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NIOS Class 12 Business Studies Chapter 3 Business Environment
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Business Environment
Chapter: 3
Module – 1 : BUSINESS AROUND US
INTEXT QUESTIONS 3.1
Q. 1. Define the term Business Environment in your own words.
Ans: The term ‘business environment’ connotes external forces, factors and institutions that are beyond the control of the business and they affect the functioning of business enterprises. These include customers, competitors, suppliers, government and the social, political, legal and technological factors etc. Business environment is multifaceted, complex, and dynamic in nature. The changes in business environment are unpredictable. It differs from place to place, region to region and country to country.
Q. 2. Rectify the following sentences if found incorrect:
(a) The business environment is static in nature.
Ans: The business environment is dynamic in nature.
(b) Business environment includes factors external as well as internal to business firm.
Ans: Business environment includes factors external to business firm.
(c) The changes in business environment are quite predictable.
Ans: The changes in business environment are quite unpredictable.
(d) Business environment helps the firm to identify the opportunities for the business.
Ans: Correct statement.
INTEXT QUESTIONS 3.2
Q. 1. What is meant by Exim policy?
Ans: Exim policy regulates the import and export of our country. Through this policy Government decides the duties or taxes on import of goods and services.
Q. 2. Identify the types of non-economic environment in the following cases:
(a) Demand for new clothes increases during festive session.
Ans: Social environment.
(b) Computer has outdated typewriter.
Ans: Technological environment.
(c) Coca-Cola is now being freely sold in the Indian market.
Ans: Political environment.
(d) Sugar factories are being set up where sugarcane is grown abundantly.
Ans: Natural environment.
(e) Availability of skilled labour in a particular region.
Ans: Demographic environment.
INTEXT QUESTIONS 3.3
Q. 1. What is meant by Globalisation?
Ans: Globalisation means integrating the economy of a country with world economy. It implies free flow of goods and services, capital, technology and labour across the national boundaries.
Q. 2. Write ‘L’ for Liberalisation, ‘P for Privatisation and ‘G’ for Globalisation.
(a) Freedom in fixing prices of goods and services. ()
Ans: L
(b) Disinvestment of shares of public sector industrial enterprises. ()
Ans: P
(c) Reduction in sales tax rates. ()
Ans: L
(d) Reduction in custom duties. ()
Ans: G
(e) Reduction in number of industries reserved for public sector. ()
Ans: P
INTEXT QUESTIONS 3.4
Q. 1. State the meaning of ‘business ethics’.
Ans: Business ethics means the relationship between the society on one hand and business activities on the other. The objectives, practices, techniques and behaviour of business must be in conformity to the standards set by the society.
Q. 2. Identify the group towards which the business is responsible.
(a) When the organisation pays the taxes in time.
Ans: Responsibility towards Government.
(b) When the company produces good quality products and sells it at reasonable price.
Ans: Responsibility towards Consumer.
(c) When the company organises sport meet for the general public for a particular locality.
Ans: Responsibility towards Community.
(d) When the company declares dividend at a higher rate.
Ans: Responsibility towards Owners/ shareholders.
(e) When the organisation provides proper medical facility to the staff members.
Ans: Responsibility towards Employees.
Q. 3. Multiple choice questions:
(i) Identify from the following the ethical practices in business:
(a) Exploitation of workers.
(b) Selling adulterated food.
(c) Honesty in dealing with consumers.
(d) Sale of duplicate goods.
Ans: (c) Honesty in dealing with consumers.
(ii) Which of the following is not ethical practice?
(a) Prompt payment of taxes by business.
(b) Sell products with correct measurement.
(c) Black marketing.
(d) Providing fair wages to workers.
Ans: (c) Black marketing.
TERMINAL EXERCISE
Very Short Answer Type Questions:
Q. 1. State any two features of business environment.
Ans: Two features of business environment can be summarised as follows:
(a) Business environment is the sum total of all factors external to the business firm and that greatly influence their functioning.
(b) It covers factors and forces like customers, competitors, suppliers, government, and the social, cultural, political, technological and legal conditions.
Q. 2. Mention the different types of business environment.
Ans: Types of Business Environment:
(a) Economic environment:
(i) Economic Conditions.
(ii) Economic Policies.
(iii) Economic System.
(b) Non-economic environment:
(i) Social Environment.
(ii) Political Environment.
(iii) Legal Environment.
(iv) Technological Environment.
(v) Demographic Environment.
(vi) Natural Environment.
Q.3. List the various elements of non-economic environment of business.
Ans: Various elements of non-economic environment business are:
(i) Social Environment.
(ii) Political Environment.
(iii) Legal Environment.
(iv) Technological Environment.
(v) Demographic Environment.
(vi) Natural Environment.
Q. 4. State any two effects of liberalisation of Indian economy.
Ans: Through this liberalisation process, Indian Economy has opened up and started interacting with the world in a big way. This has resulted in easy entry of foreign business organisations in India. This has further resulted in stiff competition and efficiency. Ultimately, liberalisation has helped us in achieving a high growth rate, easy availability of goods at competitive rates, a healthy and flourishing stock market, high foreign exchange reserve, low inflation rate, strong rupee, good industrial relations, etc.
Q. 5. What is meant by the term “ethics”?
Ans: Ethics means character, conduct and
activities of people based on moral principles.
Q. 6. What do you mean by social responsibility of business?
Ans: Social Responsibility of Business: Social responsibility of business refers to the obligation of business enterprises to adopt policies and plans of actions that are desirable in terms of the expectation, values and interest of the society. It ensures that the interests of different groups of the public are not adversely affected by the decisions and policies of the business.
Q. 7. What do you understand by ‘business ethics’?
Ans: Business Ethics means the business practices which are desirable from the point of view of the society. i.e. the moral principles which should be followed by business. Business ethics are concerned with determining what is right and what is wrong while doing the business. By ethics we mean the business practices which are desirable from the point of view of the society.
Q. 8. State any two responsibilities of business towards consumers.
Ans: The products produced by the business are used by consumers.
The responsibility of business towards consumers are as follows:
1. To ensure regular supply of goods/services.
2. To provide goods at reasonable prices.
3. To provide goods which will help to meet the needs of consumers of different classes.
Q. 9. Mention any two causes of environmental pollution.
Ans: Pollution Environmental pollution arises due to the following causes:
1. Air Pollution: Air pollution is the result of a combination of factors which decreases the air quality. Carbon monoxide emitted by automobiles contributes to air pollution.
2. Water Pollution: Chemical waste from factories is polluting the water bodies of every country. Throwing of plastic bags filled with flowers and other materials plastic bottles etc. pollute our rivers, streams and lakes.
Q. 10. State any two elements of business ethics.
Ans. Elements of Business: Ethics The elements of business ethics are as follows:
1. Business ethics create self imposed discipline on the part of the business firms.
2. Business ethics make a business honest and responsible.
3. Business ethics aims at fair and reasonable treatment to customers, employees, suppliers etc.
4. Business ethics co-exist with law which will help in the perfection of the conduct of life.
5. Business ethics covers all business practices which are desirable from the point of view of the society.
Q. 11. Give two examples of business ethics.
Ans: A few examples of ethical business practices are:
1. To charge fair prices from the customer.
2. To use fair weights for commodities.
3. To pay taxes to government correctly and promptly.
4. To ensure supply of safe products for the public.
5. To give fair treatment to the workers.
6. Not to indulge in unfair trade practices, mal practices, black marketing and hoarding.
Short Answer Type Questions:
Q. 12. How does demographic environment of business influence the business activities?
Ans: Demographic Environment: This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services. For Example a country where population rate is high and children constitute a large section of population, then there is more demand for baby products. Similarly the demand of the people of cities and towns are different than the people of rural areas. The high rise of population indicates the easy availability of labour. These encourage the business enterprises to use labour intensive techniques of production. Moreover, availability of skill labour in certain areas motivates the firms to set up their units in such area. For example, the business units from America, Canada, Australia, Germany, UK, are coming to India due to easy availability of skilled manpower. Thus, a firm that keeps a watch on the changes on the demographic front and reads them accurately will find opportunities knocking at its doorsteps.
Q.13. What are the steps Government of India has taken as a part of its liberalisation process?
Ans: The Government of India has taken following steps as a part of its liberalisation process:
(i) abolishing industrial licensing requirement in most of the industries.
(ii) freedom in deciding the scale of business activities.
(iii) freedom in fixing prices of goods And services.
(iv) simplifying the procedure for imports and exports.
(v) reduction in tax rates. and
(vi) simplified policies to attract foreign capital and technology to India.
Q.14. Explain the effect of political environment in the normal functioning of business enterprises.
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. Further, ideology of the political party also influences the business organisation and its operations. You may be aware that Coca-Cola, a cold drink widely used even now, had to wind up operations in India in late seventies. Again the trade union activities also influence the operation of business enterprises. Most of the labour unions in India are affiliated to various political parties. Strikes, lockouts and labour disputes etc. also adversely affect the business operations. However, with the competitive business environment, trade unions are now showing great maturity and started contributing positively to the success of the business organisation and its operations through workers participation in management.
Q.15. Why should a business enterprise be socially responsible?
Ans: Business has social responsibility because of the following re sons:
1. Self Interest: Business can succeed in the long run by fulfilling the demands of the society. The people who have good environment, education and opportunities can become good employees, customers and neighbours of the business.
2. Balancing of Social Power: The decisions and activities of a business can affect the consumers, employees, environment and community. So it has
social power. If social power and responsibility are not balanced, the business might use its power against the interests of consumers, employees, environment and community.
3. Creation of Society: Business is a creation of society as it uses the resources provided by the society. So it should utilise the resources for the benefit of people. A successful business can built a happy and satisfied community and employees.
4. Social Awareness: Now-a-days consumers are aware of the quality of various products, the market price of various products, the name of reputed companies supplying the product etc. Therefore, they should be given fair treatment by the business. Otherwise, they will organise and form Consumer Associations. This will compel the business to perform social obligations.
5. Public Image: If the business follows social obligations, public image will improve. The public will have credibility to the concern. Otherwise, conflict will arise between the business and society.
6. Moral Justification: Every business organisation uses human resources, physical resources and capital of the society. Roadways, power and water supply are used by business firms. The products of business units are sold to the society. Therefore, it is the moral responsibility of business to contribute for the well being of the society.
Q. 16. What are the effects of Globalisation of Indian economy?
Ans: Globalisation means ‘integrating’ the economy of a country with the world economy. 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. These measures are expected to achieve a higher rate of growth, enlargement of employment potential, and reduction of regional disparities.
Q.17. Briefly explain the concept of social responsibility.
Ans: Concept of Social Responsibility: Social responsibility of business means obligation to act in a manner which will serve the best interests of the society. Social obligation of a business is different From legal obligation. Legal obligation is observed because of the provisions or fear of law, but social obligations will help to take voluntary efforts on the part of business to fulfill the need of the society. By fulfilling the social obligations, business creates an environment which is conducive to its success.
Q.18. Enumerate the responsibilities of business towards employees.
Ans: The responsibility of business towards its employees are as follows:
1. To provide reasonable and fair wages and salaries.
2. To maintain good working conditions for the good health of the workers.
3. To provide services such as housing, medical care, recreation etc.
4. To develop a sense of belonging.
5. To win the cooperation of the workers by creating better human relations in the business.
Q. 19. Give any four arguments in favour of social responsibility.
Ans: 1. Self Interest: Business can succeed in the long run by fulfilling the demands of the society. The people who have good environment, education and opportunities can become good employees, customers and neighbours of the business.
2. Balancing of Social Power: The decisions and activities of a business can affect the consumers, employees, environment and community. So it has social power. If social power and responsibility are not -balanced, the business might use its power against the interests of consumers, employees, environment and community.
3. Creation of Society: Business is a creation of society as it uses the resources provided by the society. So it should utilise the resources for the benefit of people. A successful business can built a happy and satisfied community and employees.
4. Social Awareness: Now-a-days consumers are aware of the quality of various products, the market price of various products, the name of reputed companies supplying the product etc. Therefore, they a should be given fair treatment by the business. e Otherwise, they will organise and form Consumer Associations. This will compel the business to perform social obligations.
Q. 20. What do you mean by the term ‘business ethics’?
Ans: Business Ethics means the business practices which are desirable from the point of view of the society. i.e. the moral principles which should be followed by business. Business ethics are concerned with determining what is right and what is wrong while doing the business. By ethics we mean the business practices which are desirable from the point of view of the society.
Long Answer Type Questions:
Q. 21. Describe the importance of business environment for the business firm.
Ans: Importance of Business Environment: There is a close and continuous interaction between the business and its environment. This interaction helps in strengthening the business firm and using its resources more effectively. The business environment is multi faceted, complex, and dynamic in nature and has a far-reaching impact on the survival and growth of the business. To be more specific, proper understanding of the social, political, legal and economic environment helps the business in the following ways:
(a) Determining Opportunities and Threats: The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises for meeting the challenges successfully.
(b) Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities.
(c) Continuous Learning: Environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in realm of business.
(d) Image Building: Environmental understanding helps the business organisations in improving their image by showing their sensitivity to the environment within which they are working. For example, in view of the shortage of power, many companies have set up Captive Power Plants (CPP) in their factories to meet their own requirement of power.
(e) Meeting Competition: It helps the firms to analyse the competitors’ strategies and formulate their own strategies accordingly.
(f) Identifying Firm’s Strength and Weakness: Business environment helps to identify the individual strengths and weaknesses in view of the technological and global developments.
Q. 22. Explain any two non-economic environment of business.
Ans: Non-economic Environment: The various elements of non-economic environment are as follow:
(a) Social Environment: The social environment of business includes social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a society cherishes have a considerable influence on the functioning of business firms. For example, during festive seasons there is an increase in the demand for new clothes, sweets, fruits, flower, etc. Due to increase in literacy rate the consumers are becoming more conscious of the quality of the products. Due to change in family composition, more nuclear families with single child concepts have come up. This increases the demand for the different types of household goods. It may be noted that the consumption patterns, the dressing and living styles of people belonging to different social structures and culture vary significantly.
(b) Legal Environment: This refers to set of laws, regulations, which influence the business organisations and their operations. Every business organisation has to obey, and work within the framework of the law.
The important legislations that concern the business enterprises include:
(i) Companies Act, 1956
(ii) Foreign Exchange Management Act, 1999
(iii) The Factories Act, 1948
(iv) Industrial Disputes Act, 1972
(v) Payment of Gratuity Act, 1972
(vi) Industries (Development and Regulation) Act,1951
(vii) Prevention of Food Adulteration Act, 1954
(viii) Essential Commodities Act, 2002
(ix) The Standards of Weights and Measures Act,1956
(x) Monopolies and Restrictive Trade Practices Act,1969
(xi) Trade Marks Act, 1999
(xii) Bureau of Indian Standards Act, 1986
(xiii) Consumer Protection Act, 1986
(xiv) Environment Protection Act
(xv) Competition Act, 2002
Besides, the above legislations, the following are also form part of the legal environment of business:
(i) Provisions of the Constitution: The provisions of the Articles of the Indian Constitution, particularly directive principles, rights and duties of citizens, legislative powers of the central and state government also influence the operation of business enterprises.
(ii) Judicial Decisions: The judiciary has to ensure that the legislature and the government function in the interest of the public and act within the boundaries of the constitution. The various judgments given by the court in different matters relating to trade and industry also influence the business activities.
Q. 23. What is meant by social responsibility of business? State the responsibilities of business towards the community.
Ans: Social responsibility of business refers to the obligation of business enterprises to adopt policies and plans of actions that are desirable in terms of the expectation, values and interest of the society. It ensures that the interests of different groups of the public are not adversely affected by the decisions and policies of the business.
Responsibility towards the Community: Every business is a part and parcel of our community. So it should contribute towards the general welfare of the community. It should preserve and promote social and cultural values, generate employment opportunity and contribute towards the upliftment of weaker sections of the society. It must take every step to protect the physical and ecological environment of the society. It should contribute to the community development programmes like public health care, sports, cultural programmes. Business should work for the community.
The main responsibility of business towards the public are as follows:
1. To protect the environment from pollution.
2. To provide better employment opportunities.
3. To preserve social and cultural values.
4. To help the weaker sections of the society like disabled persons, widows, scheduled tribes etc.
5. To promote national integration.
Q. 24. Describe in brief the economic environment of business.
Ans: The survival and success of each and every business enterprise depend fully on its economic environment.
The main factors that affect the economic environment are:
(a) Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great influence on business organisations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of economic growth.
(b) Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time.
Some of the important economic policies are:
(i) Industrial policy.
(ii) Fiscal policy.
(iii) Monetary policy.
(iv) Foreign investment policy.
(v) Export-Import policy (Exim policy).
The government keeps on changing these policies from time to time in view of the developments taking place in the economic scenario, political expediency and the changing requirement. Every business firm has to function strictly within the policy framework and respond to the changes therein.
Q. 25. Explain the social responsibility of business towards different groups.
Ans: It needs to be noted that the responsibilities of those who manage the business cannot be limited to the owners. They have to take into account the expectations of other stake holders like the workers, the consumers, the government and the community and public at large. Let us now look at the responsibilities of the business towards different groups may be discussed as under:
(a) Responsibility towards the shareholders or owners: The shareholders or owners are those who invest their money in the business. They should be provided with a fair return on their investment. In case of companies it is in the form of dividends. It has to be ensured that the rate of dividend is commensurable with the risk involved and the earnings made. Besides omic dividends, the shareholders also expect an the appreciation in the value of shares. This is governed primarily by company’s performance.
Funds required by the business are provided by investors.
The responsibility of business towards owners or investors are as follows:
1. To ensure safety of investment.
2. To provide regular, correct and adequate information on the financial aspects.
3. To provide fair and regular dividend.
4. To ensure capital appreciation.
5. To protect the assets of the business.
(b) Responsibility towards the Employees: A business enterprise must ensure a fair wage or salary to the workers based on the nature of work involved and the prevailing rates in the market. The working conditions must be good in respect of safety, medical facilities, canteen, housing, leave and retirement benefits etc. They should also be paid reasonable amount of bonus based on the business earnings. Preferably, there should also be a provision for their participation in management Without employees no organisation can survive. The brain, efforts, talent and expertise of employees bring success to business concerns.
The responsibility of business towards its employees are as follows:
1. To provide reasonable and fair wages and salaries.
2. To maintain good working conditions for the good health of the workers.
3. To provide services such as housing, medical care, recreation etc.
4. To develop a sense of belonging.
5. To win the cooperation of the workers by creating better human relations in the business.
(c) Responsibility towards the Consumers: A business enterprise must supply quality goods and services to the consumers at reasonable prices. It should avoid adulteration, poor packaging. misleading and dishonest advertising, and ensure proper arrangement for attending to customer complaints and grievances. The products produced by the business are used by consumers.
The responsibility of business towards consumers are as follows:
1. To ensure regular supply of goods/services.
2. To provide goods at reasonable prices.
3. To provide goods which will help to meet the needs of consumers of different classes.
4. To provide goods of standard quality.
5. To ensure that advertisements made are true.
6. To provide prompt and continuous service.
(d) Responsibility towards the Government: A business enterprise must follow the guidelines of the government while setting up the business. It should conduct the business in lawful manner, pay the taxes honestly and in time. It should not indulge in any corrupt practices or unlawful activities.
The responsibilities of business towards government are as follows:
1. To abide by the laws of the nation.
2. To pay taxes honestly and in time.
3. To refrain from corrupting government employees.
4. To discourage the tendencies of concentration of economic power and monopoly.
5. To adapt fair dealings in foreign trade.
(e) Responsibility towards the Community: Every business is a part and parcel of our community. So it should contribute towards the general welfare of the community. It should preserve and promote social and cultural values, generate employment opportunity and contribute towards the upliftment of weaker sections of the society. It must take every step to protect the physical and ecological environment of the society. It should contribute to the community development programmes like public health care, sports, cultural programmes. Business should work for the community.
The main responsibility of business towards the public are as follows:
1. To protect the environment from pollution.
2. To provide better employment opportunities.
3. To preserve social and cultural values.
4. To help the weaker sections of the society like disabled persons, widows, scheduled tribes etc.
5. To promote national integration.
