Business Environment Class 12

 

Business Environment

Business Environment

Meaning of Business Environment

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

Features of Business Environment

1. Sum total of all forces: Business environment is a sum total of all the forces external to business firms.
2. Specific and general forces: Business environment consists of both specific forces such as investors, customers, competitors and suppliers which affect individual firm directly and general forces such as social, political, legal and technological conditions which have impact on all business enterprises and thus may affect an individual firm only indirectly.
3. Interrelated: All the elements of business environment are closely interrelated to each other.
4. Dynamic: Business environment is dynamic because it keeps on changing. For e.g. customers' tastes, government policies, competitors' moves and technology keep on changing. 
5. Uncertain: Business environment is uncertain because it is difficult to predict changes taking place in it. 
6. Complex: It is complex in nature as it is relatively easier to understand in parts but difficult to comprehend in its totality because it consists of numerous interrelated and dynamic forces. 
7. Relative: Business environment is a relative concept because it differs from region to region and country to country. For e.g. in India there will be more demand for dosa and in US there will be more demand for pizza.

Importance of Understanding Business Environment

1. It enables the firm to identify opportunities and getting the first mover advantage instead of losing them to its competitors. For e.g. Maruti Udyog in small car market, Volvo in luxury buses etc. 
2. It helps the firm to identify threats and early warning signals which are likely to hinder a firm’s performance and take timely actions. For e.g. if an Indian firm finds that a foreign multinational is entering India, it should act as a warning signal and the Indian firm should prepare itself. 
3. It helps in tapping useful resources: Understanding of business environment helps in obtaining and assembling resources as per the demand in the market. For e.g. with demand for flat screen coloured televisions, producers are collecting resources needed to produce flat screen coloured televisions and not the resources needed for black and white televisions.
4. It helps in coping with rapid changes: Business environment is dynamic and it keeps on changing. Understanding of business environment helps in adapting to the changes taking place.
5. It helps in assisting in planning and policy formulation: Business environment is a source of both opportunities and threats. Therefore, proper understanding of business environment helps in making plans and deciding future courses of action.
6. It helps in improving performance of an enterprise: Continuous monitoring of the environment and adopting suitable business practices helps in improving the performance of an organisation.

Dimensions of Business Environment

Following are the main dimensions/components of Business Environment:

1.  Economic Environment: It includes interest rates, inflation rates, changes in disposable income of people, stock market indices, value of rupee etc.
2. Social Environment: It includes the social forces like customs and traditions, values, social trends, society’s expectations from business, etc.
3. Technological Environment: It includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating business.
4. Political Environment: It includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business.
5. Legal Environment: It includes various legislations passed by the Government administrative orders issued by government authorities, court judgments as well as the decisions rendered by various commissions and government agencies.

DEMONETISATION: 

On November 8, 2016, the Government of India made an announcement to demonetize two largest denomination notes Rs 500 and Rs 1000 with immediate effect. 

Aim of demonetisation was to curb corruption, use of money for illegal activities and accumulation of black money. 

Features of Demonetisation:

1. It is a measure of tax administration. Those who were holding black money had to declare their wealth and pay penalties. 
2. It is a means of indicating that government will no longer tolerate tax evasion. 
3. It has led to increase in digital transactions. 
4. It has tendency to increase savings because people will deposit their cash in bank rather than keeping at home

NEW INDUSTRIAL POLICY OF 1991

Three Major Components of New Industrial Policy of 1991

1. Liberalisation - removing unnecessary controls and restrictions on businesses and industries. 
2. Privatisation - increasing the role of private sector and reducing the role of public sector 
3. Globalisation - integrating economies of different nations with the world economy

Impact of Government Policy Changes on Business and Industry

1. Increasing competition: Due to liberalisation and entry of foreign firms, competition for Indian firms has increased.
2. More demanding customers: Customers are becoming more demanding as they are more aware and have a wider choice.
3. Rapidly changing technological environment: To face the challenges of rising competition and satisfying demanding customers, firms need new and better technology.
4. Necessity for change: The firms can’t stick to old practices and policies. They need to continuously modify their operations to survive in the market.
5. Need for developing human resource: There is a need to develop human resources because the new market conditions require people with higher competence and greater commitment. 
6. Market orientation: Firms need to shift from production orientation (sell whatever has been produced) to market orientation (produce according to customers’ needs).
7. Loss of budgetary support: Government’s budgetary support to the public sector has declined over the years. Now in order to survive, public sector enterprises need to be more efficient and independent.

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