CBSE Important Questions Class 12 Business Studies Chapter 3

Important Questions for CBSE Class 12 Business Studies Chapter 3 – Business Environment

These important questions for Class 12 Business Studies chapter 3 students will learn about Business Environment. After reviewing these CBSE revision notes, they will also get an idea of the Business Environment.  They are going to be better prepared for their exams by studying these chapter 3 class 12 Business Studies important questions and can easily solve several CBSE sample papers after studying these Business Studies class 12 chapter 3 important questions.

These notes also come with important concepts and CBSE extra questions that can be used to assess your comprehension and level of preparedness for the board exam.

CBSE Class 12 Business Studies Chapter-3 Important Questions

Study Important Questions for Class 12 Business Studies Chapter 3 – Business Environment

1. Describe the business environment.

Ans: It refers to all variables a company cannot control but may impact its success. The business environment includes the social, political, economic, legal and technological variables outside a company.

2. Which industries received more attention following independence?

Ans: Following independence, the private sector received greater attention than the public sector. The role of the public sphere gradually shrank after independence, and a leading position was given to the private sector.

3. How has increasing competition since liberalisation benefited consumers, likewise, globalisation?

Ans: Globalisation and market liberalisation have increased competition, which is good for consumers because it gives them a wider range of higher-quality products at a reasonable price to choose from.

4. What does liberalisation imply to you?

Ans: It’s a reform to free an economy from pointless regulations, licensing requirements, and government constraints. It eliminates government involvement and gives corporate firms more autonomy in decision-making.

5. How can businesses adapt to the rapidly evolving technological landscape?

Ans: An organisation must stay informed about recent changes in technology around the world to adapt to the changing technological environment. They must then adapt to this change to benefit from new technology. To keep up with the rapidly changing technological environment, they must therefore keep innovating and developing fresh concepts and ideas to stay ahead of the competition.

6. What does the term opportunities mean?

Ans: Opportunities are good external trends that can improve a business, earn profits and ensure future growth.

7. How would you define globalisation?

Ans: The term “globalisation” refers to the growing interdependence of the economies, cultures, and populations of the world as a result of international trade in products and services, technology, and flows of capital, people, and data. Thus, globalisation refers to creating opportunities for the various economies of the world to take part in the creation of a global economy.

8. Which Indian government strategy has pushed India towards globalisation?

Ans: The  New Industrial Policy, of 1991 brought reforms in terms of Liberalisation, Globalisation and Privatisation.

9. How would you define innovation?

Ans: Innovation is the process of coming up with fresh concepts, methods, or products that, when put into practice, result in beneficial changes. The practical application of creative ideas is what innovation entails.

10. Identify the economic changes made to relieve unnecessary regulations and constraints on Indian companies.

Ans: The 1991 New Economic Policy promoted liberalisation to free Indian businesses from pointless rules and regulations.

11. It refers to transferring ownership from the public to the private sector.

Ans: It is a step the government has made toward privatisation. This reduces the government’s ownership of a public company.

12. Describe one liberalisation-related action made by the Indian government.

Ans: The licensing requirement was eliminated under liberalisation except for five industries. They are alcoholic beverages, tobacco, weapons, industrial explosives, and potentially harmful substances.

1. Describe with  the following examples  how the management benefits from a grasp of the business environment:
2. Using practical resources

Ans: Business uses the resources of the outside world as inputs, such as money and labour, and then gives the outside world its output in the shape of goods and services, etc. Additionally, a firm’s ability to track and exploit the environment’s valuable resources to produce goods and services is aided by an understanding of the business environment.

1. Adapting to quick changes.

Ans: Because the corporate environment is so dynamic, managers must create plans to not only deal with the technological changes but also to benefit from them.  Their market shares by utilizing it to their advantage. To effectively handle the management must comprehend and anticipate the situation and take appropriate steps at the right moment. In addition, it aids management in raising awareness. About how consumer needs are changing. They can therefore adapt to such situations because of necessary modifications implemented successfully.

14. AXN Ltd., a multinational firm that prioritises the environment, adheres to a set of clearly defined corporate principles that help to reduce staff turnover. The key environmental factors considered by “AXN Ltd.” are listed below.

1. Respect the law of the nation where it conducts business.
2. Honour the traditions and cultures of all peoples.
3. Offer wholesome and secure goods to improve people’s quality of life everywhere.
4. Establish a business culture that values management and employee trust and respect while fostering individual innovation and teamwork.

Given the earlier:

(i) Name and describe any overarching management philosophy and one aspect of the business environment.

Ans: The management principle is “Esprit de corps”:

This is the company’s guiding concept since the company’s culture is focused on fostering and upholding mutual respect and trust between management and labour. In addition, the ideas of initiative and staff stability which is also part of the management philosophy..

A feature of a lawful business environment:

Contains laws approved by the government or its connected offices, administrative orders, court rulings, or decisions. In this case, it is asserted that the company is extremely careful to uphold the law in every nation where it conducts business. Environmental factors, including the social, cultural, technological, legal and ecological contexts, are additional aspects.

(ii) Values propagated:

15. Obeying the law
16. Hygiene and cleanliness
17. ocial and workplace justice
18. In Malaysia, “Accent Electronics Ltd.” is conducting business. When the Prime Minister allowed relaxation in import duties on electronic items, the company began exporting its goods to India. The company appointed retailers in India who had direct online links to the suppliers to replenish stocks when needed. Describe the business environment elements examined in the above case study.

Ans: The following aspects of the business environment are covered in the case study below.

Political Environment: Political leadership, political stability, the practices of the governing party, government programs, etc., are all examples of political stability. Changing or unstable governments are two examples.

Quotation: “Prime Minister allowed relaxation in import duties on electronic items.”

Technological Environment: It consists of forces connected to scientific advancements and inventions, which result in better manufacturing processes and methods. Consider the transition from books to e-books or from landlines to touch-screen mobile phones.

Quotation: “The company appointed retailers in India who had direct online links to the suppliers to replenish stocks when needed.” 

16. Neelesh, operating a candy store, switched to the chocolate industry as a change in the consumption habits of people. On the eve of Diwali, he sold chocolates in attractive packaging for fair pricing. He created a website chocolove.com for taking orders online since he expected there is going to be a great demand. He received tons of internet orders and made huge profits selling chocolates. Describe the aspects of the business environment discussed in the instance mentioned above.

Ans:  It covers the following aspects of the business environment given below.

1. Social Environment: The social environment reflects the values, beliefs, social trends, practices, and ethics of the society in which businesses operate. For instance, religious holidays offer business opportunities to various companies, including those that produce sweets and decorations.

Products, gifts, etc. Similar changes in social trends toward western lifestyles have increased demand for western clothing, fast food consumption, etc., in India.

Quotation: “Change in consumption habits of people.”

2. Technological Environment: It consists of forces connected to scientific advancements and innovations that result in better manufacturing processes and production techniques. 

Quotation: “created a website chocolove.com for taking orders online. ”

17. Describe how the political environment influences business.

Ans: Political stability encompasses political leadership, party-ruling procedures, and government policies, laws, and regulations, among other things.

• Political stability increases business community confidence; however, political instability may make economic activity uncertain.
• Therefore, the political environment has the potential to influence the business and its operations in a positive or negative manner. 
• For instance,if political instability does not exist in the nation and the government is constantly changing, the ruling party will continue to implement its policies, disrupting corporate operations and resulting in losses.
• This is because a business operates under the constraints of the political environment; thus, when the government and its policies change, businesses must also comprehend and adhere to those changes.
• Unimaginable effects are caused by factors like taxation and trade policy on businesses.
• While a positive change in these rules brought about by progress and constructive change is good for the business, unstable and ill-planned alterations to these policies harm the operation and profitability of that business.
• For instance, following globalisation, the Indian government permitted numerous corporations to enter the Indian market to support various industries, such as the food processing industry. This made it possible for foreign corporations to enter India significantly.

18. Amit, a science student at Progressive School, decided to take a loan from the State Bank of India to experiment with and create automobiles that run on fuel made from waste after a recent rate cut in the interest on loans declared by the Banks. He developed and exhibited a car at the Science Fair organised by the Education Directorate. And he was awarded first prize for his invention. Describe the organs of the business environment that were examined in the case study above.

Ans: The following list includes the business environment aspects covered in the case study above.

Economic Environment: It alludes to the variables and causes affecting money spent on business operations. Inflation, money supply, price level, income level, interest rates, etc., are important economic issues. For instance, a rise in inflation rates causes a decline in disposable earnings, which lowers the demand for goods.

Quotation: “A recent rate cut in the interests on loans declared by the Banks.”

Technological Environment: It consists of forces connected to scientific advancements and inventions, which result in better manufacturing processes and methods. 

Quotation: “Developed and exhibited a car in the Science Fair organised by the Education Directorate. And he was awarded first prize for his invention.” 

19. List the advantages of being aware of the business environment.

Ans: The advantages of comprehending the corporate environment are:

Identification of Opportunities:  It allows the company to spot possibilities and gain the advantage of being first before others take note of it and speed up the competition. A corporate organisation has the opportunity to enhance its performance due to favourable external changes.

Identifying Threat: It assists the company in identifying dangers and disseminating early warning signs. Negative changes hamper performance in the external elements that operate as “threats” to the firm. Managers can develop methods to turn such situations into opportunities by identifying any threat early on and making necessary changes to survive in the market. .

Tapping Useful Resources: The resources of the external environment are used by a business as inputs, such as finance, labour, etc., and the output is given to the environment in the form of goods and services, taxes, etc.

Coping with Rapid Changes: The managers must devise plans not only to deal with the changes but also to use them to their advantage to increase their market shares since the business environment is so dynamic.

Planning and Policy Formulation: Businesses can develop their plans and strategies to deal with all the external changes with a clear understanding and analysis of the business environment.

Performance Gains: Businesses can improve their current performance and maintain their market position in the long run with the help of ongoing business environment monitoring and changing traditional business practices.

20. Explain how the business environment or environmental scanning aids in identifying hazards and warning signs.

Ans: A company’s performance is hampered by adverse changes in external circumstances, referred to as “threats” to the organisation. Early detection of threats enables managers to develop plans to turn threats into opportunities.

Environmental scanning enables a business to identify significant market and environmental information in advance, which may be used to position a company for upcoming issues.

For instance, Indian managers of companies dealing with similar products must view the possibility of an MNC entering the Indian market as a warning sign and an impending danger. In these situations, the manager will take every possible step to address the potential challenge posed by the entry of an MNC, including raising product quality, cutting costs, providing better customer service, etc.

21. Give four instances of mergers and acquisitions.

Ans: The following are examples of four mergers and acquisitions: 

• Marvel, Pixar, and Disney.

• Android and Google

• Exxon and Mobil.

• Corus Steel and Tata

22. In the US, Metlapp Networks and Technologies Ltd. is a pioneer in technological innovation, developing goods and services for global connectivity. It boasts a sizable research and development staff that created the W-7, the first smartwatch. While looking for international markets, the company discovered that in India, the reform process was taking place to boost economic growth. The watch tells the time and measures a few health markers like a heartbeat, blood pressure, etc. As a result, the corporation decided to benefit from India’s streamlined export process and the removal of both quantitative and tariff restrictions.

To gain access to the Indian market, it opened an office in Jamnagar. The business became the industry leader within a short period. The company’s success attracted numerous competitors in the market. Customers benefited as a result of price reductions brought about by the competition.

(a) The previous paragraph covers two key ideas concerning government policy. Name and describe these ideas.

Ans: Liberalisation and Globalisation are the two key ideas connected to government policy.

(i) Liberalisation: It is a reform that was put in place to eliminate irrational government regulations, licensing requirements, and limitations on the economy. It eliminates government involvement and gives corporate firms more autonomy in decision-making.

Quotation: “to benefit from India’s streamlined export process and the removal of both quantitative and tariff restrictions.”

(ii) Globalisation: It refers to the increasing interdependence of the economies, cultures, and populations around the world as a result of technology, cross-border trade in goods & services, and flows of capital, people, and data. Thus, globalisation refers to creating opportunities for the various economies of the world to take part in creating a global economy.

Quotations: “In the US, Metlapp Networks and Technologies Ltd. is a pioneer in technological innovation, developing goods and services for global connectivity.” and “To gain access to the Indian market, it opened an office in Jamnagar.”

(b) Give a brief explanation of any three ways that these concepts have affected Indian business and industry.

Ans: The following are the three effects that have the most significant impacts on Indian business and industry.

Growing Competition: Liberalisation and Globalisation made doing business easier, increased the number of new companies entering the market, and boosted their participation, which enhanced the market rivalry. Due to the increased rivalry, businesses are concentrating on improving their products and lowering their pricing to draw in more and more customers. In the end, buyers gain from a wider range of products at lower prices.

Increased customer base: Globalisation and Liberalisation open the door for environmental changes brought by technology. High-end technology items might become available due to increased research and development, creativity, and innovation, ultimately increasing the product’s consumer base. In this instance, the digital watch and its high-end features assisted the business in collecting a sizable customer base in the Indian market, helping them to become the market leader.

Business regulations: Businesses must adjust how they conduct their operations in response to changes in government policies. By changing the style and methodology with which they conduct business, this kind of positive policy adjustment enables the company to take advantage of the situations. . Because a company cannot remain in the market for a  long term if it does not adapt to changes made by the government. As was the case, the corporation rapidly took appropriate action to implement and benefited from changes in Indian government policies. 

23. Why is it necessary for a  corporate firm to consider its social surroundings?

Ans: The social environment of a business represents the values, beliefs, social trends, habits, and ethics of the society in which it operates.

• In addition to its internal social environment, a firm also exists in the exterior social environment. A business contributes to the society in which it exists by using resources from that community and giving it back in the form of goods and services.
• Social environment elements include consumer tastes and preferences, market trends, consumption patterns, societal language, cultural norms, etc. Therefore, to take advantage of the immense possibilities and to lessen potential risks, management must keep continual and perpetually vigilant regarding the changes and development in the social environment.
• Cooperation and coordination between a company and society will prosper and add value to a business, yet failing to adapt to changes in the social environment will cause clients to switch from one company to the other. This customer movement significantly impacts the long-term growth and viability of businesses.
• For instance, as consumers become more aware of their rights, businesses are more concerned about the quality of the products they sell and are, therefore, more careful about their quantity, quality, and pricing.
• The tendency of customers changed due to changes in consumer behaviour toward wholesome goods. Hence, there are many options for enterprises to expand and provide goods that correspond to the customer needs and preferences of the target audience.
• A company that adheres to social norms and commercial ethics is likely to profit more from the advantageous situation than a company that disregards ethics and societal norms.

Consequently, a social atmosphere is important for any firm to survive in the market.

24. List any ten favourable effects of globalisation and liberalisation.

Ans: Following are some of the advantages of globalisation and liberalisation:

1. Enhanced cooperation:

The promotion of entrepreneurial partnerships to ensure quick modernisation, development, and technological advancement is one aspect of globalisation.

1. Simplified procedure:

Liberalisation has made the import and export processes simpler. As a result, it was feasible to simplify the registration, business establishment, and licensing processes. Higher motivation results from this, as do time, energy, and financial savings for businesses.

1. Increasing rivalry:

Competition has intensified as the number of Indian businesses has grown and foreign businesses have entered the market. Both the business and the customers have benefited from this increase in competition.

1. Clients with higher standards:

Consumers now have a wide variety of things to choose from, raising expectations and demands.

1. The quickly evolving technological  landscape:

As a result of the need for businesses to embrace the most recent manufacturing methods and machinery due to rapidly evolving technology, corporate investments have increased. LPG, therefore, made the companies aware that only change might enable them to thrive in the cutthroat competition.

1. The need for change:

Businesses were forced to alter their methods and policies in response to government regulation changes and to invest in R&D, innovation, etc. to survive in the market.

1. The necessity of building human resources:

Businesses must educate and train their employees to keep up with technological advancements to improve labour force quality, and ensure a profit and future growth.

1. A focus on the market:

Due to rising customer awareness, business organisations were forced to switch from operations focused on the market to operations focused on the product.

1. The public sector has lost budgetary support:

The government sector had to compete with the commercial sector. They had to effectively organise their own resources and functions.

1. Possibilities:It allows the company to spot possibilities and gain the advantage of being the first. A business organisation has opportunities to enhance its performance due to favourable external changes. Positive policy changes encourage businesses to take advantage of opportunities by changing their operational procedures and optimising their profits before other competitors move in.
2. Foreign capital inflow:

With the advent of globalisation, work and trade are now possible across international borders. As a result, the nation saw increased exports and a flow of foreign capital.

25. Describe five drawbacks to globalisation and liberalisation.

Ans:  Some of the drawbacks of globalisation and liberalisation are listed below.

Threats from multinational corporations (MNCs): It is getting harder for small and medium business units to survive with the arrival of multinational companies. Multinational companies’ entry into the Indian market threatens local enterprises.. In some cases, the entrance of new MNCs has resulted in the departure of local companies from the market.

The destabilisation of the protected environment: The Indian business environment is rapidly losing its protective barrier due to easier entry for global corporations. Even Maruti car manufacturers had to redesign their models and periodically announce significant price reductions to maintain their market position.

Public sector decline: The public sector is losing markets and using its capacity at a lower rate, which slows the speed of the nation’s technological and economic development.

Market shift from sellers to buyers: The lack of available commodities, advantageous for sellers, has changed into a surplus due to the introduction of foreign goods and services. Decreased sales and earnings as a result. Since buyers have the freedom to choose, they control the market.

The massive shift of political and economic power: Massive power transfers in both the political and economic spheres destabilize the economy. Even if efforts to advance global wealth and create a more “fair world” are still emphasized, the adverse effects of globalisation are still visible in our country.

26. Explain “fiscal reforms” and “monetary reforms” in light of the economic changes the Indian government has enacted since 1991.

Ans: The New Industrial Policy of 1991 brought reforms in terms of Liberalisation, Globalisation and Privatisation. They are as follows:

Fiscal Reforms

• Since 1991, there has been a decrease in taxes and a streamlining of the individual income tax code. People would frequently avoid taxes because of fear of taxation’s high burden and complexity.
• Additionally, changes have been made to the taxes imposed on goods. It was anticipated that the Goods and Services Tax, passed in 2016 and implemented in 2017, would increase government revenue and deter tax cheating.
• The fiscal imbalance has been reduced by the implementation of measures.
• A decrease in subsidies has also been made.

Monetary Reforms

• Reduced statutory liquidity ratio gradually (SLR).
• Banks in the private sector are permitted to open new branches.
•  Now banks can enter the capital market to raise money for their operations.
• Permission to withdraw up to 49% of the total equity.

27. Describe five strategies managers have used to adapt to the changing business environment.

Ans: The managers’ responses to changes in the business environment are as follows:

Successful Business Practices:

The manager can successfully manage the business operations with prompt attention to any potential opportunity or likely threat in the company’s environment. As soon as they anticipate a positive or negative change, the management can take the necessary action, ensuring the smooth operation of the businesses. Therefore, prompt action has tremendous advantages for businesses and managers.

A wave of diversification:

The managers are expanding their business into several industries to compete and seize possibilities. One example is Reliance’s diversification into industries like telecommunications, food, petroleum, etc.

Potential for Growth:

The company can earn the support and win the public’s confidence by recognising the changing circumstances and environment. . This support will result in more opportunities for the company’s growth and development. In addition, by changing the style and methodology with which they conduct business, a positive policy change enables the company to take advantage of the situation.

Creating a brand:

Businesses aggressively invest in brand development and positioning their items in consumers’ minds. The goal is to give their brands the top spots in consumers’ minds through an innovative media mix.

Labour:

Managers are acting differently with employees. Higher earnings and other benefits, such as training to improve their skills and employment opportunities, have been provided to labourers due to the business environment.

28. Describe briefly how changes in government policy have affected business and industry.

Ans: The government’s globalisation, privatisation, and liberalisation policies impact businesses’ operations. The following examples show how changes in government policy affect business and industry.

Growing Competition:

Both liberalisation and globalisation made business easier, increased the number of new firms emerging in the market, and boosted their participation, which enhanced market rivalry. Due to the increased rivalry, businesses concentrated on improving their products and lowering their pricing to draw in more and more customers. In the end, buyers gain from a greater selection of products and lower prices.

Increased customer base:

Globalisation and liberalisation open the door for environmental technical advancements. High-end technology items might become available due to increased research and development, creativity, and innovation, ultimately increasing the product’s consumer base.

Business regulations:

Businesses must adjust how they conduct their operations in response to changes in government policies. Government regulations directly impact how businesses operate, requiring businesses to adjust their policies as a result. By changing the style and methodology with which they conduct business, a positive policy change enables the company to take advantage of chances. Because a company cannot survive in the market over the long term if it does not adapt to changes made by the government.

Technological advancements:

Government regulations have changed, allowing new businesses to enter the market freely and raising competition. However, because of this, firms had to work to develop and use new technology, change outdated technology, invest in research and development, innovate, etc., as a result of changes in government policy.

Personnel Training Required:

Businesses must educate and train their employees to keep abreast with technological advancements to improve the quality of their workforce and better output.

Greater Market Orientation: 

Due to the fierce rivalry in the market, the orientation has changed to one of greater market orientation. In other words, businesses develop and offer goods and services in response to consumer demand.

Less Dependence on Budgetary Support by Public Sector Enterprises: 

Public enterprises must work to increase their work performance, efficiency, and productivity to compete successfully with the heightened competition and reduce losses. Rather than relying on budgetary support to cover losses.

Globalisation, privatisation, and other policy changes made by the government have generally had a positive effect on society because Indian businesses and industries have adapted to the new economic strategy with great resilience..

29. What does “business environment” mean? Identify three aspects of the corporate environment and explain each.

Ans: The term “business environment” refers to any variables that a company cannot control but could nevertheless impact its success. The business environment includes the social, political, economic, legal and technological variables outside a company.

Characteristics of the Business Environment:

The totality of outside influences:

Includes all external forces, such as the government and competitors, that may impact a  corporate organisation.

Both particular and general troops:

The forces that directly impact a particular corporate organisation are known as specific forces. General forces directly affect the industry as a whole yet indirectly affect a business enterprise.

Inter-relatedness:

Changes in the overall forces may also affect the specific forces. For instance, a political influence such as a change in government could affect tax rates and import-export rates (an economic force)

Dynamic character:

Due to ongoing changes in technology, consumer preferences, and the availability of various types of raw materials, among other things, external pressures are constantly changing.

Uncertainty:

It is challenging to foresee changes in the external environment due to ongoing environmental changes.

Complexity:

It is challenging to develop a single plan to manage all the changes because of how intertwined and dynamic external factors are.

Relativity: 

The effects of changes vary from company to company, nation to nation, region to region, etc.

30. Describe the components of the business environment.

Ans: The five main components of the business environment are given below:

Economic Situation:

It alludes to the variables and causes affecting money spent on business operations. Inflation, money supply, price level, and other critical economic variables are listed below. For instance, a rise in inflation rates causes a decline in disposable earnings, which lowers the demand for goods.

Social Situation:

The social environment reflects the values, beliefs, social trends, practices, and ethics of the society in which businesses operate. As consumers become more conscious of their rights, businesses are becoming more concerned with the quality of the items they sell. In addition, as consumer habits have changed, consumer awareness has increased and are likely to favour healthy products.

Political Climate:

Political stability encompasses political leadership, party-ruling procedures, and government policies, laws, and regulations, among other things.

Legal Framework:

It contains laws approved by the government or its connected offices, administrative orders, court rulings, or decisions. For instance, the phrase “smoking is harmful to your health” must appear on every packet of cigarettes.

Technological Setting:

It consists of forces connected to scientific advancements and inventions, which result in better manufacturing processes and methods. 

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