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Class 12 Business Study Chapter 3 Business Environment
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Business Environment
Chapter: 3
PART – A
VERY SHORT TYPE QUESTIONS ANSWERS (1 MARK EACH)
1. Give an example of social environment. Ans: Composition of families.
2. Name the Act that protects the interest of consumers in India.
Ans: Consumer Protection Act 1986.
3. In which year the World Trade Organisation came into being ?
Ans: 1995.
4. What is the purpose of enacting the Consumer Protection Act, 1986 ?
Ans: The purpose of enacting the Consumer Protection Act 1986 is to protect consumers against defective goods, unsatisfactory services, unfair trade practices etc.
5. The Information Technology Act, 2002 comes under what type of environment ?
Ans: Legal Regulatory Environment.
6. What is the main objective of FEMA ?
Ans: The main objective of FEMA is to reduce the restriction of foreig exchange.
7. Write one impact of government policy changes on business and industry.
Ans: Increased Competition.
8. Which policy of the government has moved India toward globalisation ?
Ans: Industrial Policy 1991.
9. What do you mean by disinvestment ?
Ans: Disinvestment means transfer of a part of Government shareholding in the private sector enterprises by the public sector.
10. What is the name of the economy where both public and private sectors co-exist ?
Ans: Mixed Economy.
11. Why is it said that “Business Environment is a Relative Concept”.
Ans: Business environment generally differs from nation to nation and even region to region within a nation. So, business environment is a relative concept.
12. Give to example of marketing intermediaries.
Ans: Retailer and wholesaler.
13. Which sector of the Indian economy was given greater importance after independence ?
Ans: Public sector.
14. Explain the meaning of globalisation.
Ans: Same as Q.No 20.
SHORT TYPE QUESTIONS ANSWERS TYPE 1(2 MARKS EACH)
15. Write three salient features of New Industrial Policy.
Ans:(i) The Government has reduced the number of industries under compulsory licensing to six.
(ii) Many of the industries reserved for the public sector under the earlier policy, have been de-reserved. The role of public sector has now been limited only to four industries of strategic importance.
(iii) Disinvestment has been carried out in case of many public sector industrial enterprises.
16. Write three effects of political environment.
Ans: (i) Stability of government,
(ii) Government policy towards business,
(iii) Government policy regarding international business and multinational corporations (MNCs).
17. What is Business Environment ?
Ans: The term business environment means the sum total of all individuals, institutions and other forces that are outside the control of business enterprise, but affects its performance. The term business environment indicates all external forces or factors which have a direct or indirect bearing on the activities related to the functioning of business.
18. What is privatisation ?
Ans: Privatisation means transfer of ownership, management and control of public sector enterprises to the entrepreneurs in the private sector. It is a system of converting ownership of Government to private. By privatisation private sectors are given more roles to be played by the government. It reduced the role of public sector to be played in country’s economy.
19. What is liberalisation policy ?
Ans: The term liberalisation means removal of entry and growth restriction on the private sector enterprises. It implies reduction of government restriction and control over business
This has been done by the government through:
(a) Abolishing licensing, requirement in most of the industries except a short list.
(b) No restriction on expansion or contraction of business activities.
(c) Removal of restriction on the movement of goods and services.
(d) Freedom in fixing the prices of goods / services etc.
20. What do you understand by Globalisation ?
Ans: The term globalisation means the process of integration of the world economy into one huge market through the removal of all trade barriers or restriction among countries.
The broad features of globalisation are as follows:
(a) Free flow of capital across nations.
(b) Free flow of technology across nation.
(c) Free movement of human resources across nations.
(d) Free flow of goods and services across national frontiers through removal or reduction of trade barriers.
21. Write three characteristics of business environment.
Ans: The three characteristics of business environment are as follows:
(i) Totality of external forces: The environment of a business firm is the sum total or aggregate of all forces external to it.
(ii) Dynamic: Business environment is dynamic in nature. It keeps on changing because of continuous changes in the demands of the forces such as investors, customers, labour etc.
(iii) Uncertainty: Business environment creates uncertainty for the business firm. It is very difficult to predict environment future.
22. Explain three positive impacts of globalisation and liberalisation in India.
Ans: Three positive impact of globalisation and liberalisation are as follows:
(i) Increased competition and improvement in the supply of goods and services to the consumers.
(ii) Reduction of international trade barriers ensuring free flow of goods and services across national boundaries.
(iii) Better standard of living of people as a result of availability of better goods…
23. Write three important negative impacts of globalisation in India.
Ans: The processes of globalisation in India have been criticised because of the following negative consequences :
(i) The entry of MNCs into the country has been made easier. Because of their latest technology, they are able to kill the Indian industries which can’t face the competition from MNCs.
(ii) The small scale industries have been the worst sufferers as they can’t compete with the large organisations.
(iii) Introduction of latest technology has meant loss of employment by many people.
24. Write in brief three importance of study of business environment.
Ans: Three importance of business environment are given below:
(i) Early warning system: Environmental awareness can help managers to identify various threats and risk that may be faced by the venture in future operation by early warning.
(ii) Formation of strategies: Business environment help the organisation to scrutinise the environment and to frame sound managerial strategy. It assist in top and corporate level decision making.
(iii) Identifying challenges and threats: Business environment he s in identifying the ways in which challenges may directly or indirect influences the organisation. This also help us to indicates the three challenges, problems emerging inside and outside the venture.
C. SHORT TYPE QUESTIONS ANSWERS TYPE – II (3 MARKS EACH)
25. Explain four strategies that are available to managers to deal with changing business environment.
Ans: The four strategies that are available to managers to deal with changing business environment are given below:
(i) Identification of opportunities to get first mover advantages: By keeping in touch with the changes in the external environment, an enterprise can identify opportunities and find strategies to capitalise on the opportunities at the earliest.
(ii) Identification of threats or warning signals: Environmental scanning helps to identify possible threats in future. For instance, an Indian firm finds that an MNC is entering the Indian market with new substitutes. This should work a warning signal for the Indian firm.
(iii) Sensitazațion of Management to cope with rapid changes: A keen watch on the trends in environment would help to sensitise the firm’s management to the changing technology, competition, government policies and changing needs of the customers.
(iv) Better performance: Proper understanding of the various elements of the external environment is necessary to take timely action to deal with the threats and avail opportunities for the purpose of improvement in performance of the firm.
26. Write about four components of economic environment.
Ans: Those economic factors which have affect on the working of the business is known as economic environment. It includes system, policies and nature of economy etc. There are mainly five components of economic environment.
They are discussed below:
(i) Economic conditions
(ii) Economic system
(iii) Economic policies
(iv) International economic environment
(v) Economic legislations
(i) Economic conditions: Economic policies of a business unit are largely affected by the economic conditions of an economy. Any improvement in the economic conditions such as standard of living. purchasing power of public, demand and supply etc. largely affects the size of the market. Business cycle is another economic condition that is very important for a business unit.
(ii) Economic systems: An economic system of a nation or a country may be defined as a framework of rules, goals and incentives that controls economic relations among people in a society. It also helps in providing framework for answering the basic economic questions. Different countries of a world have different economic systems and the prevailing economic system in a country affect the business units to a large extent. Economic conditions of a nation can be of any one of the following type-capitalism, socialism and mixed economy.
(iii) Economic policies: Government frames economic policies. Economic policies affects the different business units in different ways. It may or may not have favourable effect on a business unit. The Government may grant subsidies to one business or decreases the rates of excise or custom duty or the government may increase the rates of custom duty and excise duty, tax rates for another business. Important economic policies of a country are-Monetary Policy, Fiscal Policy, Foreign Trade Policy, Industrial Policy, Foreign Investment Policy.
(iv) Global/International economic environment: The role of international economic environment is increasing day by day. If any business enterprise is involved in foreign trade, then it is influenced by not only its own country economic environment but also the economic environment of the country from/to which it is importing or exporting goods. There are various rules and guidelines for these trades which are issued by many organisations like WTO,United Nations etc.
27. How is a business influenced by the political and legal environment ?
Ans: Business influenced by the political and illegal environment because of the following reason:
(a) Political environment: Political environment consists of factors relating to government affairs. It comprises political parties and their ideologies, types of government, stability of government, government policy toward business, and also towards MNCs etc. All these factors directly affect the business. For example: Janata Government come to power in 1977, it forced the shifting of Coco Cola and IBM out of the country.
(b) Legal or regulatory environment: It includes various legislation, judgement, decision of various commission and agencies at every Government level – Central, state or local. It is imperative for the
management of every enterprise to obey the law of the land. Some of the laws which apply to business firms are – Companies Act 1956, Consumer Protection Act 1986, the Factories Act, 1948 etc.
28. How does social and technological environment influence the working of a business ?
Ans: Social and technological environment influence the working of a business in the following ways:
(i) Social environment: Social factors have high influenced on the non-economic environment of business. Social environment includes attitude of people, cultural heritage, beliefs and customs of people, education system, trade unions etc. Sociological factors such as caste and occupational structure, view towards scientific methods etc. might have a far reaching impact on business. For e.g.. different countries have different habits, customs, belief, additional value, language etc. with so different impact on the environment.
(ii) Technological environment: It includes the factors relating to scientific improvements and innovation which provide new of producing and new methods and techniques of operating a business. Those who ignore technological changes in his business or industry may find themselves out of business. E.g. – the introduction of computer influenced highly on production technology such as speed,accuracy, modification etc.
29. Write in brief about economic environment in India ?
Ans: Economic environment: Economic environment refers to the nature of economy (capitalist, socialist or mixed), economic policies of the government, markets for material, labour etc. The economic environment of a firm also includes all market in which it buys and sells, raises funds etc. The business is invariably influenced by the conditions of various markets. It is greatly influenced by the government through fiscal policies, economic controls, industrial policy etc. These all are the economic factors which have affect on the working of the business. Economic environment mainly have five important components.
They are:
(i) Economic conditions
(ii) Economic systems
(iii) Economic policies
(iv) International economic environment
(v) Economic legislation
D. LONG TYPE QUESTIONS ANSWERS TYPE-I (5
MARKS EACH)
30. What is micro environment ? Explain any four components of it.
Ans: Micro-environment is the specific or the task environment of a business which affects its working or operations directly on a regular basis. While the changes in the macro-environment affect business in the long run, the effects of changes in the micro- environment are noticed immediately.Hence, organisations must closely analyse and monitor all the elements of the micro-environment on a regular basis The elements of micro-environment are as follows: Elements of Micro-environment
I. Consumers/Customers: No organisation can survive without customers and consumers. A customer is the one who buys a prod uct or service for the consumer who ultimately consumes or uses the product or service of the organisation.
Hence, the consumer occupies the central position; therefore an organisation must closely monitor and analyse the following:
(a) Who are the customers/consumers ?
(b) What features or benefits are they looking for ?
(c) What are their income levels ?
(d) What are their tastes, preferences ?
(e) What are their buying patterns, etc ?
II. Organisation: An organisation refers to a group of all individuals working in different capacities and the practices and culture they follow. In micro-environment analysis, nothing is as important as self-analysis, which is done by the organisation itself. Understanding one’s own strengths and weaknesses in a particu lar business is of vital importance. Organisations consist of spe cific groups of people who are likely to influence an organisation, which are as follows:
(a) Owners-Proprietor, partners, shareholders, etc., who invest re sources and also make major decisions for the business.
(b) Board of directors-Elected by share holders, the board is respon sible for day-to-day and general management of the organisation to ensure that it is being run in a way that best serves the share holders interests.
(c) Employees-People who actually do the work in an organisation. Employees are the major force within an organisation. It is impor tant for an organisation to have its employees embrace the same values and goals as the organisation.
However, they differ in beliefs, education, attitudes, and capabili ties. When the management and employees work towards differ ent goals, everyone suffers.
31. Market: Market refers to the system of contact between an or ganization and its customers. The firm should study the trends and development and the key success factors of the market, which are as follows:
(a) The existing and the potential demand in market
(b) Market growth rate
(c) Cost structure
(d) Price sensitivity
(e) Technological structure
(f) Distribution system, etc
32. Suppliers: The suppliers refer to the providers of inputs, like raw materials, equipment and services, to an organisation. Large companies have to deal with hundreds of suppliers to maintain their production. Suppliers with their own bargaining power affect working and cost structure of the industry. Hence it is important for an organisation to carry out a study of the following:
(a) Who are the suppliers ?
(b) What are their products, prices and terms and conditions ?
(c) Whether to “Outsource” production or get it done “in-house” depending on this supplier environment, and so on.
33. Intermediaries: Intermediaries include agents and brokers who facilitate the contact between buyers and sellers for a commission. They may exert a considerable influence on the business organisations as, in many cases, the consumers are not aware of the manufacturers and their products. Hence, manufacturers use intermediaries to reach out to consumers.
34. How is a business firm influenced by political and legal environment ?
Ans: Same as Q.No 35.
35. Discuss in details about the different components of business environment.
Ans: The different components of business environment are discussed below:
(I) Political Environment: Political environment consists of factors relating to government affairs. It comprises political parties and their ideologies, types of government, stability of government, government policy toward business, and also towards MNCs etc.
All these factors directly affect the business. For example: Janata Government come to power in 1977, it forced the shifting of Coco Cola and IBM out of the country.
(ii) Legal Environment: It includes various legislation, judgement, decision of various commission and agencies at every Government level-Central, state or local. It is imperative for the management of every enterprise to obey the law of the land. Some of the laws which apply to business firms are-Companies Act 1956, Consumer Protection Act 1986, the Factories Act, 1948 etc.
(iii) Social Environment: Social factors have high influenced on the non-economic environment of business, Social environment includes attitude of people, cultural heritage, beliefs and customs of people, education system, trade unions etc. Sociological factors such as caste and occupational structure, view towards scientific methods etc. might have a far reaching impact on business. For eg. different countries have different habits, customs, belief, additional value, language etc. with so different impact on the environment.
(iv) Technological Environment: It includes the factors relating to scientific improvements and innovation which provide new of producing and new methods and techniques of operating a business. Those who ignore technological changes in his business or industry may find themselves out of business. E.g. the introduction of computer influenced highly on production technology such as speed, accuracy, modification etc..
(v) Economic Environment: Economic environment refers to the nature of economy (capitalist, socialist or mixed), economic policies of the government, markets for material, labour etc. The economic environment of a firm also includes all market in which it buys and sells, raises funds etc. The business is invariably influenced by the conditions of various markets. It is greatly influenced by the Government through fiscal policies, economic controls, industrial policy etc. These all are the economic factors which have affect on the working of the business. Economic environment mainly have five important components.
36. Mention the economic reforms that have been initiated by the government of India since 1991.
Ans: The economic reforms that have been influenced by the government of India since 1991 are as follows:
(i) Liberalisation of establishment and growth of industrial units. Industrial licensing has been abolished for all industrial projects except for a short list of industries.
(ii) Automatic clearance for foreign technology agreement in high priority industries.
(iii) Easy approval of foreign direct investment (FDI) in high priority industries.
(iv) Opening the power, oil, banking, insurance and communication sectors to private enterprises. These areas were earlier reserved for the public sector.
(v) Disinvestment in public sector units through the sale of their equality shares to the private sector.
(vi) Removal of restriction import and export of goods and services.
(vii) Tax concessions and cheaper bank loans to export, oriented units.
(viii) Special package of incentives for small scale industrial (SSI) units.
37. What are the obstacles to globalisation in India ?
Ans: There are various obstacles to globalisation in India. They are discussed below:
(i) Government policy and procedures: Government policy and procedures in India are among the most complex, confusing and cumbersome in the world. Even after the much publicised liberalisation, they do not prevent a very conducive situation. Government policy and the bureaucratic culture in India in this respect are not that encouraging
(ii) High Cost: High cost of many vital inputs and other factors like raw materials and intermediates, power, finance, infrastructural facilities like port etc. tend to reduce the international competitiveness of the Indian business.
(iii) Growing Competition: The competition is growing not only from the firms in the developed countries but also from the developing country firms. Indeed, the growing competition from the developing country firms is a serious challenge to India’s international business.
(iv) Resistance to change: There are several socio-political factors which resist change and this comes in the way of modernisation, rationalisation and efficiency improvement. The extent of excess labour employed by the Indian industry is alarming. Because of this labour productivity is very low and this in some cases more than offsets the advantages of cheap labour.
(v) Poor Infrastructure: Infrastructure in India is generally
inadequate and inefficient and therefore very costly. This is a serious problem affecting the growth as well as competitiveness.
38. Explain the impact of Government policy changes on business and industry.
Ans: The impact of Government policy changes on business and industry are discussed below:
(i) Rapidly changing technological environment: Increased competition forces the firms to develop new ways to survive and grow in the market. New technology make it possible to improve. The changing technology creates tough challenges before small units or firms.
(ii) Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased mainly in service industries.
(iii) Need for developing human resources: Indian enterprise have suffered for long with inadequately trained personnel. The new market conditions require people with higher competence and greater commitment. This arise the need for developing human resource.
(iv) More demanding customers: Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.
(v) Market oriented: In the fast changing world, there is a shift to market orientation in as much as the firms have to study the consumer’s demand first and produce goods accordingly.
39. “The external en ronment of a business is dynamic,’ – Explain this statement with some examples.
Ans: Environment is a situation created by the impact of both external and internal. So, far the internal factors are concerned they are controllable by the management. But the external factors are not controllable as because by nature these factors are dynamic which are examined below:
(i) Economic environment: It refers to the nature of economy (capitalist, socialist or mixed), economic policies of the government, market for labour, capital etc. The economic environment is greatly influenced by the government through fiscal policies, economic controls etc. For instance, if the government announces a cut in the excise duty on refrigerators, the sales of business firms manufacturing refrigerators will go up.
(ii) Social Environment: Social factors have high influence on the non-economic environment of business. Social environment includes people’s family, attitude, ethical aspects etc. As for example – different countries have different habits, customs, belief, language etc, which so different impact on the environment.
(iii) Technology environment: It includes the factors relating to scientific improvements and innovations which provides new ways of producing and new methods and techniques of operating a business. Those who ignore technological changes in his industry or business, may find themselves out of business. Example: The introduction of computer influenced highly on production technology such as speedy, accuracy, modification etc.
(iv) Political Environment: Political environment consists of factors relating to government affairs. It includes the political party system in the country, their ideologies, government attitudes towards different sections of society etc. For example-Janata Government came to power in 1977, it forced the shifting to Coco Cola and IBM out of the country.
(v) Legal or regulatory environment: It includes decision of various commission, various legislation, judgement etc. It is imperative for the management of every enterprise to obey the law of the land. For example-Companies Act 1956, Consumer Protection Act 1986. etc.
40. “Liberalisation and globalisation have created both challenges and opportunities for the Indian business.” Discuss this statement.
Ans: Liberalisation and globalisation have create both challenges and opportunities for the Indian business.
Challenges/Threats:
(i) The small scale industries have been the worst sufferers as they can’t compete with the large organisations. The list of industries reserved for the small scale sector has been pruned as a result of dereservation of certain items.
(ii) The entry of MNCs into the country has been made easier. Because of their latest technology, they are able to kill the Indian industries which can’t face the competition from MNCs.
(iii) Introduction of latest technology has meant loss of employment by many people.
(iv) The benefit of liberalisation and globalisation are not available to the poor people.
(v) Western culture has become easily accessible and as a result there is a continuous degradation of the India social values.
Opportunities :
(i) Reduction of international trade barriers ensuring free flow of goods and services across national boundaries.
(ii) Increased competition and improvement in the supply of goods and services to the consumers.
(iii) The growing domestic market enables the Indian companies to consolidate their position and to gain more strength to make foray into the foreign market or to expand their foreign business.
(v) The growing population and disposable income and the resultant expanding internal market provide enormous business opportunities. The growing competition, both from within the country and abroad, provokes many Indian companies to look, to foreign markets seriously to improve their competitive position and to increase the business.
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