BUSINESS ENVIRONMENT - CLASS 12

BUSINESS ENVIRONMENT - CLASS 12

Meaning  of  Business  Environment 

•Business  environment  refers  to  all the  external forces—  including economic, social, political,  technological  and  legal—that affect the performance  of a  business  organisation.   •These  forces  can  affect the  performance  of the  organisation  either  in  a positive  or  in  a  negative  manner.  For  example, a  change  in  consumer’s tastes  and  preferences  in  favour  of  a  firm’s  product increases  the  demand for  its  product. On  the  other  hand, political instability can  have  an adverse  impact on  its  performance.  

• External  forces  are  outside  the  purview  or  control of an  organisation  but affect its  performance.   

 

FEATURES OF BUSINESS ENVIRONMENT

1)  Aggregate  of  external forces:  A business  environment is  the  aggregate of  all the  external forces  such  as  individuals,  consumers, government  and legal  matters  that affect the  performance  of an  organisation  either positively or  negatively.   2)  Interrelated:  The  different forces  of  a  business  environment are interrelated  with  one  another.  For  example, increase   in  income  of the  consumers  = increase  in  demand  for consumer durables   

3)  Ever-changing:  A business  environment is  dynamic. For  example,  the consumer’s  tastes  and  preferences, technology, political conditions, etc., change  continuously.    

 4)  Uncertain: The  dynamism  in  the  forces  of  a  business  environment implies that they are  highly  uncertain  and  cannot be  predicted  easily.  

 5)  Complex:  As  a  business  environment is  the  aggregate  of  different interrelated  forces,  understanding  it is  quite  difficult.   6)  Relative:  A business  environment  is  relative  in  nature  and  differs  from one  region  to  another  depending  on  various  factors. For  example, political conditions, religious  beliefs, etc.,  are  different  in  different regions.  

 •  Specific  and  General Business  Environment 

1.  Specific  environment:  A specific  business  environment  refers  to  a business  environment in  which  an organisation  is  acted  upon  by  external forces  specific  to  the  particular  organisation  and  its  performance  is  affected directly  by these  forces. For  example, a  change  in  consumer  tastes  and preferences  for the  products  of  a  business  enterprise  directly  affects  the demand. 

 2.   General  environment:  A general  business  environment  refers  to  a business  environment in  which  general  external forces  affect the performance  of all  the  organisations  simultaneously.  These  forces  affect a particular  organisation  only  indirectly. For  example, a  change  in  political conditions  affects  the  performance  of all  the  organisations  in  the  region simultaneously. 

IMPORTANCE OF BUSINESS ENVIRONMENT

1)  Identification  of  opportunities:  An  analysis  of  a  business  environment enables  an enterprise  to  identify various  positive  opportunities  and  thereby take  first advantage  in  its  competition  with  other  companies. 

  2)  Identification  of  threats:  A study of  a  business  environment can  help  a company analyse  positive  opportunities,  but this  study can  also  help  it identify various  threats  or  negative  signals  and  take  preventive  measures timely  and  appropriately. 

3)  Accumulation  of  useful  resources:  A business  environment, on  the one  hand,  provides  an  organisation  various  inputs  required  for its functioning,  and  on  the  other  hand, acts  a  source  of demand  for the  goods and  services  produced  by it.  Thus, it is  important for  an  organisation  to understand  its  environment and  use  those  resources  from  it that are required  for the  production  of the  goods  and  services  in  demand.

4)  Adjustment    to  changes: A  careful study  of  a  business  environment helps  an organisation  in  dealing  with  various  changes  in  the  external forces better. 

  5)  Formulation  of  plans  and  policies: Through  a  study of  a  business environment,  an  organisation  can  identify various  threats  and opportunities  to it,  and  accordingly  frame  suitable  plans  and  policies.  

 6)  Improvement  in  performance: Organisations  that carefully study their business  environments  and  accordingly  adopt  suitable  plans  and  policies are  better  able  to  improve  their  performance  in  the  long  run.   

DIMENSIONS OF BUSINESS ENVIRONMENT

 1. Economic Environment: It has 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.Increase or decrease of the economic factors result in opportunities or constraints on a 

business enterprise.

2. Social Environment: 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 enterprise. 

Example the celebration of Diwali, Eid and Christmas in India provide financial 

opportunities for confectionery manufacturers, garments businesses and many other 

related businesses.

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. A businessman must closely monitor the 

technological changes taking place in the industry as it helps in facing competition and 

improving quality of the product.

Example, demand for LED smart HD tv’s instead of LCD tv’s, Use of artificial 

intelligence in various companies etc.

4. Political Environment: It includes political conditions such as general stability and 

peace in the country and the attitude of the elected government representatives hold 

towards businesses. Political stability builds confidence among business community 

while political instability and bad law & order situation may bring uncertainty in business 

activities.

Example: Bangalore is called as the silicon valley of India due to the favorable political 

conditions provided by the state government to the IT industries.

5. Legal Environment: It includes various laws and legislations passed by the Government, 

administrative orders, court judgements, decisions of various commissions and agencies

at every level of the government center, state or local. Businessmen have to act according 

to various legislations and their knowledge is very necessary. 

Example: Advertisement of Alcoholic beverages is prohibited.

For notes of lpg policy refer indian Economic development notes. Rest topics are deleted for cbse 2020-21.