PPT OF BST CHAPTER 3 - (BUSINESS ENVIRONMNT)_79d7995e-2182-4eb4-b85a-d9af2a75a4f7.pdf

Business studies Chapter 3 Class XII

1. Class 12 Business Studies

2. Business
Environment Business Environment refers to
the totality of external forces,
factors, individuals and
institutions which are outside
the control of a business
enterprise but that may affect
its performance.
In simple words, the business
environment is the surrounding
in which a business exists.

3. Features of the Business Environment are :
The totality
of external
forces
Specific and
general
forces
Inter -
relatedness
Dynamic Uncertainty
Complexity
Relativity
Features of
Business
Environment

4. It includes all the forces, institutions and factors
which are external to business organisations.
The totality of
external
forces
It includes both specific and general forces.
Specific forces affect business enterprises directly and immediately in their day-to-
day working.
General forces have an impact on all business enterprises and thus, may affect an
individual firm only indirectly. (Such Social, Political, Legal and Technological
conditions).
Specific and
general forces
All the forces and factors of the business environment are interrelated to each other.
For example : With the inclination of youth toward western culture, the demand for
fast food is increasing.
Inter-
relatedness
It is very difficult to predict changes of business environment.
As the environment is changing very fast.
For example, In the IT, and fashion industries frequent and fast
changes are taking place.
Uncertainty

5. The business environment is dynamic as it keeps on changing in terms of
technological improvement, a shift in consumer preferences, and the entry of new
competition in the market.
It is not static and rigid i.e. why it is essential to monitor
and scan the business environment continuously.
Dynamic
It is very difficult to understand the impact of the business
environment on companies.
Although it is easy to scan the environment, it is very difficult
to know how these changes will influence it.
For example, It may be difficult to know the extent of the relative impact of the
social, economic, political, technological or legal factors on the change in demand
for a product in the market.
Complexity
Business environment differs from country to country, and region to region as a
political condition, cultures are different in different countries.
For example, There may be more demand for sarees in India as
compared to the USA.
The same condition in the environment may have different
effects on different enterprises.
Relativity

6. IMPORTANCE OF A BUSINESS ENVIRONMENT
Importance
of Business
Environment
Identification of
opportunities to
get first mover
advantage
Identification
of threats
Assistance in
planning and
policy
formulation
Coping with
rapid changes
Tapping useful
resources

7. Enables the firms to
identify
opportunities and
get the first mover
advantages
Businessmen who can understand and scan the opportunities of the business environment at an
early stage get maximum benefit or they can capture a big share of the market.
For example, WhatsApp was the first application for mobile charts. Afterwards,
many other applications came but still WhatsApp is no. 1 in mobile chat.
The environment provides numerous opportunities for business success.
Helps the firms to
identify the
threats and early
warning signals
A businessman who can scan and understand the business environment in time to get a
warning signal to deal with the constraints of the negative policies of the business environment.
Timely scanning of business environments and qualitative information which business gets is
taken as a warning signal and changes in the companies are made.
For example, On scanning the business environment, the Maruti Udyog company got the
qualitative information that more foreign car manufacturing companies are
going to set up their business in India. They took it as a warning signal and
started increasing their production capacity. The Maruti Company accepted
the entry of foreign car companies as a warning signal and increased their production
to supply the cars without any waiting period to compete with the new companies.
Helpful in
tapping and
assembling
resources
Businessmen have to supply the goods to the market according to the demand in the market.
To supply outputs they need input, raw materials, etc. They acquire raw materials and other
resources keeping in mind the output demanded by the environment.
They select resources according to availability in the environment and the
demand for output in the environment.
For example, With the demand for LED, 3D T.V Manufactures are collecting
resources necessary to manufacture LED & 3D T.V rather than collecting
resources of black and white T.V or flat screen etc.

8. Helps to adjust
and adapt to
rapid changes
Today changes are taking place very fast and these changes have a great impact on
business. So, it is essential to understand these changes as early as possible.
Businessmen make changes in their internal environment also to match the
external environment.
For example, Due to increasing competition, customers are becoming
more demanding and it has become essential for business enterprises
to adapt rapidly to the changing technology environment.
Assisting in
planning and
policy-making
The major strategies plan and policies in the organisation are formed keeping in mind the
business environment because the policies and strategies have to be implemented in the
presence of environmental factors.
Scanning environmental factors helps in finding out the opportunities for business and
strategies can be made to grab these opportunities.
For example, On scanning the Indian business environment we find there is great scope
for the tourism industry in our country. So, businessmen are planning strategies to grab
these opportunities.
Performance
improvement
With continuous scanning of the business environment companies
can easily improve their performance.
By making changes in the internal environment matching to the
external environment, organisations can properly improve their market share.

9. Dimensions or the factors
constituting the business
environment include economic,
social, technological, political
and legal conditions which are
considered relevant for
decision-making and
improving the performance of
an enterprise.
Dimensions
of Business
Environment

10. Political
Environment
Elements of Business Environment
Business
Environment

11. Some aspects of the economic environment are :
a)A high inflation rate is set as a constraint as they increase the cost of production.
b)The passing of the GST bill affects almost all business organisations.
c)Demonetisation of ₹ 500 and ₹ 1000 notes, hit the Indian economic environment.
Economic
Environment
Economic environment refers to all the forces and factors
which have a bearing on the functioning of a business
enterprise.
It has an immediate and direct impact on a business.
Rate of interest, inflation rate, change in disposable
income of people, monetary policy, stock market indices
etc. are some economic factors, which could affect
business firms.
An increase or decrease in economic factors results in
opportunities or constraints on a business enterprise

12. Some aspects of the social environment :
a)Change in quality of life.
b)Importance of place of women in the workforce.
c)Birth and death rate of the population.
d)Attitudes of customers towards innovation, lifestyles, etc.
e)Tradition, customer and habits of people
Social
Environment
The business environment includes various social forces
such as customs, beliefs, literacy rate, educational levels,
lifestyle, values etc. Social trends present various
opportunities and threats to business enterprises.
Example
The celebration of Diwali, Eid and Christmas in India provides
financial opportunities for confectionery manufacturers, garments
businesses and many other related businesses.

13. For Example :
Online sale of grocery items is becoming very common.
Companies have started new ways of advertising such as CD-ROMs, computerised information
kiosks, the internet, etc. due to technological advancements in computers and electronics.
Demand for LED smart HD TVs instead of LCD TVs, Use of artificial intelligence in various
companies etc.
Technological
Environment
It includes forces related to scientific improvements
and innovations which provide new ways of
producing goods and services.
New methods and techniques of operating business.
A businessman must closely monitor the
technological changes taking place in the industry
as it helps in facing competition and improving the
quality of the product.

14. The common factors and forces which influenced the Indian political environment are :
a)Swachh Bharat Abhiyan was started by BJP.
b)Skill India movements started by BJP
c)Political stability encourages business enterprises to invest in long-term projects.
d)Constitution of the country.
e)Present political system & profile of political leaders
Political
Environment
It includes political conditions such as general stability
and peace in the country and the attitude of the elected
government representatives towards businesses. Political
stability builds confidence in the business community.
Political Unrest and threats to law & order situations
may bring uncertainty to business activities.
Example: Bangalore is called the Silicon Valley of India
due to the favourable political conditions provided by
the state government to the IT industries.

15. Some aspects of the legal environment are :
a)Legal policies related to licensing and foreign trade.
b)The statutory warning is essential to be printed on the label. For example,
packets of cigarettes must have a statutory warning.
c)Foreign exchange regulation and management act.
d)Laws to keep a check on the advertisement. For example, the advertisement of
alcohol products is prohibited.
Legal
Environment
It includes :
a)Various laws and legislative acts,
b)Administrative orders issued by government authorities.
c)Court judgements, as well as decisions of various commissions
and agencies at every level of the government centre, state or
local
Example
Advertisement of Alcoholic beverages is
prohibited.

16. Three Major Components or Elements of New Economic Policy
BRANCHES OF NEW ECONOMIC POLICY
Liberalization
New Economic
Policy
Globalization Privatization

17. Liberalisation Liberalisation means the removal of unnecessary control and restrictions on business.
Features of Liberalisation :
1)Abolishing licensing requirements in most industries except a short list.
2)Freedom in deciding the scale of business activities i.e., no restrictions on expansion
or contraction of business activities.
3)Removal of restrictions on the movement of goods and services.
4)Freedom in fixing the prices of goods and services.
5)Reduction in tax rates and lifting of unnecessary controls over the economy.
6)Simplifying procedures for imports and experts, and
7)Making it easier to attract foreign capital and technology to India.
Privatisation
The new set of economic reforms aimed at giving a greater role to the private sector in the
nation-building process and a reduced role to the public sector.
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 means the transfer of ownership of a public sector
enterprise to a private enterprise.
If there were a dilution of Government ownership beyond 51 per cent, it would result in the
transfer of ownership and management of the enterprise to the private sector.

18. A truly global economy implies a boundary-less world where there are :
Globalisation
1)Free flow of goods and services across nations;
2)Free flow of capital across nations;
3)Free flow of information and technology;
4)Free movement of people across borders;
5)A common acceptable mechanism for the settlement of disputes;
6)A global governance perspective.
Globalisation means integration of the various economies of the world leads
towards the emergence of a cohesive global economy.
 In simple words, globalization means the interaction and interdependence of a
country with the economies of other countries to facilitate the free flow of goods
and services, capital and technology across borders.
Till 1991, the Government of India had followed a policy of strictly regulating
imports in value and volume terms. These regulations were with respect to :
a)Licensing of imports,
b)Tariff restrictions and
c)Quantitative restrictions.

19. The Government of India announced on November 8, 2016, with
profound implications for the Indian economy. The two largest
denomination notes, Rs 500 and Rs 1,000 were 'demonetised' with
immediate effect, ceasing to be legal tender except for a few
specified purposes such as paying utility bills. This led to eighty-six
per cent of the money in circulation being invalid.
The people of India had to deposit invalid currency in the banks,
which came along with the restrictions placed on cash withdrawals.
In other words, restrictions were placed on the convertibility of
domestic money and bank deposits
The main aim was to curb corruption, black money and illegal
activities.
Demonetisation : Demonetisation is
an act of cancelling the legal tender
status of a currency unit in circulation.

20. Features of Demonetisation
Demonetisation is viewed as a tax
administration measure
Cash holdings arising from declared income
were readily deposited in banks and
exchanged for new notes.
But those with black money had to declare
unaccounted income and pay a tax penalty
Demonetisation also led to tax
administration channelizing
savings into the formal financial
system
Bank deposits increase. However, interest
rates decreased.
Demonetization is to create a less-
cash or cash-lite economy
Cash transactions declined. Digital
transactions using RuPay cards and Debit
cards, Aadhar-enabled Payment systems
(AEPS), etc. increased.
Demonetisation is also interpreted
as a measure to improve tax
compliance
It indicated that tax evasion will no longer
be tolerated or excepted
Tax collection increased because of
increased disclosure. Tax evasion decreases.

21. The impact of changes in economic policy on the business are :
Need for
developing human
resources
Increasing
competition
Impact of Government Policy Changes on Business and Industry
More demanding
customers
Rapidly changing
technological
environment
Necessity for
change
Loss of budgetary
support to the
public sector
Market
orientation
The factors and forces of the business environment have a lot of influence
over the business.
The main common influence and impact of such changes in business
and industry are explained below :

22. Increasing Competition
After the new policy, Indian companies had to face all round competition which means
competition from the internal market and competition from MNCs.
The companies that could adopt the latest technology and which were having large numbers
of resources could only survive and face the competition.
Many companies could not face the competition and had to leave the market.
More Demanding Customers
Before the new economic policy, there were very few industries. As a result, there was a shortage of products in
every sector.
Because of this shortage the market was producer-oriented, i.e., producers became key people in the market.
After the new economic policy, many more businessmen joined their product line and various foreign companies
also established their production units in India. As a result, there was a surplus of products in every sector.
This shift from shortage to surplus brought another shift in the market, i.e., the market became customer-oriented.
Rapidly changing Technological Environment
Before the new economic policy, there was a small internal competition only.
But after the economic policy to stand this global competition, the companies need to adopt
world-class technology.
To adopt and implement world-class technology the investment in the research and
development department has to increase.

23. Need to develop human resources
New market conditions required people with higher competence skills and training.
Hence Indian companies felt the need to develop
Market orientation
Earlier, firms were following the selling concept, i.e., produce first and then go to market.
But now companies follow the market concepts, i.e. planning products based on market research, needs
and wants of customers
Necessity to change
Before 1991 Indian enterprises could follow stable policies for a long time
But after 1991 business enterprises have to modify their policies and operations from time to time.
Loss of Budgetary support to the public sector
The central government’s budgetary support for financing the public sector
outlays has declined over the years.
The public sector undertaking has realised that, to survive and grow, they will
have to be more efficient and generate their resources for the purpose.

24. Managerial Response to Change in the Business Environment
Diversification
•The first response seen after the new policy is the companies are going
for diversification.
•For example, Reliance has diversified into textiles, Petrochemicals, IT,
communication, etc.
Joint ventures/
collaboration
and
consolidation of
multinationals
Most of the multinational companies came to India through a joint
venture :
a)Ford enters with Mahindra
b)Jaguar enters with Tata Motors.
c)General motors with Hindustan motors.
d)Honda enters with SIEL
On the whole world, the impact of government policy changes particularly in
respect of liberalisation, privatisation and globalisation has been positive :

25. Brand Building
•Expenditures were enhanced by companies in building brands.
•Often, MNCs have invested huge amounts in building
brands such as LG, Samsung, and Hyundai.
Use of the latest
technology
•To get the first mover advantage companies are trying to get the latest
technology.
•The expenditure on the research and development department is increasing
by all companies. Technology change is very important for all companies.
Improved
compensation
level
•Sharply improved compensation levels for special managerial and technical
services.
•The starting salaries for engineering and management
graduates have risen significantly.
•Incentive schemes of various kinds related to
performance are becoming common.
Customer focus
•The focus of the market is shifted from product to satisfying customer
needs.
•All companies are coming up with various schemes to attract customers.
•There is a tremendous difference in the nature and quality of products
offered to customers today.