Unit – 3: Business Environment
VERY SHORT QUESTIONS (1 Mark)
1.What is business environment? 2010
Ans. It refers to the sum total of all individuals, institution & other forces that are outside the control of business enterprise but that may affect its performance.
2. Give one importance of business environment ?
Ans. It enables the firm to identify opportunities & getting the first movers advantages.
3. Mention two element of political environment?
Ans. (a) Political ideology & practices of the ruling party. (b). Nature of relationship of our country with foreign countries.
4. Mention any two elements of social environment?
Ans. ( a.) Birth & death rates. (b.) Concern with quality of life.
5. What does legal environment prescribe?
Ans. It prescribes rules or laws that all members of business community must follow.
6. Give one impact of govt. policy changes on business industries?
Ans. Increasing competition from multinational.
7. Give two changes introduced in industrial policy of July 1991?
Ans. (a.) Abolition of industrial licensing. (b.) De-reservation of industries for public sector.
8. It is the process by which govt. control over the industry is being loosened. Give the term to which the statement is trying to indicate.
9. What is privatization?
Ans. Privatization may be defined as the transfer of ownership & control from the public sector to Private sector.
10. What is Globalisation?
Ans.. Globalisation means integrating our economy with world economy.
11. Name two component of economic environment?
Ans. 1.Volume of imports & exports of different items. 2. Rates of saving & investment.
12. Name two elements of technological environment?
Ans.. 1.Recent technological. 2. Advances in computers & electronics.
13. Which environment describes characteristics of the society in which the organization exists.
Ans.:- Social Environment
14.Which element / dimension of business environment involve improvement and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.
Ans.:- Technological Environment
15. Which environment prohibits the advertisement of alcoholic beverages? 2014
Ans.:- legal Environment
16. Banking sector reforms have led to easier credit terms and better services. This is an example of a key component of the “Business Environment “name this component?
Ans.:- Economic Environment
17. .‘Demand for reservation in jobs for minorities refers to an example of key component of general environment of business. Name this component.
Ans.:- Social Environment
18 . Which process aims at giving greater role to the private sector role to the public sector?
19. State the component of business Environment.
Ans.:- Components of Business Environment
a. Internal Environment b. External Environment c. Micro Environment d. Macro Environment
20. What is meant by environment scanning?
Ans: Environment scanning is a process by which organizations monitor their relevant environment so that they can consider the impact of different events, trends, issues, expectation on its strategic management process.
21. Which economic policy of the Indian Government initiated globalisation? 2011, 2012
Ans: Industrial Policy 1991.
QUESTIONS (2/3/5 Marks)
Q.N.1.What is business environment? 2010
Ans: Business environment means forces and institutions which the members of a firm must deal with in order to achieve the objectives of the organization. It refers to the sum total of all individuals, institution & other forces that are outside the control of business enterprise but that may affect its performance. Forces includes politic, economic, social, technological, etc and Institutions include competitors, customers, suppliers, etc.
Q.N.2. Briefly discuss two dimensions of general environment and give one example of each?
Ans: The two dimensions of general environment are:
1. Economic environment: includes fiscal policy, monetary and industrial policies, etc 2013
2. Non economic environment: includes social, cultural, political, legal, technological factors, etc
Q.N.3. What is economic environment? State the component of economic environment?
Ans: Economic environment consist of Grosse national product, corporate profits, inflation rate productivity, employment rates, interest rates, debt and spending economic environment has stronger influence over organization policies and action. Components of economic environment are as follows:
a) Rates of saving and export of different items.
b) Volume of import and export of different items.
c) Money supply in the economic.
d) Public debt.
e) Agricultural & industrial product.
Q.N.4. State the component of business Environment.
Ans: Components of Business Environment
a) Internal Environment
b) External Environment
c) Micro Environment
d) Macro Environment
Q.N.5. Distinguish between economic & non – economic environment.
Ans: The economic environment consists of factor like the fiscal policy, the monetary policy , the industrial policy, the pace of the economic development etc. The non-economic environment refers to social, cultural, political, legal, technological factor etc.
Q.N.6. Explain the features of business environment.
Ans: Following are the features of Business environment:
a) Totality of external forces: Business environment is the sum total of all things external to business firms and, as such, is aggregative in nature.
b) Specific and general forces: Business environment includes both specific and general forces. Specific forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and immediately in their day-to-day working. General forces (such as social, political, legal and technological conditions) have impact on all business enterprises and thus may affect an individual firm only indirectly.
c) Dynamic nature: Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market.
d) Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings.
e) Relativity: Business environment is a relative concept since it differs from country to country and even region to region. Political conditions in the USA, for instance, differ from those in China or Pakistan.
Q.N.7. Explain the importance of Business Environment. 2011
Ans: Following are the Importance of Business Environment:
(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.
(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.N.8. State the features of the industrial policy 1991. Or Mention the changes initiated by the government of India since 1991. 2013
Ans: As a part of economic reforms, the Government of India announced a new industrial policy in July 1991. The broad features of this policy were as follows:
(a) Delicencing: The Government reduced the number of industries under compulsory licensing to six.
(b) Disinvestment: Disinvestment was carried out in case of many public sector industrial enterprises.
(c) Liberalisation of foreign policy: Policy towards foreign capital was liberalized. The share of foreign equity participation was increased and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted.
(d) Liberalisation in technical area: Automatic permission was now granted for technology agreements with foreign companies.
(e) Promotion of foreign investment: Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India.
Q.N.9. What is truly globalised economy?
Ans.- A truly global economy implies a boundary less world where there is:
(a) Free flow of goods and services across nations.
(b) Free flow of capital across nations.
(c) Free flow of information and technology.
(d) Free movement of people across border.
(e) A global governance perspective.
Q.N.10. What is “liberalisation”? Mention its process. 2010, 2016
Ans.:- Liberalisation of economy means to free it from direct or physical control imposed by the government. In other words, it is the process by which government control over the industry is being loosened. It implies liberating the trade and industry from unwanted government control and restriction. Liberalization of the Indian industry has been taken in the following way:
a) Abolishing licensing requirements in most of the industries except a short list.
b) Freedom in deciding the scale of business activities.
c) Freedom in fixing the prices of goods services.
d) Removal of restriction on the movement of goods and services.
e) Liberalisation in import and export.
Q.N.11. Explain the impact of environment policy changes on business and industry after 1991. 2008, 2013, 2016
Ans. Impact of Government Policy Changes on Business and Industry (Significance of liberalisation and globalisation):
a) Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines.
b) More demanding customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.
c) Rapidly changing technological environment: Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services.
d) Necessity for change: In a regulated environment of pre-1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.
e) Threat from
MNC Massive entry of
multi-nationals in Indian marker constitutes new challenge. The Indian
subsidiaries of multi-nationals gained strategic advantage. Many of these
companies could get limited support in technology from their foreign partners
due to restrictions in ownerships. Once these restrictions have been limited to
reasonable levels, there is increased technology transfer from the foreign
Q.N.12. What is privatization? Mention the steps taken by government for privatisation.
Ans: Privatisation refers to reducing the role of public sector by involving the private sectors in most activities. Due to the policy reforms announced in 1991, the expansion of public sector has literally come to a halt and the private sector registered fast growth in the post liberalised period. To execute policy of privatisation government took the following steps:
a) Disinvestment of public sector i.e. transfer of public sector enterprise to private sector.
b) Setting up of board of industrial and financial reconstruction (BIFR) to revive sick units in public sector.
c) Dilution of stake of the government by transferring more than 51% shares to the private sector.
Q.N.13. What is Globalisation? Mention its merits and demerits. 2008
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:
a) Reduction in custom duties.
b) Removal of quantitative restrictions or quotas on exports and imports.
c) Facilitating foreign investment and encouragement of foreign technology.
d) These measures are expected to achieve a higher rate of growth, enlargement of employment potential, and reduction of regional disparities.
Merits and Demerits of Globalization
The Merits of Globalization are as follows:
1. There is an International market for companies and for consumers there is a wider range of products to choose from.
2. Increase in flow of investments from developed countries to developing countries, which can be used for economic reconstruction.
3. Greater and faster flow of information between countries and greater cultural interaction has helped to overcome cultural barriers.
4. Technological development has resulted in reverse brain drain in developing countries.
The Demerits of Globalization are as follows:
1. The outsourcing of jobs to developing countries has resulted in loss of jobs in developed countries.
2. There is a greater threat of spread of communicable diseases.
3. There is an underlying threat of multinational corporations with immense power ruling the globe.
4. For smaller developing nations at the receiving end, it could indirectly lead to a subtle form of colonization.
Q.N.14. Explain in detail various components of Business environment. 2007, 2009, 2010, 2011, 2012, 2014, 2015
Ans: The two dimensions of general environment are:
1. Economic environment (VVI – 2010, 2011, 2014)
2. Non economic environment
ECONOMIC ENVIRONMENT: The survival and success of each and every business enterprise depend fully on its economic environment. The three 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 etc.
(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: Industrial policy, Fiscal policy, Monetary policy, Foreign investment policy, Export –Import policy (Exim policy)
(c) Economic System: The world economy is primarily governed by three types of economic systems, viz., (i) Capitalist economy; (ii) Socialist economy; and (iii) Mixed economy. India has adopted the mixed economy system which implies co-existence of public sector and private sector.
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 businessman cannot overlook the components of social environment of social environment as these components may not have immediate impact on the business but in the long run the social environment has great impact on the business.
(b) Political Environment: This includes the political system, the government policies and attitude towards the business community and the unionism. The political environment has immediate and great impact on the business transactions so businessman must scan this environment very carefully. All these aspects have a bearing on the strategies adopted by the business firms.
(c) 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 Companies Act, 1956; Foreign Exchange Management Act, 1999; The Factories Act, 1948 etc.
Besides, the above legislations, the following are also form part of the legal environment of business.
(i) Provisions of the Constitution
(ii) Judicial Decisions
(d) Technological Environment: Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time.
(e) 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.
(f) Natural Environment: The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc. Business is greatly influenced by the nature of natural environment.