: Environmental understanding sensitise the management to the changing needs and wishes of its customers.

Q.18 Explain globalisation.

Ans

Globalisation means ‘integrating’ the economy of a country with the world economy. It involves an increased interaction and inter dependence between the economies of the world.

This implies free flow of goods and services, capital, technology and labour across national boundaries.

To achieve these objectives of globalisation, the government has adopted various measures such as reduction in custom duties, removal of quantitative restrictions or quotas on exports and imports, facilitating foreign investment and encouragement of foreign technology.

Q.19 Companies that fail to adopt to their environment are unlikely to survive in the long run. Comment on this statement.

Ans

It is correct to say that the companies that fail to adopt to their environment are unlikely to survive in the long run. This statement refers to the ‘Business Environment’ of an organisation.

‘Business environment’ means the sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance.

The business environment of an organisation consists of forces and factors such as technological changes, economic changes, changes in government policy, change in customer preferences etc.

A business has to overcome these forces and factors in order to function in order to survive.

Q.20 Different elements or parts of business environment are closely inter-related. Comment.

Ans

Different elements or parts of business environment are closely inter-related. Increased life expectancy of people and increased awareness for health care have increased the demand for many health products and services like diet coke, fat-free cooking oil, and health care centres. New health products and services have also changed people’s life styles.

Q.21 Explain political and technological environment of a business.

Ans

Political Environment– This includes the political system, the government policies and attitude towards the business community and the unionism. All these aspects have a bearing on the strategies adopted by the business firms. The stability of the government also influences business and related activities to a great extent. It sends a signal of strength, confidence to various interest groups and investors.

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. In order to survive and grow in the market, a business has to adopt the technological changes from time to time.

Q.22 Explain how the New Government Policy has increased competition for the Indian companies and made them market oriented.

Ans

The impact of government policy on business and industry are:
i.Increasing competition: As a result of changes in industrial licensing and entry of foreign firms , Indian companies had to face all round competition, i.e. competition from the internal market as well as Multinationals (MNCs). Multinationals are able to offer quality products at competitive prices because of the technical and financial support from the parent companies.
ii. Market orientation: Today the firms are market oriented, i.e. the firms have to study and analyse the market first, study the needs and wants of customers and produce goods accordingly. With liberalisation and globalisation there is no longer any shortage of goods and services. There is a wide choice of competitive goods and services available with the customers today.

Q.23 Explain legal environment in detail.

Ans

The legal environment of business consists of laws, and regulations passed through Government orders, decisions of various Commissions and agencies, provisions of the Articles of the Indian Constitution as well as the various judgments given by the court in different matters relating to trade and industry.

Adequate knowledge of rules and regulations framed by the Government is necessary for the functioning of an organisation.

Every business organisation has to obey, and work within the framework of the law. Non-compliance with the legal instructions/laws can lead to legal problems for a business.

The important legislations that concern the business enterprises include Companies Act, 1956, Essential Commodities Act, 2002, The Standards of Weights and Measures Act, 1956, Trade Marks Act, 1999 etc.

Q.24 What do you understand by social environment?

Ans

The social environment of business includes social forces like customs and traditions, values, social trends, society’s expectation’s from business.

Traditions define social practices that have lasted for centuries. Values refer to concepts that a society holds in high esteem. These traditions and values translate into freedom of choice in the market, business’s responsibility towards the society and non discriminatory employment practices.

The main components of social environment are as follows:
1. Demographic trends- size and distribution of population, age composition etc.
2. Social attitudes, customs, rituals, cultures etc.
3. Family structure and values.
4. Educational levels, awareness of rights etc.

Q.25 Explain privatisation in detail.

Ans

Privatisation refers to reducing the role of public sector by involving the private sectors in most activities.

The new set of economic reforms in the New Industrial Policy of 1991, 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 Indian planners.

To pursue privatisation, the government 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 Reconstruction. Disinvestment is a process which results in dilution of government ownership beyond 51 percent and effects the transfer of ownership and management of the enterprise to the private sector.

Q.26 How would you characterise business environment?

Ans

Features or characteristics of business environment:

1. External environment of business: It includes all the forces, institutions or factors, which directly or indirectly affect the business. For example, change in government policies, technological advancement, change in consumer tastes and preferences etc.
2. Dynamic in nature: It keeps on changing with change in technology or consumer tastes etc. It never remains static.
3. Complex: It is difficult to understand its impact on business organisations as even the minor changes may have major impact. For example, increase in the tax rate by 2% may affect the income of a company by large amount.
4. Unpredictable: It is uncertain in future as changes keep taking place at a very fast pace. For example, fast changes taking place in IT or fashion industry.
5. Relative concept: It differs from country to country, region-to-region or company-to-company. For example, different political conditions in India and Pakistan or demand for handicraft items may be high in India but not in Germany.

Q.27 How would you characterise business environment?

Ans

A business environment means the sum total of all individuals, institutions and other forces that are outside the control of an enterprise but may affect its performance.

It can be characterized as follows:

i. Totality of external forces– Business environment includes all forces, institutions and factors which directly or indirectly affect an organisation operating in it.

ii. Specific and general forces– Specific forces in a business environment include customers, investors, competitors, suppliers etc. General forces which influence the environment are social, political, legal, technological conditions etc.

iii. Dynamic Nature- Business environment is highly flexible and keeps changing continuously. Changes could be in customer preferences, technological advancements etc.

iv. Complexity– The business environment consists of numerous and inter- related forces, hence it becomes difficult to comprehend the impact of the environmental forces on business. It becomes difficult to know the indirect impact of social, political, technological or legal factors on aspects of business.

v. Uncertainty– It is difficult to predict the changes in business environment, especially in case of rapidly changing aspects of environment, such as technological environment.

Q.28 What are the essential features of
a. Liberalisation?
b. Privatisation?
c. Globalisation?

Ans

Liberalisation: It means deregulations and reduction of government control in the business and large number of firms in various sectors functioning freely and without too much licensing. Measures of promoting economic liberalisation are:

1. Abolition of license in most of the industries.
2. No restriction on the expansion of business activities.
3. Freedom to private organisations for fixing their prices.
4. Freedom to import and export.

Privatisation: It means transferring of ownership from government to private sector. For example, Government of India has reduced its stake in various public sector undertakings and sold them to private sector. Measures promoting privatisation are:

1. Selling public sector undertakings to private companies and individuals.
2. Reducing the government stake in government companies.
3. Opening up sectors to private companies, which were exclusively reserved for government companies.

Globalisation: It means the integration of the various economies of the world and helping companies of one country to do business in other countries. Measures promoting globalisation are:

1. Removing restrictions from imports.
2. Simplification of tariff structure.
3. Abolition of export duty.
4. Reduction in import duty.

Q.29 Briefly explain the impact of government policy changes on business and industry.

Ans

The impact on business and industry as a result of Government policy changes can be explained as follows:
i. More demanding customer – Customers today have become more demanding because they are well-informed. The market has become customer oriented, thus increasing competition in business. The customers have a wide choice in purchasing better quality of goods and services.

ii.ncreasing competition – With changes in government policy regarding rules of licensing & entry of foreign firms, Indian companies have to face all round competition from internal market as well as from MNCs. Companies with large resources and latest technology can survive.

iii. Market orientation– In a dynamic business environement, there is a shift to market orientation in as much as the firms have to study and analyse the market first and produce goods accordingly.

iv. Rapidly changing technological environment–Increased competition has brought about improvements in technology. Technological changes have improved production process, product and services. This has made the environment tougher for small organisations.

v. Need for developing human resources – New Market conditions require people with higher competence, skill and training. Hence, Indian companies feel the need to develop their human skills.

Q.30 Explain, with examples, various dimensions of the business environment.

Ans

Dimensions of business environment:

a. Economic environment: Economic environment consist of gross national product, inflation rate, productivity, balance of payments etc. Economic environment has a significant influence over organisational policies and actions. For example, rise in the disposable income of people due to increase in the gross domestic product of the country results in increase in the demand for products.

b. Social environment: The social environment of the business includes the social forces like customs and traditions, values, social trends, society’s expectations from business etc. The main components of social environment are as follows:

· Demographic trends- size and distribution of population, age composition etc.

· Social attitudes, customs, rituals, cultures etc.

· Family structure and values.

· Social concerns regarding pollution, corruption etc.

· Educational levels, awareness of rights etc.

c. Technological environment: The technological environment includes new approaches to production and distribution of goods and services, new processes and equipments etc. Technological environment has a significant influence on business. For example: DTH facility provided by many companies like Tata Sky, Dish TV has adversely affected the cable TV operators.

d. Political environment: It consists of those elements that are related to governmental affairs i.e. the type of government, government attitude towards various industries etc. For example, IT companies have found Hyderabad to be the most hospitable location primarily due to the supportive political climate.

e. Legal environment: Every business has to function with in the framework of laws and regulations of the country. Legal environment therefore has a very significant influence on business activities. Non-compliance of laws can land the business into legal problems. For example, a publishing company has to follow the law governing copyright.The main components of legal and regulatory environment are:

· Rights and duties of citizens as specified in the constitution.

· Laws concerning promotion, operation and expansion of business.

· Flexibility and adaptability of laws.

· Judicial systems of the country.

Q.31 What economic changes did the government under the Industrial Policy, 1991, initiate? Explain in detail.

Ans

The economic reforms announced by Government of India in 1991 were:

i. Reduction in the number of industries under compulsory licensing to six.

ii. Many of the industries reserved for the public sector under the earlier policy, were dereserved.

iii. Disinvestment of public sector industrial enterprises.

iv. Increasing the foreign equity participation.

v. Establishment of Foreign Investment Promotion Board (FIPB) to promote and channelize foreign investment in India.

Appropriate measures were taken to remove obstacles in the way of growth and expansion of commerce and trade.

The economic reforms were brought about through- Liberalisation, Privatisation and Globalisation.

Liberalisation refers to removal of licencing raj to liberate the Indian businesses from unnecessary restrictions and controls, through abolishing licensing requirements of various industries, reduction of taxes and removal of restriction of movement of goods and services.

Privatisation is aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector. This was to be brought about through disinvestment, which is the process of dilution of stake of Government in public sector undertakings beyond 51%.

Globalisation was aimed at encouraging foreign private participation in India’s industrial development, through import liberalisation, export promotion and rationalization of tariff structure.

Q.32 The terms’ Opportunities’ and ‘Threats’ have been referred to in the understanding of business environment. What does these terms refer to here?

Ans

The term ‘opportunities refer to the positive external trends or changes that will help a firm to improve its performance and ‘Threats’ refer to the external environment trends and changes that will hinder a firm’s performance.

Q.33 Business environment helps in identifying opportunities and getting the first mover advantage. Explain with an example.

Ans

Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors. For example – Maruti Udyog became the leader in the small car market because it was the first to recognise the need of small cars in an environment of rising petroleum prices and a large middle class population.

Q.34 How do changes in government’s economic policies, rapid technological developments, political uncertainty, and changes in fashions and tastes of consumers and increased competition in the market influence the working of a business enterprise?

Ans

In case of change in the government’s economic policies, say, increase in taxes, things become expensive in the market to buy. Technological improvements may make the existing products obsolete, political uncertainty may create fear in the minds of the investors. Changes in fashions and tastes of consumers may shift demand in the market from existing products to new ones and increased competition in the market may reduce profit margins of firms.

Q.35 Various international companies like Pepsi, Coca cola, McDonald, Kentucky Fried Chicken, etc., have been well accepted by Indians at large. These were the results of new economic reforms which believed that country should not be isolated from the rest of the world. Identify the economic reform. What are its advantages?

Ans

Economic reforms which believed that country should not be isolated from the rest of the world were globalisation and liberalisation. Trade liberalisation was 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 world.

Globalisation or trade liberalisation in India has allowed companies to increase their base of operations, expand their workforce with minimal investments, and provide new services to a broad range of consumers. It involves an increased level of integration and interdependence among the various nations of the global economy. Physical geographical gap or political boundaries no longer remain barrier for a business enterprise to serve a customer in a distant geographical market. This has been made possible through rapid advancement in technology and liberal trade policies by government.

Q.36 Social trends present various opportunities and threats to business enterprises. Comment.

Ans

Social trends are part of social environment. The health and fitness trend has become popular among large number of urban dwellers. This has created a demand for products like organic food, diet soft drinks, gyms, bottled (mineral) water and food supplements. This trend has, however, harmed business in other industries like dairy processing, tobacco and liquor.

Q.37 Tata Steel embarked on a series of modernisation and restructuring initiatives which helped it grow from strength to strength and was judged number 1 in the league table of world-class steel companies by World Steel Dynamics in the year 2001. What do you think was the reason for this change?

Ans

The reason for this change in Tata Steel was due to the New Industrial Policy issued by the Government since 1991 to give boost to liberalisation of industries and globalisation of the economy. The ‘liberalisation’ aimed at liberalising the Indian business and industry from all necessary controls and restrictions. Globalisation means the integration of the various economies of the world leading towards the emergence of a cohesive global economy.

Q.38 Outlook Diff. is a well-known advertising company in its industry. Recently they had a meeting in which all the reasons that were outside the control of the company were discussed. The company wanted to maintain its supremacy in the market. They decided to break the meeting into two chunks. In the first one customers, competitors, suppliers, etc. were discussed where as in the second one the political, economic, social conditions in the country were discussed. It was concluded that company was doing extremely well in the domestic market and the client base was expanding. When the company’s performance in foreign markets was evaluated it was found that conditions were different in different countries so the strategies adopted should be different. After the meeting the company was looking forward to making new gains.
State characteristics of Business Environment that have been highlighted in the above case. Also quote the lines.

Ans

The characteristics of Business Environment that have been highlighted are:

1. Totality of external forces. Recently they had a meeting in which all the reasons that were outside the control of the company were discussed.
2. Specific and general forces. In the first one customers, competitors, suppliers, etc. were discussed where as in the second one the political, economic, social conditions in the country were discussed
3. Relativity When the company’s performance in foreign markets was evaluated it was found that conditions were different in different countries so the strategies adopted should be different.

Q.39 Decline in the interest on loans announced by the Banks encouraged Omna, a science student of Liberal School to take a loan from Central Bank to experiment and develop cars to be powered by fuel produced from waste. She developed such a car and exhibited it in the Science Fair organised by Minister of Education. She was given the first prize for her invention.
What dimensions of business environment are discussed in the above case?

Ans

The dimensions of business environment discussed in the above case are:

1. Economic Environment. Economic dimension of business environment includes various economic factors like inflation, interest rates, currency value, income of people, etc.
2. Technological Environment. Scientific improvements and innovations are included in the technological dimension of business environment. It provides new ways and methods of producing goods and services.

Q.40 Tech. 2 is a software company. It has branches throughout the world. The company knows that it has good opportunities in its path. When it was restricted only to its home country. With the passage of time within 10 years the economies of various countries have integrated. This has given a great advantage to this company which has expanded. In many of the countries where it has its, branches the control of Government in the public sector enterprises has diluted giving more control to the private sector. One of the major reasons for the success of the company has been the role of the initiator the company has played as it was the first company of its kind to enter the market.
State the concept referred to above. Also identify the type of advantage has been indicated in the last line of the above case.

Ans

Concept referred to above is globalisation. With the passage of time within 10 years the economies of various countries have integrated. Advantage:

1. Disinvestment. In many of the countries where it has its, branches the control of Government in the public sector enterprises has diluted giving more control to the private sector.
2. First mover advantage. The role of the initiator the company has played as it was the first company of its kind to enter the market.

Q.41 Goodfit Ltd. has opened a tailor-made shoe business in different cities. The company did a lot of research on the nature of business environment in which it is operating. The market has fragmented with many players, ever changing brand loyalties of the customers, demanding customers and competition in the market. Every week on Wednesday the board of directors meet and decide the future course of action. They believe their surveys and past performances of other companies to achieve policy making and deciding future course of action. The company spends time in understanding the external environment. With all the research the company has realised that the business environment have a lot of impact on the organisation so it is important to continuously monitor it.
Identify the importance of management highlighted here.

Ans

The importance of business environment highlighted here:

1. Helps in coping with rapid changes. The market has fragmented with many players, ever changing brand loyalties of the customers, demanding customers and competition in the market.
2. Helps in planning and policy formulation. They believe their surveys and past performances of other companies to achieve policy making and deciding future course of action.
3. Helps in improving performance. With all the research the company has realised that the business environment have a lot of impact on the organisation so it is important to continuously monitor it.

Q.42 A bells making company in Florida is flourishing well. The company makes bells for different occasions. During the time of Christmas and New Year, the production and selling of bells reaches a new high. The company exists in an environment that is democratic and there are rules for every business firm. Once you step out of the company there are customers, competitors, government authority and others one can think of. The company appears to have a promising future. However the firm will have to take care of the close relationship between various elements of the business environment around it.
Which dimension of business environment is highlighted here? Also state the features of business environment highlighted in the above case.

Ans

The dimension of business environment which is highlighted above is “Social”. The Company makes bells for different occasions. During the time of Christmas and New Year Eve the production and selling of cards reaches a new high.
Features of business environment which are highlighted above are:

1. Totality of external forces. Once you step out of the company there are customers, competitors, government authority and others one can think of.
2. Inter-relatedness. However the firm will have to take care of the close relationship between various elements of the business environment around it.

Q.43 Fit Steps is a good shoe manufacturing company which is the first to manufacture a shoe with a unique technology providing it a long life. However the company knows that it operates in an environment in which everything around it matters. Therefore, it is trying to spot every small aspect of the business environment. There are various factors that are closely related to each other and can’t be understood in isolation like change in lifestyle that can be linked to the improved demand of technologically advanced shoes. However, the company will have to adjust to ever changing technology, fragmentation of market, changing brand loyalties, etc. It has better man power and a very well established production department. It knows that various resources in the form of inputs have to be transformed into the best products and sold for increasing its revenue. But, there are various challenges that the company is facing. These are in the form of protests done by labour unions throughout the country that mostly assumes the form of strikes. The board of directors is keen to adapt to this difficult situation. Government is playing a very important and positive role, like it did a few years back, and is freeing the business environment from unnecessary restrictions and government controls. Fit Steps is hoping to emerge as a winner with such government support.

1. What features of business environment are highlighted here?
2. Also state the importance of business environment referred to the above case?
3. Which dimension of business environment is highlighted above?
4. Which economic reform is discussed in the last part of the case?

Ans

1. The features of business environment highlighted here are:

1. Totality of external forces. However the company knows that it operates in an environment in which everything around it matters.
2. Inter-relatedness. There are various factors that are closely related to each other and can’t be understood in isolation like change in lifestyle that can be linked to the improved demand of technologically advanced shoes.

2. The importance of business environment highlighted in the above case:

1. Helps to cope with rapid changes. It will have to adjust to rapidly changing technology, fragmentation of market, changing brand loyalties, etc.
2. Helps in tapping useful resources. It knows that various resources in the form of inputs have to be transformed into the best products and sold for increasing its revenue.

3. The dimension of business environment which is highlighted here is ‘Political Environment’. These are in the form of protests done by labour unions throughout the country that mostly assumes the form of strikes.
4. The economic reform which is discussed in the last part of the case is ‘Liberalisation’. Government is playing a very important and positive role, like it did a few years back, and is freeing the business environment from unnecessary restrictions and government controls.

Q.44 Jay and kate after finishing their engineering decided to start their own travel agency that will book Rail Tickets and Air Tickets on commission basis. They also thought of providing tickets within five minutes using the internet. They discussed the idea with their Professor Richard who liked the idea and suggested them to first analyse the business environment that consists of investors, competitors and other forces like social, political etc. that may affect their business directly or indirectly. He then told them about the technological improvements and shifts in consumer preferences that were taking place and hence they should be aware of the environmental trends and changes that may hinder their business performance. He focused on making plans with competitors in mind, so that they can deal with the situation effectively. This alignment of business operations with the business environment will result in better results.
(i) Can you tell the component of business environment highlighted in the above Para?
(ii) Enumerate the features of business environment are discussed by the Professor?
(iii) Give any two points to favour the importance of business environment as stated by Professor in the above case.

Ans

(i) The component of business environment highlighted here is Technological Environment. It 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.
(ii) Features of business environment are discussed by the Professor are:
(a) Specific and general forces
(b) Dynamic nature
(iii) Importance of business environment:
a) Helps in identifying threats and early warning signals.
b) Helps in planning and policy formation

Q.45 Alex after completing MBA from Texas comes to India to start a new business with the name E-Enovations Ltd. He launches a new product in e-learning for Senior Secondary School students in Arts stream, which already has an established market in USA but not in India. His business starts flourishing in India. Now more Indian companies entered into the market with other subjects also.
Quote the lines from above case study that highlight the significance of understanding business environment.

Ans

a) “Comes to India to start a new business ——– launches a new product in e-learning for Senior secondary school students in Arts stream”. This helped in
1. Assisting in the planning and policy formulation
2. Identifying opportunities and getting the first mover advantage.
b)“ His business starts flourishing in India” . This helped in:
1. Improving the performance
c) “Now more Indian companies entered into the market with other subjects also”. This helped in:
1. Identifying threats & early warning signals

Q.46 It is observed that good knowledge and understanding of environment by business managers enables them to identity, evaluate and also react to the forces external to their firm.
Support this statement by explaining any four points of importance of understanding business environment.

Ans

Importance of business environment can be understood through following points:
Enables firm to identify opportunities: Opportunities are positive external trends or changes that enable a firm to improve its performance. Enterprises can exploit opportunities by identifying opportunities early.
Helps in identification of threats and early warning signals: Threats are the external environment trends and changes that hinder a firm’s performance. Environmental awareness helps manager to identify various threats on time
Helps in tapping useful resources: Environment provides various resources for running a business. An enterprise assembles various resources called inputs like finance, machines, raw materials, power and water, labour, etc., from its environment for any activity.
Helps in coping with rapid changes: Business environment is getting increasingly dynamic where changes are taking place at a fast pace. Knowing the environment helps to cope up with such changes.

Q.47 ‘Yalo Ltd.’ is an electronic goods manufacturing enterprise situated in Ratlam, Madhya Pradesh. It is earning a very low revenue in comparison to a competing electronic goods manufacturing enterprise, ‘Ignite Ltd.’ situated in Delhi. Both Yalo’s and Ignite’s operations are affected directly by the investors, customers, competitors and suppliers, which are unique to their respective locations. In addition to this, firms of this field are affected indirectly by the factors such as the money supply in the economy, composition of the families, the technological changes, etc.

Can you identify the feature of the concept discussed in the above paragraph?

Ans

The feature of business environment highlighted here is ‘Special & General Forces’.

Business environment comprises of both specific and general forces. Specific forces are investors, customers, competitors and suppliers that affect individual enterprises directly. 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.

Q.48 In 2020, Foreign Direct Investment is said to be allowed in Defence also. Spot and explain the dimension of business environment being referred to here.

Ans

The dimension of business environment being referred to here is the Economic Enviornment. It includes the factors like interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee that can affect the management practices in a business.

Q.49 Ena and Harry wanted to start a garment manufacturing business. They both are friends sharing common interests. From the beginning they both were in the favour of business and not the employment. While discussing, Ena asked Harry to research and keep answers ready of the questions mentioned below for moving one step further in starting the business:

Who will constitute our target market?

How will consumers opinion change regarding our product?

Is the population demographic growing or slowing and how will this affect us?

Can you spot the dimension of business environment that Ena is referring to here?

Ans

The dimension of business environment that Ena is referring to here is Social Enviornment. This also covers the demographic features of population in a specific area, city, country, etc. it involves factors like size of population, age, income, geographical distribution, diversity or ethnic mix and changes in household patterns.

Q.50 Tinsu was being interviewed as Engineering Head of Omena Inc. She was 10 years experienced and had a very good command in the field. When asked to put any questions that are in her mind while interviewing, she asked that “Do you depend on 3rd parties for any tech support or solutions.”

Which element of business environment is she focusing on?

Ans

She is focusing on Technological dimension of business. This relates to the scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.

Q.51

Spot the related dimensions of the business environment here:

Money supply in the economy

Composition of family

The Transfer of Property Act

Ans

Money supply in the economy: This is the element of economic environment of a business. It includes the factors like interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee that can affect the management practices in a business.

Composition of family: It is a part of Social environment. It covers the broad characteristics of the society in which a business enterprise operates.

The Transfer of Property Act: This is the part of Legal environment of a business. It includes legislations 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.

Q.52 We have seen the following evolutions in the washing machine: Manual-Semi automatic-Fully Automatic with two variants i.e. Top Load & Front Load.

Identify the element of business environment that you can related to here.

Ans

The element of business environment that we can related to here is Technological dimension of business. This relates to the scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.

Q.53 Since 26 April 2019 and till May, BSE Sensex lost nearly 2,000 points in market valuation over the last few sessions before ending its losing streak a couple of days ago. This was the result of ongoing Lok Sabha Election 2019s Can you spot the dimension of business environment focused here.

Ans

The dimension of business environment focused here is economic environment. It includes the factors like interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee that can affect the management practices in a business.

Q.54 We can see extensive use of organic food, bottled water in urban areas. Which dimension of business environment is reflected here?

Ans

The dimension of business environment is reflected here is social environment. It includes include 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.

Q.55 Selena, a new mother, saw on the packet of Cerelac “Important Notice: Mother’s Milk is best for your baby.” Which element of business environment can you relate to?

Ans

This is the element of legal environment. It includes legislations 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.

Q.56 In 2020, Foreign Direct Investment is said to be allowed in Defence also. Give one reason for when you say that FDI useful. Why do you think FDI is important for an economy like India?

Ans

FDI is important for an economy like India . It:

Brings in modern technology

Brings in foreign exchange

Brings in management expertise

Q.57 Was Industrial Policy of 1991 Pro-private or a Pro-public sector and why?

Ans

Pro-Public sector

Q.58 What was the one major factor that prompted the introduction of reforms of 1991?

Ans

The one major factor that prompted the introduction of reforms of 1991 was crises of Foreign Exchange. Foreign exchange reserves, that government generally maintains to import petrol and other important items, had dropped to levels that were not sufficient for even a fortnight. The government was not able to repay its borrowings from abroad also.

Q.59 Can you state one reason that gives importance of private sector?

Ans

Private sector was given the important in New Economic policy. One reason for that was that private sector focused on reduction in costs by minimising wastages.

Q.60 Give the steps taken by New Economic Policy towards: a. Liberalisation b. Globalisation

Ans

a. Liberalisation:

(i) abolishing licensing requirement in most of the industries except a short list,

(ii) freedom in deciding the scale of business activities

(iii) removal of restrictions on the movement of goods and services

(iv) freedom in fixing the prices of goods services, reduction in tax rates and lifting of unnecessary controls over the economy

(v) simplifying procedures for imports and experts, and

(vi) making it easier to attract foreign capital and technology to India.

b. Globalisation:

(i) Free flow of goods and services across nations;

(ii) Free flow of capital across nations;

(iii) Free flow of information and technology;

(iv) Free movement of people across borders;

(v) A common acceptable mechanism for the settlement of disputes;

(vi) A global governance perspective

Q.61 State whether the following statement is true or false:

New Economic Policy of 1991 focused at liberalisation of Indian Economy.

Ans

True, New Economic Policy of 1991 focused at liberalisation, globalisation and privatisation of Indian Economy.

Liberalisation: It includes measures like abolishing licensing requirement in most of the industries except a short list, freedom in deciding the scale of business activities, removal of restrictions on the movement of goods and services, etc.

Globalisation: Globalisation means the integration of the various economies of the world leading towards the emergence of a cohesive global economy.

Privatisation: This means giving greater role to the private sector in the nation building process and a reduced role to the public sector.

Q.62 Support the statement that: A truly global economy implies a boundaryless world.

Ans

A truly global economy implies a boundaryless world. This implies:

• 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 countries;
• A common acceptable mechanism for the settlement of disputes; and
• A global governance perspective

Q.63 Read the following text and answer the question:

Nora worked in a large global company that offered competitive salaries and benefits to its employees. The organisation also promoted a positive work culture and climate and the behaviour of managers was also very supportive towards the subordinates.

Nora was very satisfied working in such organisation but due to long work hours, she could not find time to cook food for her and eat properly and started to suffer health issues. She talked about her problem with her colleagues and surprisingly discovered that many of them were facing the same issues as there was increase in number of professional women and less time for home-cooked food. Nora took this as a business opportunity and decided to quit her job and start a business of supplying home-cooked food to working professionals at a reasonable price. Also, every day, she distributed the leftover food to needy and homeless people.

i. Identify the dimension of business environment being discussed above.

1. Political environment
2. Economic environment
3. Social environment
4. Technological environment

ii. Choose from the following, nature of business environment that is highlighted here.

1. Relativity
2. Complex
3. Uncertain
4. Specific force

iii. State the importance of business environment that is referred to here.

1. First Mover Advantage
2. Threats & Warning Signals
3. Planning & Policy Formulation
4. Improvising Performance

Ans

3. Social environment
Social environment consists of the cultural and social forces within which the business firms operate. It includes elements like concern with quality of life, expectations from workforce, presence of women in workforce, birth and death rates, population shifts, educational system and literacy rates, consumption habits, etc.

c. uncertain
Business Environment is very uncertain as its elements are dynamic in nature. Prediction of the future of various factors is very difficult. Though well paid, employees are not satisfied as working for long hours is affecting their health.

a. First Mover Advantage
Business Environment enable firms to identify opportunities for business success. It allows one to be the first to exploit business opportunities instead of losing them to competitors. Here Nora was facing the shortage of time to cook food at home and she took this as opportunity to serve all those people who are facing the same issue, with the home cooked food.

Q.64 In Feb 2021, Mamata Banerjee came out with a new move to curb the petrol and diesel price hike. One rupee has been deducted from the fuel tax levied at the state level in West Bengal. The Central Government levies a tax of Rs 32.90 per litre on petrol at present.

On the increase petrol prices, Prime Minister Narendra Modi said that the Government is committed to reducing India’s crude oil imports.

Referring to the above state, answer the following questions: (3 marks)

1. What would you relate this move in West Bengal to?

1. Political environment
2. Legal environment
3. Social environment
4. Technological environment

2. On the increase Petrol prices, Prime Minister Narendra Modi said that the Government is committed to reducing oil imports. Relate this to one of the following aspects

1. Economic environment
2. Legal environment
3. Social environment
4. Technological environment

3. Choose from the following, nature of business environment that is highlighted here.

1. Relativity
2. Complex
3. Uncertain
4. Specific force

Ans

i. Political environment
Political environment consists of the forces relating to the management of public affairs influencing business. Some of the elements of this component are constitution of the country, prevailing political system, dominant ideologies and values of major political parties, etc.

a. Economic environment
Economic environment consists of the forces relating to the means of production and distribution of wealth. Some of the elements of this component are rates of savings and investment, volume of imports and exports, balance of payments & foreign exchange reserves, etc.

c. Uncertain
Business Environment is very complex as it comprises of numerous interrelated and dynamic forces. Multiplicity of its elements makes understanding of the environment difficult.