Business Environment - Class 12 Commerce Business Studies - Extra Questions

'Understanding of environment by business managers enables them no only to identify and evaluate, but also to react to the forces external by their firms.' In the light of this statement, 'explain by giving any five point why in the present day competitive market; it is essential for a business enterprise to remain alert and aware of its environment.

 In the present day of competitive market, it is essential for a business to remain alert and aware of its
environment, because of the following points:
(i) Identify opportunities and getting the first mover advantage Awareness of environment helps an enterprise to identify the opportunities prevailing in the market and they can make strategies to capitalise such opportunities at the earliest, e.g. Maruti Udyog became the leader in the small car market because it was the first, who recognised the need for small cars in the environment.
(ii) Identify threats and early warning signals Environmental awareness helps an enterprise in identifying possible threats in future, so that the enterpirse can take timely measures to minimise the threats and its adverse effects, if any, e.g. when the new firms entered in the mid segment cars (threat), Maruti Udyog increased the production of its Esteem car. Increase in production enabled the company to make faster delivery. As a result, the company captured a substantial share of the market and became a leader in this segment.
(iii) Assist in planning and policy formulation Environment awareness helps a business unit to identify opportunities and threats in the market. These serve as a basis for planning future course of action and making policies for the same.
(iv) Tapping useful resources A business environment is an open system which gets resources such as capital, labour, machines, materials, etc from the environment, converts them into goods and services desired by the customers and then supplies its output to the environment. Thus, a business firm depends on its external environment for tapping various resources and for the sale of its output.
(v) Optimal utilisation of resources will lead to earn more with great efficiency which will lead to cutting in the cost of goods manufactured or service rendered.


Naman and Govind after finishing their graduation under vocational stream decided to start their own travel agency which will book Rail Tickets and Air Tickets on commission basis. They also thought of providing tickets within ten minutes through the use of internet. They discussed the idea with their Professor Mr. Mehta who liked the idea and suggested them to first analyse the business environment which consists of investors, competitors and other forces like social, political, etc., that may affect their business directly or indirectly. He further told them about the technological improvements and shifts in consumer preferences that were taking place and hence they should be aware of the environmental trends and changes which may hinder their business performance. He emphasised on making plans keeping in mind the threat posed by the competitors, so that they can deal with the situation effectively. This alignment of business operations with the business environment will result in better performance.
(i) Identify and state the component of business environment highlighted in the above Pam.
(ii) State any two features of business environment as discussed by Professor Mehta with Naman and Govind.
(iii) Also state two points of importance of business environment as stated by Professor Mehta in the above situation.

(i) Technological Environment: It includes forms relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business. 
(ii) (a) Specific and general forces. 
(b) Dynamic nature 
(iii) (a) It helps the firm to identify threats and early warning signals. 
(b) It helps in planning and policy formulation.


'Mamta Rice Food Ltd.' is a well known rice producing company. The sales have been falling down from the beginning of the year. The managing director MR. Bhuvan is worried about this situation. With a view to find out the solution of this problem he made a team to find out the reasons for downfall of sales. The team conducted the survey and gave following four reasons for the downfall of company's sale.
(i) On account of increase in export duty made by the government, the foreign demand has gone down.
(ii) Due to availability of other eatable substitute the taste of people is diverted from rice. 
(iii) The competitor's imported new technology machine and arc producing better quality rice.
(iv) Due to strain with neighbouring country's government and our country's government export is effected.
Identify the dimension of Business Environment discussed in the above case:

Following are the dimension stated in above paragraph.-
(i) Economic environment
(ii) Social environment
(iii) Technological environment.
(iv) Political environment.


Long Answer Type Question:
How would you characterise Business environment? 
Explain with example the difference between general and specific environment. 

Features of business environment (i) Totality of External Forces Business environment is aggregative in nature as it is the sum total of all things external to business firms. (ii) Inter-relatedness Different elements of business environment are closely related to each other, e.g., increased awareness of health care have increased the demand for many health products. (iii) Dynamic Nature The business environment is highly dynamic keeps on changing. Sometimes there is a change in technology tastes and preference of consumer etc. (iv) Uncertainty The environment cannot be predicted. It is highly uncertain and unpredictable. (v) Complexity Since there are many elements of business Environment and they are inter-related and dynamic in nature Therefore, it becomes very difficult to understand them as a whole. Difference between Specific and General Environment There are two types of forces operating in business environment specific and general Specific forces affect the individual enterprises directly and immediately e.g., customers, suppliers. General forces affect the firms and only indirectly e.g., social conditions in political conditions.


Very Short Answer Question:-
Define environment scanning. 

Environment scanning is a process in which the organization undertakes a study to identify the opportunities and threats in an industry. The information obtained through environmental scanning can be used by leaders to design new objectives and strategies or modify existing objectives and strategies. An organization must be agile in responding to environmental challenges while making most of the available opportunities.


Short Answer Type Questions:
Briefly explain the following: -
(a) Liberalisation
(b) Privatisation
(c) Globalisation.

a)  Liberalization means relaxation of various government restrictions in the areas of social and economic policies. Liberalizing trade policy by the government that is removal of tariff, subsidies and other restrictions on the flow of goods and services between countries is also termed as liberalization. 
b)The transfer of ownership, property or business from the government to the private sector is termed privatization. The government ceases to be the owner of the entity or business.
c) Globalisation describes a process by which national and regional economies, societies, and cultures have become integrated through the global network of trade, communication, immigration and transportation.


Short Answer Type Questions: 
What do you understand by Business environment?

The combination of internal and external factors that influence a company's operating situation. The business environment can include factors such as: clients and suppliers; its competition and owners; improvements in technology; laws and government activities; and market, social and economic trends.
This is known as business environment.


Short Answer Type Questions:
Why is it important for business enterprises to understand  their environment?
Explain briefly.


An analysis of business environment helps to identify strength, weakness, opportunities & threats. Analysis is very necessary for the survival and growth of the business enterprise. The importance of business environment is briefly explained in an analysis below.

(1) Identification of Strength: The analysis of the internal environment helps to identify strength of the firm. For instance, if the company has good personal policies in respect of promotion, transfer, training, etc than it can indicates strength of the firm in respect of personal policies. This strength can be identified through the job satisfaction and performance of the employees. After identifying the strengths the firm must try to consolidate its strengths by further improvement in its existing plans & policies.

(2) Identification of Weakness: The analysis of the internal environment indicates not only strengths but also the weakness of the firm. A firm may be strong in certain areas; where as it may be weak in some other areas. The firm should identify sue weakness so as to correct them as early as possible.

(3) Identification of Opportunities: An analysis of the external environment helps the business firm to identify the opportunities in the market. The business firm should make every possible effort to grab the opportunities as and when they come.

(4) Identification of Threats: Business may be subject to threats from competitors and others. Therefore environmental analysis helps to identify threats from the environment identification of threats at an earlier date is always beneficial to the firm as it helps to defuse the same.

(5) Exploitation of Business Opportunities: Environment opens new opportunities for the expansion of business activities. Study of environment is necessary in order to discover and exploit such opportunities fully.

(6) Keeping Business Enterprise Alert: Environment study is needed as it keeps the business unit alert in its approach and activities. In the absence of environmental changes, the business activities will be dull and lifeless. The problems & prospects of business can be understood properly through the study of business environment. This enables an enterprise to face the problems with confidence and secure the maximum benefits of business opportunities available.

(7) Keeping Business Flexible and Dynamic: Study of business environment is needed for keeping business flexible and dynamic as per the changes in the environmental forces. This will enable the development of business organization.

(8) Understanding Future Problems and Prospects: The study of business environment enables to understand future problems and prospects of business in advance. This enables business organizations to face the problems boldly and also take the benefit of favorable situation.

(9)Making Business Socially Acceptable: Environment study enables businessmen to expand the business and also make it acceptable to different social groups. Business organizations can make positive contribution for maintaining ecological balance by studying social environment.

(10) Ensures Optimum Utilization of Resources: The study of business environment is needed as it ensures optimum use of resources available. For this, the study of economic and technological environment is useful. Such study enables organization to take full benefit of government policies, concessions provided, and technological developments and so on.

(11) Ensures Survival and Growth: Business environment inform about suitable changes to be affected in business policies. This helps the business organizations to grow & prosper.

(12) Maintaining adaptability to changes: Business environment guides the business organization about socio-economic changes & the organization must accordingly adapt these change. This enables the business organization to survive for a longer period.


Short Answer Type Questions:
Mention the various dimensions of Business environment. 

The Dimensions or the factors constituting the business environment include political, social, technological, legal and economic factors which are considered important for taking decisions and for improving the operations of a firm.


Long Answer Type Question:
Explain with examples the various dimensions of Business environment. 

1) Political environment: it comprises political conditions such as peace & stability, law & order. For example, a situation of political unrest such as a frequent change in the ruling government implies a change in the rules & policies of the government regarding production & manufacturing.
2) Technological environment: which comprises of technological changes & improvements. i.e introduction of computers, internet have changed the way organization works today.
3) Legal environment: It refers to the legislation of rules passed by the government such as the Companies Act, trade unions act.
4) Economic environment: It comprises economic variables such as interest rates, income, stock market indices that affect the functioning of the enterprises.
5) Social environment: It refers to social forces such as customs, traditions, social values & social trends.


Very Short Answer Question:-
What do you mean by Business Environment?

 Business Environment means a collection of all individuals, entities and other factors, which may or may not be under the control of the organisation, but can affect its performance, profitability, growth and even survival. Every business organisation operates in a distinctive environment, as it cannot exist in isolation. Such an environment influence business and also gets affected by its activities.


Long Answer Type Question:
How would you argue that the success of a business enterprise is significantly influenced by its environment?

Importance of business environment: 
(i) It enables the firm to Identify Opportunities and Getting the First Mover Advantage Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors, e.g., Eureka Forbes introduced Aquaguard and took away the cream of demand. 
(ii) It Helps the Firm to Identify Threats and Early Warning Signals Environment happens to be the source of many threats. Environmental awareness can help managers to identify various threats on time and serve as an early warning signal e.g., Lakme took serious steps to improve the quality and types of products as foreign multinational cosmetics companies started coming to India after 1991. 
(iii) It Helps in Tapping Useful Resources Environment offers various resources for running a business in return the business enterprise supplies the environment with its outputs such as goods and services for customers, taxes for government. In order to arrange for the best possible resources, better understanding of the environment becomes important. 
(iv) It Helps in Coping with Rapid Changes It is not the fact of change itself that is so important as the pace of change. There are many changes taking place in the environment and at a fast speed. In order to effectively cope with these changes, managers must understand and examine the environment and develop suitable courses of action. 
(v) It Helps in Assisting in Planning and Policy Formulation Since environment is a source of both opportunities and threats, its understanding and analysis only helps in formulating the best possible policies to handle the future properly. 
(vi) It Helps in Improving Performance Continuous monitoring and adopting changes in an enterprise will help in improving not only their present performance, but also continue to succeed in the market in long run.


Very Short Answer Question:
How is economic environment different from social environment?

Economic environment includes the type of economic system that exists in the economy, the nature and structure of the economy, the phase of the business cycle (for example, the conditions of boom or recession), the fiscal, monetary and financial policies of the Government, foreign trade and foreign investment policies of the government..
Whereas,
In social environment Members of a society wield important influence over business firms. People these days do not accept the activities of business firms without question. Activities of business firms may harm the physical environment and impose heavy social costs. Besides, business practices may violate cultural ethos of a society. For example, advertisement by business firms may be nasty and hurt the ethical sentiments of the people.


Short Answer Questions:
Do changes in environment influence the Business Decisions? 

Ye, the changes in business environment affect the business decisions. The functioning and performance of an organisation is dependent on several external forces. As the demand changes the production decision is altered accordingly. Similarly, technological changes also affect business decision.


  Very Short Answer Question:
 "Companies that fail to adopt to their environment are unlikely to survive in long run." 
 Discuss with an example.

Yes, the above statement is correct. Since business environment is dynamic in nature in the sense that consumer's tastes and preferences, technology, political conditions, etc., change continuously, thus it is important for companies to adopt to their environment. Otherwise companies will not survive in long run. In this regard, understanding of business environment is of vital importance for successful functioning of an organisation.


Explain the key components of general environment.

General Environment is the most important dimension of business environment as businessman cannot influence or change the components of general environment rather he has to change his plans and policies according to the changes taking place in general environment.
(i) Economical Environment:
Economic Environment consists of Gross Domestic Product, Income level at national level and per capita level, Profit earning rate, Productivity and Employment rate, Industrial, monetary and fiscal policy of the government etc.
(ii) Social Environment:
Social Environment consists of the customs and traditions of the society in which business is existing. It includes the standard of living, taste, preferences and education level of the people living in the society where business exists.
(iii) Political Environment:
Political environment constitutes all the factors related to government affairs such as type of government in power, attitude of government towards different groups of societies, policy changes implemented by different governments etc. The political environment has immediate and great impact on the business transactions so businessman must scan this environment very carefully.
(iv) Legal Environment:
Legal environment constitutes the laws and various legislations passed in the parliament. The businessman cannot overlook the legislations because he has to perform his business transactions within the framework of legal environment.
(v) Technological Environment:
Technological environment refers to changes taking place in the method of production, use of new equipment and machineries to improve, the quality of product. The businessman must closely monitor the technological changes taking place in his industry because he will have to implement these changes to remain in the competitive market.


Distinguish between economic and non-economic environment.

Economic activity refers to a human activity related to production and consumption of goods and services for economic gain., whereas
Non-economic activity is an activity performed gladly, with the aim of providing services to others without any regard to monetary gain.
The main difference between economic and non-economic activities lies in the fact that the economic activities are carried out to satisfy human needs, whereas non-economic activities are performed for gaining psychological satisfaction. So, check out this article to get some more differences amidst these two types of human activities.


  Very Short Answer Question:
 "Understanding of Business environment gets a first mover advantage."  
  Discuss.

Enabling the identification of opportunities and getting the first mover advantage:Business environment provides many opportunities to the firms to improve their performance. The firms which are able to scan these opportunities at an early stage get maximum benefit and can leave their competitors behind.
For example, scientific research has come out with an energy efficient light bulb which lasts at least 20 times more than a normal bulb. General Electric and Phillips had identified this discovery and are coming up with their new bulbs.


Very Short Answer Question:-
"Environment provides with constraints and opportunities." 
Discuss with the  help of an example.

The environment consists of constraints and opportunities. Constraints such as economic conditions, customs, government regulations, scarcity of natural resources, labour supply etc. restricts development of business in a country. For example, foreign direct investment in India is not picking up the way we expected due political and bureaucratic constraints. Environment offers various opportunities to a business. Large demand for products and changing trends and needs are opportunities for a business. For example, economic development and changing trends have created large demand for consumer electronics and luxury goods in India. There are several Indian and foreign companies competing for the market share in the attractive Indian consumer goods industry.


Very Short Answer Question:-
Enumerate the two categories of Business Environment and give the example of both.

Business environment can be classified into 2 categories:
1) Internal  Environment:Internal environment of business includes physical assets, technological capabilities, human, financial and marketing resources, management structure, relationship among various constituents, goods, objectives and value system prevailing.
2) External Environment:External environment of business is composed of various organisations, institutions and forces operating outside the company, which exert influence individually and collectively as well on this environment. External environment of business is broadly classified into micro environment and macro environment.


Very Short Answer Question:
 Enumerate the dimensions of  Business Environment.

The Dimensions or the factors constituting the business environment include political, social, technological, legal and economic factors which are considered important for taking decisions and for improving the operations of a firm.
These are a part of general environment which influences the performance of many firms at the same time.


Very Short Answer Question:
What constitutes the general environment of Business?

The general environment is the larger environment within which the task environment is embedded. It includes political and legal forces, macroeconomic forces, demographic forces, sociocultural forces, technological forces, and international forces. Elements in the general environment impact the organization through the medium of the task environment.


Reservation in job for minorities refers to an example,of key component of general environment of business. 
Name and explain this component.

The demand for reservation in jobs for minorities are example of social environment of business. This is because it represents one of the expectations of society from the business, which should be taken into consideration  by the business.


Explain the three impacts of changes in government policy on Business and Industry.

Impacts of Government Policy The New Industrial Policy, 1991 brought reforms in terms of Liberalisation, Globalisation and Privatisation. These had a major impact on the working of enterprises in business and industry. These have posed several challenges to the Indian corporate sector. They are:
  •  Technological environment Increased competition force the firms to develop new ways to survive and grow in the market. Thus, there is a need to adopt the new technologies in order to survive in the long run.
  •  Need for developing human resources The new market conditions require people with higher competence and greater commitment. Hence, there is a need of developing human resources.
  •  Market-orientation The business enterprises start focusing on market-oriented techniques rather than production-oriented techniques.
  • Necessity for change After 1991, the market forces have become turbulent. As a result, business enterprises have to continuously modify their operations.


Banking sector reform have led to easier credit terms and better services. This is an example of one of the key components of business environment.
Name this component and explain it in brief.

Economic environment- The term economic environment refers to all the external economic factors that influence buying habits of consumers and businesses and therefore affect the performance of a company. These factors are often beyond a company’s control, and may be either large-scale (macro) or small-scale (micro).


Long Answer Questions:
What changes were made in the Industrial Policy in recent past?

The policy has brought changes in the following aspects of industrial regulation:
1. Industrial delicensing policy or the end of red tapism: the most important part of the new industrial policy of 1991 was the end of the industrial licensing or the license raj or red tapism. Under the industrial licensing policies, private sector firms have to secure licenses to start an industry. This has created long delays in the start up of industries. The industrial policy of 1991 has almost abandoned the industrial licensing system. It has reduced industrial licensing to fifteen sectors. Now only 13 sector need license for starting an industrial operation.
2. Dereservation of the industrial sector– Previously, the public sector has given reservation especially in the capital goods and key industries. Under industrial deregulation, most of the industrial sectors was opened to the private sector as well. Previously, most of the industrial sectors were reserved to the public sector. Under the new industrial policy, only three sectors- atomic energy, mining and railways will continue as reserved for public sector. All other sectors have been opened for private sector participation.
3. Reforms related to the Public sector enterprises: reforms in the public sector were aimed at enhancing efficiency and competitiveness of the sector. The government identified strategic and priority areas for the public sector to concentrate. Similarly, loss making PSUs were sold to the private sector. The government has adopted disinvestment policy for the restructuring of the public sector in the country. at the same time autonomy has been given to PSU boards for efficient functioning.
4. Foreign investment policy: another major feature of the economic reform measure was it has given welcome to foreign investment and foreign technology. This measure has enhanced the industrial competition and improved business environment in the country. Foreign investment including FDI and FPI were allowed. Similarly, loan capital has also introduced in the country to attract foreign capital.
5. Abolition of MRTP Act: The New Industrial Policy of 1991 has abolished the Monopoly and Restricted Trade Practice Act. In 2010, the Competition Commission has emerged as the watchdog in monitoring competitive practices in the economy.


State any five features of 'Business Environment'.

 Features of Business Environment
  • Dynamic: The environment in which the business operates changes continuously because there is a wide variety of factors that exist in the environment, causing it to change its shape and character.
  • Complex: There are many forces, events and conditions that constitute business environment, arising from various sources. So, it is a bit difficult to understand the relative influence of a particular factor, on the operation of the organisation.
  • Uncertain: Uncertainty is an inherent characteristic of business environment because no one can predict what is going to happen in future.
  • Multi-faceted: A single change in the business environment, can be viewed differently by different observers because their perceptions vary.
  • Far-reaching Impact: The survival, growth and profitability, of a business enterprise, depends largely on the environment in which it exists. A small change in the environment has a far-reaching impact on the organisation in different ways.


What is the significance of understanding environment in shaping the future of Business? 

There are two or three drivers. Number one is we had invested early in digital and the banks especially BFSI sector is making a lot of strides in digital. So that is working out well for us and we are seeing deals in that. The second thing is: historically if you would have looked at Wipro, our BFSI was not as large in the proportion of revenue as some of the other players; so we did not have a lot of legacy business. In this transformation what is happening is: the legacy will decline and the digital will grow. So if you are not having the problem of declining and you are getting net growth, it will always benefit. For us for example, in EU there is a lot of legacy decline and that will show headwinds.


"The understanding of business environment enables the firm to identify opportunity." 
What is meant by  'opportunities'  here? 

Opportunities here mean understanding the environment and making out plan according to that.


The understanding of business environment helps the mangers to identify "threats". 
What is meant by  'threats'  here? 

An organization is exposed to external environment, which is dynamic in nature. Threats are anything from an organization's external environment that can adversely affect its performance or achievement of goals.


Business environment includes both 'specific and general forces.'
 List any four specific forces.

Specific forces of business environment are:
(i) Suppliers                                                          
(ii) Investors
(iii) Customers 
(iv) Competitors 


 One Mark Questions:-
 Define  'Liberalization as a process of economic reforms'  in one sentence.

Liberalization is any process whereby a state lifts restrictions on some private individual activities. Liberalization occurs when something which used to be banned is no longer banned, or when government regulations are relaxed.


Meera, Chairperson of Sunshine Ltd. feels that she is only responsible for the successful management of company because other persons are working accordingly to the plans and politics framed by top level management only.
(a) Do you agree with her belief?
(b) Which feature of management is lacking here?
(c) Which principle of management is being ignored here? Explain briefly. 

(a) No, we don't agree with her belief.
(b) The feature of management is lacking here is management as a group activity.
(c)  Esprit de Corps
The management principle ‘esprit de corps’ of the 14 principles of management stands for striving for the involvement and unity of the employees. Managers are responsible for the development of morale in the workplace; individually and in the area of communication. Esprit de corps contributes to the development of the culture and creates an atmosphere of mutual trust and understanding.


 Three Marks Question:-
 What is meant by 'Business Environment' ? 
 Explain 'Dynamic nature' and 'Uncertainly' as features of Business   Environment. 

 Business environment is the sum total of all individuals, institutions and other forces like customers, competitors, suppliers, distributors, industry trends, substitutes, regulations government activities, social and cultural factors that are outside the control of the business enterprise but may affect its performance.
Features of business environment are:
(a) Dynamic nature Business environment is dynamic as it keeps on changing. It is not static and its components are highly flexible, e.g. technological improvements, increase in competition, etc.
(b) Uncertainty Business environment is uncertain as it is difficult to predict future happenings when environment changes are taking place frequently


XYZ Ltd. Co., manufacturing cosmetics and enjoying a predominant position in the industry has grown in size. Its business was very good tillBut after that new liberalized environment has seen the entry of many MNCs. In this sector with the result that market share of XYZ has declined. The company followed a very centralised business model with directors and divisional heads making even minor decisions.
(a) Which function of management is being indicated here?
(b) What dimension of environment is implicit in this case? Indicate by quoting the lines from above para. 

(a)- Organizing is the function of management that involves developing an organizational structure and allocating human resources to ensure the accomplishment of objectives. The structure of the organization is the framework within which the effort is coordinated. The structure is usually represented by an organization chart, which provides a graphic representation of the chain of command within an organization. Decisions made about the structure of an organization are generally referred to as "organizational design" decisions.
Organizing also involves the design of individual jobs within the organization. Decisions must be made about the duties and responsibilities of individual jobs as well as the manner in which the duties should be carried out. Decisions made about the nature of jobs within the organization are generally called "job design" decisions.
Organizing at the level of the organization involves deciding how best to departmentalize, or cluster jobs into departments to effectively coordinate the effort. There are many different ways to departmentalize, including organizing by function, product, geography, or customer. Many larger organizations utilize multiple methods of departmentalization. Organizing at the level of the job involves how best to design individual jobs to most effectively use human resources.
(b)- Political economy is the study of production and trade and their links with custom, government, and law. It is the study and use of how economic theory and methods influence and develop different social and economic systems, such as capitalism, socialism, and communism; it also analyzes how public policy is created and implemented. Since various individuals and groups have different interests in how a country or economy is to develop, political economy as a discipline is a complex field, covering a broad array of potentially competing interests.


Four Marks Questions :
Explain by impacts of Government Policy changes on Business and Industry in India.

 Following challenges were faced by the business enterprises:
(i) Technological environment Increased competition force the firms to develop new ways to survive and grow in the market. Thus, there is a need to adopt the new technologies in order to survive in the long run.
(ii) Need for developing human resources The new market conditions require people with higher competence and greater commitment. Hence, there is a need of developing human resources.
(iii) Market-orientation The business enterprises start focusing on market-oriented techniques rather than production-oriented techniques.
(iv) Necessity for change After 1991, the market forces have become turbulent. As a result, business enterprises have to continuously modify their operations.


  Four Marks Questions :-
" Management of every enterprise can be benefited from being aware of  different dimensions of Business Environment ". Explain any four such dimensions.

 Dimensions of business environment are as follows :
(i) Economic environment It consists of economic factors that influence the business in a country. These factors include Gross National Product, corporate profits, inflation rate, employment, Balance of Payments, interest rates, consumer income, etc. Economic environment in a country has strong influence on the business in that country.
(ii) Social environment It describes the characteristics of the society in which the organisation exists. Literacy rate, customs, value beliefs, life style, demographic features and mobility of population are the part of the social environment. The trend of change can be predicted well in advance. It is important for managers to notice the direction in which the society is moving and formulate progressive policies according to the changing social scenario.
(iii) Political environment It is the outcome of a combination of various ideologies advocated by different political parties. Every political party has a different attitude towards business community. A live example of this, can be seen during elections when there is a fluctuation in the share market.
(iv) Legal environment It consists of legislation that is passed by the Parliament and state legislatures. This component sets the framework of law within which the business is free to operate. Example of such legislation specifically aims at business operations which include the Trade Marks Act, 1969, Essential Commodities Act, 1955, Standards of Weights and Measures Act, 1969 and Consumer Protection Act, 1986. 


Three Marks Question:-
Explain 'Increasing competition' and 'More demanding customers' as impact of Government Policy changes on Business and Industry.

Impacts of government policy in India are:
(a) Increasing competition As a result of changes in the rules of industrial licensing, entry of foreign firms creates competition for Indian firms, especially in service industries like telecommunication, airlines, banking, insurance, etc which were earlier placed in the public sector.
(b) More demanding customers Customers today have become more demanding because they are well informed. Cut-throat competition in the market gives the customers wider choice in purchasing better quality of products and services.


Four Marks Questions :
Why is the understanding of business environment important for managers?Explain with the help of any four points.

 In the present day of competitive market, it is essential for a business to remain alert and aware of its
environment, because of the following points:
(i) Identify opportunities and getting the first mover advantage Awareness of environment helps an enterprise to identify the opportunities prevailing in the market and they can make strategies to capitalise such opportunities at the earliest, e.g. Maruti Udyog became the leader in the small car market because it was the first, who recognised the need for small cars in the environment.
(ii) Identify threats and early warning signals Environmental awareness helps an enterprise in identifying possible threats in future, so that the enterpirse can take timely measures to minimise the threats and its adverse effects, if any, e.g. when the new firms entered in the mid segment cars (threat), Maruti Udyog increased the production of its Esteem car. Increase in production enabled the company to make faster delivery. As a result, the company captured a substantial share of the market and became a leader in this segment.
(iii) Assist in planning and policy formulation Environment awareness helps a business unit to identify opportunities and threats in the market. These serve as a basis for planning future course of action and making policies for the same.
(iv) Tapping useful resources A business environment is an open system which gets resources such as capital, labour, machines, materials, etc from the environment, converts them into goods and services desired by the customers and then supplies its output to the environment. Thus, a business firm depends on its external environment for tapping various resources and for the sale of its output.


Four Marks Questions :
Explain by giving any four points, why 'in the present day competitive market, it is essential for a business to remain alert and aware of its environment?

In the present day of competitive market, it is essential for a business to remain alert and aware of its
environment, because of the following points:
(i) Identify opportunities and getting the first mover advantage Awareness of environment helps an enterprise to identify the opportunities prevailing in the market and they can make strategies to capitalise such opportunities at the earliest, e.g. Maruti Udyog became the leader in the small car market because it was the first, who recognised the need for small cars in the environment.
(ii) Identify threats and early warning signals Environmental awareness helps an enterprise in identifying possible threats in future, so that the enterprise can take timely measures to minimise the threats and its adverse effects, if any, e.g. when the new firms entered in the mid segment cars (threat), Maruti Udyog increased the production of its Esteem car. Increase in production enabled the company to make faster delivery. As a result, the company captured a substantial share of the market and became a leader in this segment.
(iii) Assist in planning and policy formulation Environment awareness helps a business unit to identify opportunities and threats in the market. These serve as a basis for planning future course of action and making policies for the same.
(iv) Tapping useful resources A business environment is an open system which gets resources such as capital, labour, machines, materials, etc from the environment, converts them into goods and services desired by the customers and then supplies its output to the environment. Thus, a business firm depends on its external environment for tapping various resources and for the sale of its output.


Explain by giving any five reasons why understanding of business environment is important for Managers.

Failure to understand the environmental factors for business shall create number of problems, which in fact are difficult to solve. It will reduce the profit margin and will make the opportunities for expansion to slip. But a proper appreciation of the environmental factors will bring many benefits. They are as follows:
1. Successful Conduct of Business
The business executive can successfully conduct the business operation. Since chances for losses are minimized, the firm can withstand in the long run, widen its financial base and face competition more effectively. All these finally lead the business venture to a grand success.
2. Opening of New Avenues
Environment opens fresh avenues for the expansion of new entrepreneurial operations. When the business climate is favorable, new ideas, schemes and ventures may be put into action. The firm can utilize its resources advantageously and derive the maximum benefits.
3. Dynamism in Approach
Business enterprise is essentially a dynamic endeavor. Hence the business executive should be a dynamic personality. Acquisition of knowledge about the changing environment will keep the businessmen always alert and dynamic in his approach. His dynamic approach in turn will help the firm to avoid ecological stresses and to maintain harmony with the environment.
4. Chances for Growth
By identifying itself with the changing situations and environment, the firm can gain the popular support and win the confidence of the consumers and others. This popular support will produce many chances for growth and development of the firm.
5. Control over Environment
We all know that environment exercises vital control over the scope and performance of a business firm. A proper understanding of the nature, character and influence of the environment over the activities of the firm and its continued efforts to identify with the changing economic conditions will at one stage enable the business firm to exercise control over the environment itself. This will result in a smooth and successful running of the venture in the short run as well as in the long run.
Thus, a clear understanding of the environment shall bring many benefits, while a minimum disregard of these factors will entail a heavy penalty to the firm.


What is included in 'Political Environment' of Business?
State.

 Political environment includes political conditions such as general stability and peace in the country and the attitude of elected government towards business. A stable political system can make business-friendly decisions that promote local businesses and attract foreign investors.


Explain the concepts of 'Business Environment' and any three features of it.

Business environment refers to all the external forces such as economic,social,political,technological or legal that effect the performance of a business organisation. In other words ,everything that is outside the purview of an organisation but effects its performance composes business environment.
Following are the features of business environment:
(i)Interrelated:Different forces acting in a business environment are closely related to each other.For example,an increase in the income of the consumers increases the demand for consumer durables such as television, refrigerator, etc.
(ii)Ever changing:Business environment is dynamic and ever changing in nature. For example,consumer tastes and preferences,technology,government rules and policies keep changing continuously.
(iii)Complex: Business environment is the aggregate of different interrelated and dynamic forces.Thus, it becomes difficult and complex to understand. For example,all political,social,economic,technological and legal matters affect the performance of an organisation simultaneously.While,it may be easy to understand the individual affects of these forces, their cumulative effect is quite difficult to understand.


What is included in 'Legal Environment' of Business?State.

Legal environment comprise of the legislation and rules passed by the government such as the companies Act, Trade union Act, etc.


The government has been watching for some time that the performance of industry in Public sector is not coming up to the level of standardisation. Several efforts have been put in, but because of no improvement in it, the government decided to increase the role of Private Sector in some areas of Public sector. This would bring about improvement in the level of performance. The reason for the government to make this decision was that the different departments of an industrial unit in Public sector do not work with each other. The situation in private sector is entirely opposite to it.
(a) Identify the concept of management which shows the failure of public sector. Give its importance also.
(b) Which concept of business environment has been described in above case? Identify it and give its meaning.

(a) controlling- controlling to assure directed action as per plans and objectives. Controlling incorporates the establishment of standards, measurements, and comparison of actual results against the standard, and necessary corrective action to remove deviations from the plan.
Hence, controlling is a concept of management which shows the failure of the public sector.
The importance of controlling-
(1) Accomplishing Organisational Goals.
(2) Judging Accuracy of Standards
(3) Making Efficient Use of Resources
(4) Improving Employee Motivation
(b) Privatisation- The transfer of ownership, property or business from the government to the private sector is termed privatization. The government ceases to be the owner of the entity or business.

The process in which a publicly-traded company is taken over by a few people is also called privatization. The stock of the company is no longer traded in the stock market and the general public is barred from holding stake in such a company. The company gives up the name 'limited' and starts using 'private limited' in its last name.


Explain any five points of impact of government policy changes on Business and Industry.

The policy of liberalization, privatization and globalization of the Government has made a significant impact on the working of enterprises in business and industry.
These challenges can be explained as follows:
(i) 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, banking, insurance, etc. which were earlier in the public sector.
(ii) 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.
(iii) 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. The rapidly changing technological environment creates tough challenges before smaller firms.
(iv) Need for developing human resource: Indian enterprises have suffered for long with inadequately trained personnel. The new market conditions require people with higher competence and greater commitment. Hence the need for developing human resources.
(v) Market orientation: Earlier firms used to produce first and go to the market for sale later. In other words, they had production oriented marketing operations.


Mr. Bali, the Production manager of Classic Ltd. is successful running his department. He has created such an environment that no one becomes hurdle in anybody's work, but all of them are ready CO help each Other. Mr. Bali has been observing a change in market for last few days. In the past they used to produce goods according to their will and with a bide bit of effort could sell them. But not they have to produce goods as desired by the people. When Mr. Bali investigated to know the reasons for this change, he came to know that on account of positive policies of the government, running the business had become easy. Due to this, several new people bad entered the business. Consequently, competition has increased and now the control of the market had slipped, out of the hands of producers into the hands of customers.
(a) Identify the concept of management described here? Give two points of its importance.
(b) Identify the business environment dimension and the concept there of. 

(a) Coordination 
(b) Economic environment and Liberalisation


A recent tale cut in the interest on loans announced by the Banks encouraged Amit, a science student of Progressive School to take a loan from State Bank of India to experiment and develop can to be powered by fuel produced from garbage. He developed such a car and exhibited it in the Science Fair organised by Direct or die of Education. He was awarded first prize for his invention.
Identify and explain the dimensions of business environment discussed in the above case.

The dimensions of business environment which are discussed in the given case are:
1. Economic Environment
2. Technological Environment
Economic Environment: It refers to the nature of economy (capitalist, socialist or mixed), 
economic policies of the government, markets for material, labour, capital, etc., business 
firms and institutions such as banks, insurance companies, transport companies, etc., 
and level of income of the people.
The economic environment of a firm also includes all markets in which it buys and sells 
raises funds, gets labour, etc.
 Technological Environment: It refer to the state of technology in the areas of 
manufacturing, mining construction materials handling, transportation, etc. and also 
information technology. Advancement in technology leads to greater productivity, higher 
quality and lower cost of production for the business. However, introduction of advanced 
technology requires higher capital investment.


what is mean by 'Business Environment ?

Business environment refers to all the external forces- including social, political,economic, technological and legal- that affect the performance of a business organisation.


'Accent Electronics Ltd.' was operating its business in Malaysia. The company started. exporting its products to India when the Prime Minister announced relaxation in import duties on electronic items. The company appointed retailers in India who had direct on-line links with the suppliers to replenish stocks when needed.
Identify and explain the dimensions of business environment discussed in the above case. 

Following are the dimensions of business environment that are being referred in the given case
 1. Economic environment Company started exporting its products to India Explanation Economic environment includes the effect of changes in the interest rates, levels of income stock market fluctuations etc. Example- An increase in exports leads to a fall in the price of domestic currency and vice versa 
2 Legal environment - "Prime minister allowed relaxation in import duties on electronic items Explanation Legal environment refers to all the legal rules and procedures set up by the government to monitor the business activities of an enterprise. To cope with the dynamic business environment, management must know the ways to deal with different fluctuations in legal environment.


Explain the following as factors affecting the requirements of working capital:
(i)Nature of business
(ii)Scale of operations
(iii)Seasonal factors
(iv)Production cycle

Working capital refers to the investment in current assets that can be converted in cash or cash equivalent easily.
(i)Nature of business: An organisation that deals in services or trading will not require much of working capital . This is because such organisation involve small operating cycle and there is no processing done. In contrast to this, a manufacturing firm involves large operating cycle and the raw materials need to be converted into converted into finished goods before the final sale transaction take place. Thereby, such firms require large working capitals. 
(ii)Scale of operations: If a firm operates on a large scale, the requirement of the working capital increases. This is because such firms would need to maintain high stock of inventory and debtors. In contrast to its, if the scale of operation is small, the requirement of the working capital will be less. 
(iii)Seasonal factors: During the period of high sale, there is higher production,higher stock and more debtors.Thus, during this period the need to working capital increases.As against this, in seasons of low sale, there is less production and inventories.Thus,the working capital requirement reduces.
(iv)Production cycle: If a firm has a longer span of production cycle or there is a long term gap between the receipt of raw material and their conversion into finished goods, then there will be high requirement of working capital due to inventories and related expenses.On the other hand, if the production cycle is short, then the requirement of working capital will be less.


Distinguish between
share certificate and share warrant.

 Basis Share certificate
 Share warrant
 Meaning A share certificate is the registered document of title to the shares, issued by the company under its common seal
   
 A share warrant is a document issued under a common seal of a public company stating that the bearer of instrument has the title of the shares mentioned there in.
     Who issue the document?


It is issued by public as well as private company.


     Only Public limited companies can issue Share
 Nature of Shares as regards paid up value?

A share certificate can be issued for fully paid as well as partly paid shares
   

It is issued only in case of fully paid shares

   Time of Issue

 A company initially (at first) has to issue share certificate
   
 After collection of the amount if the shareholder wishes, company can issue share warrant against the share
 Sanction of  government

Central Government's sanction is not required to issue share certificate.
 
After collection of the amount if the shareholder wishes, company can issue share warrant against the share certificate.




A recent rate cut in the interest on loans announced by the Banks encouraged Amit, a science student of Progressive School to take a loan from State Bank of India to experiment and develop cars be powered by fuel produced from garbage. He developed such a car exhibited it in Science Fair organised by Directorate of Education. He was awarded first prize fro his invention.
Identify and explain the dimensions of environment discussed in the above case.

The dimensions of business environment discussed in the above case are as follows:
(i) Economic Environment: Reference line "A recent cut in interest on loans announced by banks."
(ii) Technological Environment: Reference line: "Developed cars to be powered by fuel produced from garbage."

Explanations of aforementioned dimensions of business environment
(i) Economic Environment It comprises the economic variables such as interest rates, income, stock market indices that affect the functioning of the enterprises. For example, an increase in the income of the consumers increases the demand for goods and services of the enterprises. Similarly, a fall in the interest rates of loans for consumer durables increases the spending capacity, and thereby increases the demand for such products. 
ii) Technological Environment Technological environment comprises the technological changes and improvements. For example, introduction of computers and the Internet has changed the working style of the organisations today. Similarly, continuous improvement and innovations in the technology used in the production improves the quality of production. While on the one hand, improvement in technology provides new business opportunities for the enterprises; on the other hand, h is a threat for the enterprises using obsolete technology. 


Also, state any four points of importance of this concept.

Four points of importance of Business Environment:
(i) It enables the firm to identify opportunities and getting the first mover advantage: Analysis of business environment helps to identify opportunities i.e., positive external changes to be exploited first instead of losing them to competitors.
(ii) It helps the firms to identify threats and early warning signals: A study of business environment helps an enterprise to identify threats i.e., negative signals that hinder business performance and to take appropriate preventive measures on time.
(iii) It helps in tapping useful resources: A business enterprise depends on environment as a source of input like raw materials, Iabour etc. and as an outlet for output i.e., goods or services, taxes, etc. Analysis helps to get resources that it needs to convert into outputs which an environment desires.
(iv) It helps in coping with rapid changes: It helps management to become more sensitive to ever changing needs of customers. As a result, they are able to respond to such changes effectively.



Identify and state the feature of the concept discussed in the paragraph.

The concept discussed above is 'Business Environment'.
The feature discussed above is-
(i) Specific and General forces: Business environment includes both specific forces which affect business enterprises directly and immediately in their day to day working for example suppliers, investors etc as well as general forces - social, legal, technological forces which have impact on all the enterprises and effect individual firms indirectly.



Distinguish between the following.
Fire insurance and Marine insurance.

Fire insurance: It is a contract where the insurer undertakes to make good any loss or damage caused by fire upto the maturity of the policy for the consideration of the premium. Usually, it is for one year only. The premium may be paid in lump sum or in installments. Here the subject matter is any physical property  or assets. 
Marine insurance: It is a contract where the insurer undertakes to indemnify the insured in the manner and to the extent agreed against any loss by marine perils or perils of the sea. It is for one voyage or the period of voyage only. The subject matter here is a ship, cargo or freight.


Fill in the blank
Business environment is the totality of ________ forces.

External
 Business environment is the sum totals of all those factors/forces which are available outside the business and over which the business has no control. It is the group of many such forces that is why, its nature is of totality.


Fill in the blank
When business environment changes rapidly and suddenly, ___________ increases.

Environment scanning can be defined as the process by which organizations monitor their relevant environment to identify opportunities and threats affecting their business. The environment scanning is applied to both external and internal scanning process, as business environment includes both external and internal environment in which the business is practised.

Therefore, when business environment changes rapidly and suddenly then the environment scanning by every business increase in order to adapt the changes and survive in the same. 



Fill in the blank
Industrial policy, monetary policy and fiscal policy are elements of  _________ environment of business.

External
The Industrial policy, Monetary policy, and the Fiscal policy are the policies implemented by the Government. The industrial policy lays down the rules and regulations relating to the establishment, functioning, expansion, management and growth of the industries. 
The monetary policy determines the rate of interest and foreign exchange in the country. The fiscal policy determines the factors. Budget and the surplus or deficit of payments. All these are out of the control of the business and are thus external factors.



Fill in the blank
Different elements of business environment are _______.

Internal and external environment.
Internal environment refers to the factors that influence the business and are present within the business itself. The internal factors include the objectives and policies of the business, production methods, composition of the board of directors, managerial attitude, organizational structure, etc.

The external environment refers to all the external factors or forces i.e. the factors that are outside the business and on which the business has no control. The forces constituting the business environment are suppliers, consumers, media, government, competitors, investors, market trends, technology, etc.


Fill in the blanks
Business gets ___________ from the environment and supplies__________ to the environment.

Business gets resources from the environment and supplies goods and services to the environment after converting the resources into utility products and services. 


Match the items in column A with those in column B

AB
Capital marketSocial environment
Foreign PolicyEconomic environment
Judicial systemPolitical environment
PopulationLegal environment
Research and development Technological environment

Capital market - Economic Environment 
Foreign Policy - Political Environment 
Judicial system - Legal Environment  
Population- Social Environment  
Research and development- Technological Environment.


State whether the following statements are True or False:
(a) Industry and commerce are interchangeable terms.
(b) Commerce is a wider term than trade.
(c) Trade between two countries is known as internal trade.
(d) Conversion of cotton into cloth is an example of genetic industry.  

(a) False. Industry deals with production of goods and services whereas commerce deals with its distribution. 
(b) True. 
(c) False. Trade between two countries is known as external trade. 
(d) False. Conversion of cotton into cloth is an example of Manufacturing industry.



Fill in the blanks:
(a) Business = Industry + ________
(b) ________ means the production of goods and services
(c) Commerce includes 'trade and ________
(d) Conversion of raw materials and component parts into finished products is known as _______ industry.
(e) Agriculture is an  ________ industry.
(f) Transport removes the hindrance of ________.

(a) Commerce 
(b) Manufacturing 
(c) Aids to trade 
(d) Manufacturing 
(e) Primary 
(f) Place 


Answer the following question:
Explain the importance of Business Environment in shaping the future of a business.

Business environment can be defined as the forces, factors and institutions with which the businessman has to deal with to achieve its objectives. It includes the summation of both external as well as internal environment of the business.

Through careful scanning of business environment the future conduct of a business can be improved and the profits can be maximized. 



How are the sale of fixed assets, sale of sports materials, and sale of newspapers treated when recorded in the Income and Expenditure A/c of an organisation?

$$1.$$Sale of fixed assets is a Capital Receipt. Any gain or loss on sale of asset will be shown in the Income and Expenditure Account. 
$$2.$$Sale of sports materials is receipt of recurring nature. It is an income item and shown in the income side of the Income and Expenditure Account. 
$$3.$$Sale of old newspapers is a regular feature of an organisation. It is shown in the income side of Income and Expenditure Account.


Answer the following question:
What is social environment? Enumerate any three components of social environment.

Social environment is the environment which consists of the customs, traditions and trends of the society in which business exist. Any three components of social environment are:
1. Standard of life 
2. Importance or place of woman in the work force
3. birth and death rates.


Answer the question briefly.
Name the two dimensions of the business environment.

There are five dimensions of the business environment that influence many firms. These dimensions include the economic environment, the social environment, the political environment, the legal environment, and the technological environment.


Define Business Environment. State any three of its features. 

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: (any three) 
(1) Totality of external forces 
(ii) Specific and general forces 
(iii) Inter relatedness
(iv) Uncertainty 
(v) Complexity
(vi) Relativity 
(vii) Dynamic nature.


Explain any four features of Business Environment.

The main features of business environment are:

1. All the external forces:

Business Environment includes all the forces, institutions and factors which directly or indirectly affect the Business Organizations.

2. Specific and general forces:

Business environment includes specific forces such as investors, customers, competitors and suppliers. Non-human or general forces are Social, Legal, Technological, Political, etc. which affect the Business indirectly.

3. Inter-relation:

All the forces and factors of Business Environment are inter-related to each other. For example with inclination of youth towards western culture, the demand for fast food is increasing.

4. Uncertainty:

It is very difficult to predict the changes of Business Environment. As environment is changing very fast for example in IT, fashion industry frequent and fast changes are taking place.



Explain any five positive effects of liberalisation and globalisation on business and industry in India. 

The positive effects of liberalisation and globalisation on Indian business and industry are: 
(i) All round competition. 
(ii) Export became matter of survival. 
(iii) World class technology. 
(iv) Buyer's market. 
(v) Increase in production capacity. 


Explain any five negative impacts of liberalisation and globalisation on business and industry in India. 

The negative impacts of globalization and liberalization are: 
(i) Destabilization of protected environment.
(ii) Threat from MNCs. 
(iii) Corporate vulnerability. 
(iv) Past failures fail to guide. 
(v) Acquisitions and mergers. 


 "Business environment is dynamic." Comment by mentioning these examples.

It is right to say that business environment is dynamic as every day new changes are taking place in that business environment. These changes are so fast and effective that the companies, which are able to scan them or recognize them on time, only survive in the market.
Examples:
(i) Rapidly changing technology has affected the business world. Large number of new products are being introduced in market such as refrigerator with bio fresh technology or door cooling technology, etc. 
(ii) The spread of literacy and public consciousness has contributed in increasing the aspirations of people and today companies give priority to customer's preference and demands.
(iii) With new legislation and policies of deregulation of industries, there is increase in the foreign direct investment in capital market. 


List any two example of business environment.

Economic environment, social environment. 


Define business environment.

Business environment refers to all the forces, factors, institutions and conditions external to a business unit under which it operates.


"Companies that fail to adopt to their environment are unlikely to survive in the long run." Discuss with an example.

It is right to say that the companies that fail to adopt to their environment are unlikely to survive in the long run because environment constitutes the forces and factors such as technological change, economic change, change in government policy, change in customer's demand, change in competitor's policy, etc. Companies have to survive with these forces and factors. If companies are able to make change or adopt the conditions according to changes taking place, then these companies can survive otherwise they will be thrown out by market forces.
Understanding of business environment is necessary for its long term success. Example: Weston company, a major player in TV market, was having 5896 market share, lost out heavily from competition from imported products. Its market share became negligible by 1995-96. Its turnover reduced to 50 crore in 1995-96 from 99 crore in 1991-92. Now the company is almost unknown in the color TV market. The reason for loss of Weston company was, they failed to adopt the changes taking Place in business environment. 


Give one example of opportunity and one example of threat in Indian economic environment.

Opportunity, liberalisation in external trade.


 Define political environment.

Political environment comprises those elements that are related to government affairs in the type of government in power.


What were the reasons to implement new economic policy of India?

The main reasons to adopt new economic policy of 1991 were the following crises which Indian economy had to face: 
(i) Fiscal crisis. 
(ii) Rise in internal debt. 
(iii) Fall in growth rate of GNP. 
(hi) Negative growth in agriculture sector. 
(v) Rise in inflation rate. 
(vi) Shrinking of foreign trade. 
(vii) Fall in foreign reserve. 
(viii) Fall in credit-worthiness of financial institutions from AAA to BBP. 
(ix) Pledge of gold by RBI and SBI. 


"It may be difficult to know the extent of the relative impact of the social economic, political, technological or legal factors on change in demand of a product in the market." Which feature of business environment highlighted by this point?

Since business environment consists of numerous interrelated and dynamic conditions or forces which arise from different sources, it becomes difficult to comprehend at once what exactly constitutes a given environment. In other words, environment is a complex phenomenon that is relatively easier to understand in parts but difficult to grasp In its totality. For example, it may be difficult to know the extent of the relative impact of the social, economic, political, technological or legal factors on change in demand of a product in the market.


The people of some regions translated the slogan of "Come Alive" used by Pepsi company as "Come out of the grave." As a result company lost its market share rather than picking up. This is the effect of which environment and how does this dimension of environment affect the business? 

This is the effect of social environment. As people misunderstood the meaning of slogan and it hurt their sentiments so they decided to stop the use of this product which is playing with their sentiments. 
The social environment has great influence over the demand of customers because social environment constitutes taste, preference, tradition and expectations. of customers, the custother is the king pin in present day market and you can win over your competitor only by winning large segment of customers. Although changes in the. social environment may affect the business slowly or quickly but the cost of ignoring the customs, traditions, tastes and preferences of the people could be very high. 


 Identify the type of dimension of environment to the following are related:
(i) Banks reduces the interest rate on house loans.
(ii) No. of working women is increasing.
(iii) Reservation of Tickets by Internet.
(iv) Prohibition of alcohol beverages to be advertised.
(v) Winning of Aam Admi Party has built up confidence in economically weaker section people. 

(i) Economic environment 
(ii) Social environment 
(iii) Technological environment 
(iv) Legal environment 
(v) Political environment. 


What is L.P.G. in context of business environment?

In business environment L.P.G. stands for: 
(i) L : Liberalisation. 
(ii) P : Privatisation, 
(iii) G : Globalisation. 


List two examples of change in social environment which affect business organisation. 

(i) Belief and customs of people, 
(ii) Education system.


Metlapp Networks and Technologies Ltd. is a leader in technology innovation in the United States, creating products and solutions for connecting the world. It has a large research and development team which invented the first smart watch, named as W-The watch besides showing the time, also monitors few health parameters like heart beat, blood pressure etc. While in search of markets abroad, the company found that in India, the reform process was underway with the aim of accelerating the pace of economic growth. The company decided to take advantage of simplified export procedure and removal of quantitative as well as tariff restrictions in India.
It set up its office in Jamnagar with a view to capture the Indian market. In a short span of time, the company emerged as a market leader. Success of the company attracted many other players to enter the market. Competition resulted in reduction in prices, there-by benefiting the customers.
(a) In the above paragraph, two major concepts related to government policy have been discussed. Identify and explain these concepts.
(b) Also, explain briefly any three impacts of these concepts on Indian business and industry. 

(a) Two major concepts related to government policy are: 
(i) Liberalisation: Liberalisation means removal of unnecessary controls and restrictions on business. 
(ii) Globalisation: Globalisation means integrating the various economies of the world leading towards the emergence of a cohesive global economy. 
(b) Impact of these concepts on Indian business and industry: (Any three)
(i) Increasing competition 
(ii) More demanding customers 
(iii) Rapidly changing technological environment 
(iv) Necessity for change 
(v) Need for developing human resources. 
(vi) Market orientation 
(vii) Loss of budgetary support to the public sector. 


"A good understanding of environment by business managers enables them not only to identify and evaluate but also to react to the forces external to their firm."
In the light of the above statement explain any four points of importance of understanding business environment by a manager. 

The following is the need and importance of environmental scanning:
1. Identification of strength:
Strength of the business firm means capacity of the firm to gain advantage over its competitors. Analysis of internal business environment helps to identify strength of the firm. After identifying the strength, the firm must try to consolidate or maximise its strength by further improvement in its existing plans, policies and resources.
2. Identification of weakness:
Weakness of the firm means limitations of the firm. Monitoring internal environment helps to identify not only the strength but also the weakness of the firm. A firm may be strong in certain areas but may be weak in some other areas. For further growth and expansion, the weakness should be identified so as to correct them as soon as possible.
3. Identification of opportunities:
Environmental analyses helps to identify the opportunities in the market. The firm should make every possible effort to grab the opportunities as and when they come.
4. Identification of threat:
Business is subject to threat from competitors and various factors. Environmental analyses help them to identify threat from the external environment. Early identification of threat is always beneficial as it helps to diffuse off some threat.
5. Optimum use of resources:
Proper environmental assessment helps to make optimum utilisation of scare human, natural and capital resources. Systematic analyses of business environment helps the firm to reduce wastage and make optimum use of available resources, without understanding the internal and external environment resources cannot be used in an effective manner.
6. Survival and growth:
Systematic analyses of business environment help the firm to maximise their strength, minimise the weakness, grab the opportunities and diffuse threats. This enables the firm to survive and grow in the competitive business world.
7. To plan long-term business strategy:
A business organisation has short term and long-term objectives. Proper analyses of environmental factors help the business firm to frame plans and policies that could help in easy accomplishment of those organisational objectives. Without undertaking environmental scanning, the firm cannot develop a strategy for business success.
8. Environmental scanning aids decision-making:
Decision-making is a process of selecting the best alternative from among various available alternatives. An environmental analysis is an extremely important tool in understanding and decision­ making in all situation of the business. Success of the firm depends upon the precise decision making ability. Study of environmental analyses enables the firm to select the best option for the success and growth of the firm.


The court issued the order that it is essential for the vehicles to be smokeless and that any one violating this order shall have to pay a heavy fine. Abiding by this order was necessary for the health of people. Making this strict order of the court as the base; 'Cyan Motors Limited' resolved to manufacture such vehicles by using modem technology as should not produce any smoke at all. The government should also announce to provide help in several ways to set up such industrial units. Identify the three dimensions of business environment described in the paragraph above by quoting the relevant lines.
Write about any one of the values for society granted by the court.

"The court issued thee order ..........................smokeless" 
Legal Environment. 
"Abiding by this order ...................................produce at smoke at all." 
Technical Environment. 
"The government should also announce .................industrial units.
" Political Environment. 


Government of India is seriously thinking to allow oil marketing public sector, undertaking to fix their own price for petrol and diesel. 
(i) Name the economic reform related to this decision of government.
(ii) Name other two reforms recommended in new economic policy.

(i) Liberalisation 
(ii) Other two reforms: Privatisation and Globalisation.


List any two impacts of Government policy changes on business and industry. 

(i) Increased competition, 
(ii) World class technology. 


The Finance Minister reduced the repo rate to overcome recession. This is related to which dimension of business environment?

Economic environment.


The court passed an order that all schools must have water purifier for the school children as:
(i) Society in general is more concerned about quality of life.
(ii) Innovative techniques are being developed to manufacture water purifier at competitive rate details.
 (iii) Incomes are rising and children at home are also drinking purified water. The government is also showing positive attitude towards the water purifier business.
Identify the different dimensions of business environment by quoting from the above details. 

(i) Legal and Social environment
(ii) Technical environment 
(iii) Economical environment 
(iv) Political environment 


The project of Nano car reestablished in Gujarat is indicated by which factor of environment? 

Political factor. 


How would you argue that the success of a business enterprise is significantly influenced by its environment?

It is correct to say that the success of business enterprises is greatly influenced by the force and factors prevailing in environment by analysing and scanning the business environment. Businessmen get the following benefits: 
(i) First mover advantage. 
(ii) Warning signal. 
(iii) Helps in tapping business resources. 
(iv) Assisting in planning and policy formation. 
(v) Helps in image building. 
(vi) Improvement in performance. 
(vii) Helps to adopt rapid changes.


If new products are introduced in market by new technique, which type of environment is indicated by it?

Technological environment.


The sale of greeting cards, sweets, chocolate, etc. increases in India during Diwali, Id, Gurupary and Christmas. Name the dimension of environment related to this.

Social environment. 


Recently many companies have planned for significant investment in organised retailing in India. Various factors which have encouraged companies to take these decisions are customer income is increasing, rise in standard of living of people. People are ready to pay high price for quality goods, government policy of liberalisation regarding MNC entry and FM, etc.
(a) Explain briefly changes in business environment under different heads that have facilitated the companies decision to plan significant investment in retailing.
(b) What has been the impact of these changes with regards to globalisation and privatisation?

(a) Explain recent changes in various environment heads, i.e., economic, social, political, legal and technological. 
(b) Explain the topic, impact of change in government policy/economic policy. 


ABC Ltd., a book publishing house published books on various subjects based on GCE pattern before any other publishing house could print it. What advantages will this publishing house get?  

ABC Ltd. will get the benefits of "First mover advantage." 


The court passed an order to ban polythene bags as,
(i) These bags are creating many environmental problems which affect the live of people in general.
(ii) Society in general is more concerned about quality of life.
The government decided to give subsidy to jute industry to promote this business. Innovative techniques are being developed to manufacture jute bags at low rates. Incomes are rising and people can afford to buy these bags. Identify the different dimensions of business environment by quoting the lines from the above particulars.

(i) Legal 
(ii) Social environment 
(iii) Political environment 
(iv) Technological environment 
(v) Economic environment


Name the term under which reduction in tax rates and lifting of unnecessary control over the economy was undertaken.

Liberalisation.
Liberalization (or liberalisation) is any process whereby a state lifts restrictions on some private individual activities. Liberalization occurs when something which used to be banned is no longer banned, or when government regulations are relaxed.


Just after the declaration of Lok Sabha Elections in 2014, the Bombay Stock Exchange Index rose by 1000 points. Identify the dimension of business environment.

Political Environment. 


What are the essential features of:-
(a) Liberalisation
(b) Privatisation
(c) Globalisation

Features of Liberalisation :
(i) Freedom of opening/starting production units.
(ii) Use of new machines and technology.
(iii) No government interference in production.
(iv) Free flow of foreign investment.
Features of Privatization:
(i) Reduction in extra burden on government.
(ii) Control over poor performance of public sec-tor.
(iii) Check on high-handedness of bureaucracy.
(iv) Disinvestment (sale of shares in PSUs to
public)
Features of Globalization:
(i) It results in integration of world economies that
helps in raising world production.
(ii) It helps in removing inefficiency from industrial
units.
(iii) It helps in improving allocative efficiency of
resources.
(iv) It encourages global competition which reduces
costs and improves quality.


One Mark Questions:-
 Define 'Privatization' as a process of economic reforms.

The transfer of ownership, property or business from the government to the private sector is termed privatization. The government ceases to be the owner of the entity or business.
The process in which a publicly-traded company is taken over by a few people is also called privatization.


X Ltd. was manufacturing water heaters. In the first year of its operations, the revenue earned by the company is less. The company analysed the reasons of less revenue. After analysing the company decided:
(a) to reduce the labour cost by shifting the manufacturing unit to a backward area where labour was available at a very reasonable rate.
(b) to start manufacturing solar water heaters and reduce production of electric water heaters slowly.
(i) Which functions of management are indicated here?
(ii) Which dimension of business environment is applied here?
(iii) State any two values which the company wanted to communicate to the society.

(b) (i) Planning & Controlling (ii) Social


After winning the election, Prime minister Mr. Narender Modi launched a Campaign of Swachh Bharat' and invited various celebrities to be a part of this Abhiyaan. This spread awareness among the people in society and in general, people started becoming more careful and aware about the cleanliness around their area. To continue its impact, a new service tax for Swachh Bharat was also started. The government is planning to import new and better technology to adopt new methods of treating the garbage and waste. State the various dimensions of business environment mentioned in the above para quoting the lines from the above para.

(i) "After winning election ....... campaign of Swachh Bharat." Political Environment 
(ii) "People in society ............. around their area." Social Environment 
(iil) "A new service tax ............ started." Economic Environment 
(iv) "Import new technology ............ garbage." Technological Environment 


 What is meant by Business Environment?

Business environment is the sum total of all individuals, institutions and other forces like customers, competitors, suppliers, distributors, industry trends, substitutes, regulations government activities, social and cultural factors that are outside the control of the business enterprise but may affect its performance.


Two big banner movies were scheduled to be released on the same date. On the last movement release of one of the movies had to be postponed due to opposition of a group of people due to some unethical contents related to their religion was shown in the that movie. The other movie released on time and made huge profit as there was no competition and movie which was postponed suffered loss.
Which feature of business environment is highlighted here.
Identify the dimension of business environment, which delayed the release of movie.

1. Feature highlighted is ............'relativity'.
2. The dimension is ............  'social environment'.


Even after opening up of Indian Economy, foreign companies found it extremely difficult to cut through the bureaucratic and red-tapism in government offices. This discourages them from investing in India. Identify the dimension of environment mentioned in this context.

Political Environment. 


Which component of business environment requires that in every packet of cigarette there must be a horrified picture and a statutory warning.

 Legal Environment.


Explain with example the impact of legal environment of Business performance. 

Legal Factors Affecting Business Environment
  • Organizational Law
The organizational law is the first type of business law that we will talk about here. Any business that is organized as a legal entity is subject to the state law that governs its operation and conduct. There are different types of business entities. For example, corporations, limited partnerships, partnerships, limited liability partnerships, limited liability limited partnerships and limited liability companies all of which have different legal status and issues.
  • Securities Law
If a business is seeking to obtain financing through different types of investors, it may be subject to legal issues such as security law. For instance, a decision to offer promissory notes, a type of loan to your investors, will subject the legal factor affecting business to state and federal regulations and security laws.
  • Contract Law
If the intention is to enter an agreement with another person or entity, then contract law is binding. This also has a special area that is involved directly with factors affecting business, for example, government contracts, which is also known as government procurement laws.
  • Consumer Protection Laws
Some businesses act unfairly towards their consumers. For this reason, most countries have consumer protection laws that are aimed at ensuring that consumers are protected. Here are examples;
  • Weight and Measures Act: These laws ensure that the goods sold are weighed on Standard weighting equipment.
  • Trade Description Act: This law ensures that it is illegal to deliberately give a misleading impression about products.
  • Consumer Credit Act: According to this Act, consumers should be given information of the credit agreement and should be made aware of the interest rates, length of the loan while taking a loan.
  • Sale of Goods Act: This Act declares that It is illegal to sell products with flaws or problems and that any goods sold conform to standards.
  • Employees Protection laws
Different governments have passed laws to protect the interest of employees. These laws protect them against unfair discrimination at work and when applying for jobs. It ensures that no one is discriminated against on the basis of such things as race, religion, sex, age, or colour.




In a reputed Co., for the last few days, differences have cropped up between management and workers. The workers were demanding more bonus. This matter hai aggravated so much that the attention of both the parties has been diverted from production to division of profit. Consequently, the profits of the company began to fall down. In order to assess the situation of company's rapidly falling profits, a team of specialists was invited. After investigation, besides the differences, one more fact was revealed. That fact was the Purchase Manager of the company was purchasing raw material from the company run by his own brother at a price more than market price. So, with the increase in cost, profit was reduced.
Due to poor performance, many customers also left the company.
(a) Which technique of scientific management will be suitable for the company and why?
(b) Which principle of management given by Henry Fayol is being ignored by the company? Explain briefly.
(c) Which factors of Business environment are affecting the company? Identify the type and factors.

(a) The technique of scientific management which will be suitable for the company is Standardisation and Simplification of work. 
Standardisation is the process of setting standards for different factors. Standards can be set for process, raw materials , time , product , methods etc in  order to maximise the output keeping in mind the quality standards.
Simplification refers to the elimination of unwanted varieties , sizes , products and dimensions. In other words, simplification means optimum utilisation of resources.
(b) The principle of management by Henry Fayol which is ignored by the company is Principle of Remuneration of Employees.
According to this principle. the remuneration payable to the employees should be fair to both employees and the employer. The employees should get fair wages which ensure at least a reasonable standard of living. on the other hand , it should be within the paying capacity of the business.
(c) Business Environment is defined as the sum total of all the external factors and forces which influence the .The social factors of business environment is affecting the company .  Changes in social environment affects the demand for the product, supply of labour and capital.


Mr. Singh owner of leather garments factory sends his marketing head to Europe every quarter to understand the changes in fashion. This helps to prepare his latest range in line with customers' demands an expectations.
(a) Identify the characteristic of management indicated here?
(b) Which dimension of business environment is indicated here? 
 Give any two impacts of it on Business.

(a) Dynamic (b) Social environment


With change in the consumption hails of people, Neelesh, who was running a sweets shop shifted to chocolate business. On the eve of Diwali he offered chocolates in attractive packages at reasonable prices. He anticipated huge demand and created a website chcolove.com for taking order online. He got lot of orders online and earned huge profit by selling chocolates.
Identify and explain the dimensions of business environment discussed in the above case. 

The dimensions of the business environment discussed in the above case are:
(a) Social Environment: The social environment of business includes the social forces like customs, habits and traditions, values, social trends, society's expectations from business, etc. traditions define social practices that have lasted for decades or even centuries. For example, the celebration of Diwali, Id, Christmas, and Guru Parv in India provides significant financial opportunities for greetings card companies, sweets or confectionery manufacturers, tailoring outlets, and many other related businesses.
(b)Technological Environment: Technological environment includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business. For example, recent technological, advances in computers and electronics have modified the ways in which companies advertise their products.
Manufacturers have flexible manufacturing systems. Airline companies have Internet and World Wide Web pages where customers can look for flight times, destinations, and fares and book their tickets online.


Four Marks Questions :-
State any two features of Business Environment. 

The main features of business environment are:
1. All the external forces:
Business Environment includes all the forces, institutions and factors which directly or indirectly affect the Business Organizations.
2. Specific and general forces:
Business environment includes specific forces such as investors, customers, competitors and suppliers. Non-human or general forces are Social, Legal, Technological, Political, etc. which affect the Business indirectly.


Which feature of management is related to change in Business Environment? Name and explain that feature.

Dynamic Nature:
Business environment is dynamic in nature i.e. it keeps on changing. For example, change in government policies, change in taste and choice of the consumer, change in technology etc. Such changes could be triggered by internal or external factors.


Beni, after completing her MBA, took up a job with a multinational company aimed 'Fortio'. The company was paying good salary and perks to its employees. the wages were within the paying capacity of the Company that provided the employees a reasonable standard of living. The company also had a good work - culture and the behavior of superiors was very good towards their subordinates. Beni was very happy in this organisation, but due to long working hours she did not have time
to cook her meal. She had to depend upon outside food, which was
deteriorating her health.
She observed that this problem was faced by many of her colleagues, not only in her company but also in many other companies. This was because of increase in the number of working women and non-availability of hygienic home -cooked food to office goers at a reasonable price. At the end of the day she was also distributing the left - over food in the nearby night-shelters. 
(a) State the dimension of business environment being discussed above.
(b) State the principle of management being followed by 'Fortio'.
(c) identify any two values being communicated by the company to the society in the above case

(a) The dimension of business environment being discussed is 'Social Environment. 
(b) The principle of management being followed by 'Fortio' is 'Remuneration of Personnel as they give good salaries and perks to its employees. 
(c) The following are the two values being communicated by the company to the society: 
i. Fair remuneration to employees as the company was paying good salary and perks to its employees. 
ii. Good working environment as the behaviour of superiors was very good towards their subordinates. 


Answer the following question in $$10$$ to $$12$$ sentences.
Briefly explain any four dimensions of business environment.


There are five dimensions of the business environment that influence many firms. These dimensions include the economic environment, the social environment, the political environment, the legal environment, and the technological environment.

The economic environment includes what the rate of inflation is, the current level of interest rates, and how much money is made by consumers, as well as local, state, and national economic policies. These factors influence the performance of a company. For example, if consumer income drops, it may be more difficult for a company to sell its products and to make an acceptable profit.

The social environment includes customs, educational levels, literacy rates, demographics, and lifestyle choices. For example, a company that misinterprets local customs and traditions may struggle to be successful.

The technological environment includes the changes in technology that may aid in the operation of a business. A company must stay current with new technological trends. These may impact consumer preferences for products. These may also impact the cost of the production of products. For example, landline phones are disappearing as more people use cell phones. Newer, more efficient machinery may help reduce a company’s operating costs that could help the company be more competitive.

The legal environment includes the rules and regulations that impact the business environment. It is important that the business leaders understand these rules and regulations and follow them. Failure to do so could be very costly.

The political environment includes the political stability within a country and how supportive the government is towards the business community. A lack of political stability may deter business investment and expansion. Governments that develop unfriendly policies towards businesses may risk losing those businesses to other countries or may discourage businesses from increasing investment and expanding their operations.



What is the importance of business environment?

The following points highlight the importance of the business environment -
(i) It enables the firm to identify opportunities and getting the first-mover advantage. 
(ii) It helps the firm to identify threats and early warning signals. 
(iii) It helps in tapping useful resources. 
(iv) It helps in coping with rapid changes. 
(v) It helps in assisting in planning and policy formulation. 
(vi) It helps in improving performance.


Explain briefly Triple Bottom Line (TBL).

Triple Bottom Line (TBL) is a philosophy that promotes the belief and evaluates the business's performance on three principles which are equally important, viz - 
1. Financial principle - Attainment of profit
2. Social principle - Care for people
3. Environmental principle - Care for the Planet.


Class 12 Commerce Business Studies Extra Questions