Business Environment Class 12 Notes

Please refer to the  Business Environment Class 12 Notes for Business Studies given below. These revision notes and important question answers have been prepared based on the latest NCERT book for Class 12 Business Studies. Our teachers have developed these short notes and Important Questions Class 12 Business Studies as per the latest syllabus for Grade 12 Business Studies issued by CBSE. Read these notes and important questions to get better marks in examinations

Class 12 Business Studies Business Environment

Business Environment

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

Types of Forces which Affect Business Environment

Features/Characteristics of Business Environment

1. Totality of External Forces Business environment includes all the external forces so it is aggregative in nature.
2. Specific and General Forces Business environment includes both specific and general forces. Specific forces such as investors, customers affect business directly. General forces such as social, political, legal and technological conditions.
3. Inter-relatedness All the forces and factors of business are inter-related.
4. Dynamic Nature Business environment is dynamic in nature. It keeps on changing whether in terms of technological improvements.
5. Uncertainty Business environment is uncertain and these changes are difficult to predict.
6. Complexity Business environment is difficult to understand. It can be understood easily in parts but in totality it is difficult to understand.

Importance of Business Environment

✔ It enables the firm to identify opportunities and getting the first mover advantage instead of losing them to its competitors.
✔ It helps the firm to identify threats and early warning signals which are likely to hinder a firm’s performance and take timely actions.
✔ It helps in tapping useful resources as the enterprise designs policies that allow it to get the resources that it needs so that it can convert those resources into outputs that the environment desires.
✔ It helps in coping with rapid changes as the managers are able to understand and examine the environment and develop appropriate courses of action.
✔ It helps in assisting in planning and policy formulation as its understanding and analysis can be the basis for deciding the future course of action or decision making.
✔ It helps in improving performance of an enterprise through continuous monitoring of the environment and adopting suitable business practices which help to improve both their present and future performance.
✔ It helps in improving performance of an enterprise through continuous monitoring of the environment and adopting suitable business practices which help to improve both their present and future performance

Dimension of Business Environment

1. Economic Environment It consists of Gross Domestic product, Income at National level and per capita level. Profit earning rate, monetary and fiscal policy of the government etc.

2. Social Environment It consists of the customs and traditions of the society in which business is existing. It includes the standard of living, taste, preferences etc.

3. Political Environment It constitutes all the factors related to government affairs such as type of government, power, attitude of government towards different groups of societies etc.

4. Legal Environment It constitutes the laws and various legislations passed in the parliament. Like as Trade Mark Act, Essential Commodity Act, Weights and Measures Act etc.

5. Technological Environment It refers to changes taking place in the method of production, use of equipment’s and machineries to improves the quality of product

Economic Environment in India

Various Macro-level Factors of Economic Environment in India
• Stage of economic development of the country.
•  The economic structure in the form of mixed economy which recognises the role of both public and private sectors.
•  Economic policies of the Government, including industrial, monetary and fiscal policies.
•  Economic planning, including five year plans, annual budgets, and so on.
•  Economic indices, like national income, distribution of income, rate and growth of GNP, per capita income, disposal personal income, rate of savings and investments, value of exports and imports, balance of payments, etc.
•  Infrastructural factors, such as, financial institutions, banks, modes of transportation communication facilities etc.

The Constituents of Economic Environment of Business in India at the time of Independence

✔ The Indian economy was mainly agricultural and rural in character.
✔ About 70% of the working population was employed in agriculture.
✔ About 85% of the population was living in the villages.
✔ Production was carried out using irrational, low productivity technology
✔ Communicable diseases were widespread, mortality rates were high and there was no good public health system.

New Industrial Policy Of 1991

Three Major Components of New Industrial Policy of 1991
1. Liberalisation
2. Privatisation
3. Globalisation

The Broad Feature of New Industrial Policy, 1991
• The Government reduced the number of industries under compulsory licensing to six.
•  Many of the industries reserved for the public sector under the earlier policy, were de reserved. The role of the public sector was limited only to four industries of strategic importance.
•  Disinvestment was carried out in case of many public sector industrial enterprises. Disinvestment definition
•  Disinvestments refers to transfer from public sector enterprises to the private sector through dilution of state of the Government in the public enterprise
•  The share of foreign equity participation was increased and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted.
•  Automatic permission was now granted for technology agreements with foreign companies.

Liberalisation
These economic reforms signalled the new set of economic Globalisation means the end of the licence-permit-quota raj reforms aimed at giving integration of the various and were aimed at liberalising the greater role to the private economies of the world Indian business and industry from all sector in the nation building leading towards the unnecessary controls and restrictions. Simplifying procedures for imports and exports.

Key initiatives of the government:
• Abolishing licensing requirement in most of the industries except a short list.
• Freedom in deciding the scale of business activities
• Removal of restrictions on the movement of goods and services.
• Freedom in fixing the prices of goods and services.
• Reduction in tax rates and lifting of unnecessary controls over the economy.
• Making it easier to attract foreign capital and technology to India.

Privatisation
The new set of economic Globalisation means the end of the licence-permit-quota raj reforms aimed at giving integration of the various and were aimed at liberalising the greater role to the private economies of the world Indian business and industry from all sector in the nation building leading towards the
Unnecessary controls and restrictions. Process and a reduced role emergence of a cohesive to the public sector.

Key initiatives of the government:
• Adopted the policy of planned disinvestments of the public sector.
• Decided to refer the loss making and sick enterprises to the Board of Industrial and Financial Reconstruction.

Globalisation
These economic reforms signalled the new set of economic Globalisation means the end of the licence-permit-quota raj reforms aimed at giving integration of the various and were aimed at liberalising the greater role to the private economies of the world Indian business and industry from all sector in the nation building leading towards the unnecessary controls and restrictions. process and a reduced role emergence of a cohesive to the public sector global economy.

Key initiatives of the government:
• Import liberalisation and export promotion through rationalisation of the tariff structure and reforms with respect to foreign exchange.
• Increased level of interaction and interdependence among the various nations of the global economy.

Impact of Government Policy Changes on Business and Industry

1. Increasing Competition There is a tough competition between multinationals and there is also competitions between Indian enterprises and foreign enterprises.

2. More Demanding Customers Customers today become more demanding because they are well-informed.

3. World Class Technology Changes in government policy regarding business and industry has provided us with world class technology.

4. Necessity for Change After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.

5. Need for Developing Human Resource The new market conditions requires people with higher competence and greater commitment.

6. Market Orientation Today firms are market oriented. They research the market, need and wants of consumers and then they produce good accordingly.

7. Loss of Budgetary Support to Public Sectors The government’s budgetary support for financing the public sector has declined over the years.

Case Study Business Environment Class 12 Business Studies

Question. 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-7. 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, thereby benefiting the customers.
1. In the above paragraph, two major concepts related to government policy have been discussed. Identify and explain these concepts.
2. Also, explain briefly any three impacts of these concepts on Indian business and industry.
Ans. 1. Liberalisation and globalisation are the two major concepts related to government policy that have been discussed.
• Liberalisation: These economic reforms signaled the end of the licence-pemit-quota raj and were aimed at liberalising the Indian business and industry from all unnecessary controls and restrictions.
• Globalisation: Globalisation means the integration of the various economies of the world leading towards the emergence of a cohesive global economy.
2. The three impacts of reforms on Indian business and industry are outlined below:
• Increasing competition: The Indian firms are facing lot of competition due to changes in the rules of industrial licensing and entry of foreign firms. This change is more apparent in the sectors which were earlier reserved for private sector only like banking, insurance, telecommunications, etc.
• More demanding customers: With the easy availability of wider choice in purchasing better quality of goods and services due to high competition consumers have become more aware and demanding. The growing expectations of the consumers have increased the pressure on the business firms.
• Rapidly changing technological environment: With the entry of new firms which are far more superior in terms of technology the small firms are facing a lot of challenges. Moreover, the firms are constantly involved in innovating new products and upgrading present products with the help of better technologies in order to satisfy the customers’ demands.

Question. 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.
1. Identify and state the component of business environment highlighted in the above Para.
2. State any two features of business environment as discussed by Professor Mehta with Naman and Govind.
3. Also state two points of importance of business environment as stated by Professor Mehta in the above situation.
Ans. 1. Technological Environment is the component of business environment highlighted in the above Para. 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.
2. The two features of business environment as discussed by Professor Mehta with Naman and Govind are as follows:
• Dynamic nature: It is dynamic in nature and keeps on changing due to technological upgradations, shifts in consumer preferences or increase in competition in the market.
• Inter-relatedness: All the elements of business environment are closely interrelated. Therefore, any change is one element may necessitate corresponding changes in the other elements as well.
3. The two points of importance of business environment as stated by Professor Mehta in the above situation are described below:
• It enables the firm to identify opportunities and getting the first mover advantage: The dynamic business environment provides numerous opportunities for a business to evolve as per the changing needs. Therefore, early identification of the forthcoming opportunities helps an enterprise to be the first to exploit them instead of losing them to the competitors.
• It helps the firm to identify threats and early warning signals: Sometimes the changes in the external environment may pose as a threat and hinder a firm’s performance. An awareness about the business environment helps the managers to identify such threats on time and take necessary decisions and action.

Question. With changes in the consumption habits of people, Neelesh, who was running a sweet shop, shifted to the chocolate business. On the eve of Diwali, he offered chocolates in attractive packages at reasonable prices. He anticipated huge demand and created a website chocolove. com for taking orders online. He got a lot of orders online and earned huge profits by selling the chocolate.
1. Identify and explain the dimensions of business environment discussed in the above case.
Ans. The various dimensions of business environment being referred to in the above case are as follows:
• Social environment: Social Environment includes the social forces like customs and traditions, values, social trends, society’s expectations from business, etc.
• 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.

Question. 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 to be powered by fuel produced from garbage. He developed such a car and exhibited it in the Science Fair organised by the Directorate of Education. He was awarded the first prize for his invention.
• Identify and explain the dimensions of business environment discussed in the above case.
Ans. The various dimensions of business environment being referred to in the above case are as follows:
Economic Environment: It comprises of factors that can affect management practices in a business enterprise includes interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee etc.
Technological Environment: It includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.

Question. ‘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 online links with the suppliers to replenish stocks when needed.
• Identify and explain the dimensions of business environment discussed in the above case.
Ans. The various dimensions of business environment being referred to in the above case are as follows: Political Environment: Political Environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business. 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.

Question. Just after the declaration of the results of the Lok Sabha Elections, 2009, the Bombay Stock Exchange’s price index (Sensex) rose by 2100 points in a day.
• Identify the environmental factor which led to this rise.
Ans. Political environment has led to the rise in the sensex.