1. BBALLAB 205- Economic Environment of Business 1
Business Environment
Introduction:
No business enterprise functions in a vacuum. It is a product of business ecology i.e., business environment. Nature,
location, product/service, size, volume price, policies and decisions of the business enterprise are influenced by the business
environment. A business units decisions and performance are influenced by a wide variety of factors, which are called
Business Environment.
Business Environment refers to all the external forces which have a bearing on the functioning of business. The literary
meaning of Business Environment means the surroundings, external objects influences etc., Business Environment is the
aggregate of all conditions, events and influences that surrounds and affects a business unit. Business Environment poses certain
threats to a business unit. Business Environment gives immense opportunities for market exploitation.
Definition:
According to William F. Glucck and Lawrance R. Jauch, “ The Business Environment includes factors outside the firm,
which can lead to opportunities for or threats to the firms. Although there are many factors, the most important of the factors
are socio-economic, technological, suppliers, competitors and government.”
According to Barry M. Richman and Melvyn Copen , “ Environmental factors or constraints are largely, if not totally,
external and beyond the control of individual industrial enterprise and their managements. These are essentially the “givens”
within which the firms and their managements must operate in a specific country and they vary, often greatly from country – to
– country.”
2. BBALLAB 205- Economic Environment of Business 2
The following figure explains the various linkages to
business environment.
3. BBALLAB 205- Economic Environment of Business 3
Nature and Characteristics of B.E.:
• Symbolic relationship between B.E. factors and business decisions:
Business decisions and performance are influenced by the B.E. factors. Eg: what business to do; what are the targeted
customer segments, what strategies to be adopted, where-when and how to do business, whether to continue or expand and if
yes, where and how to expand and so on are influenced by a number of B.E. factors.
• B.E. factors are dynamic:
The internal, micro and macro environmental factors are ever-changing. As years roll by, there will be a marked change in
them. So, the business enterprise should adopt itself to these dynamic factors.
• No single-firm cannot change the B.E.:
A business firm is not in a position to change the environment. It should operate within the “given” factors of B.E. But,
alongwith other firms, asinglefirm may bein a position to alter and mold environment in its favor.
• B.E. comprises both external as well as the internal factors:
The internal business environment factors include the value system; vision- mission objectives; management structure;
internal power relationship; human resource; company image; physical assets; research and development; marketing
resources and financial factors. These factors are controllable by the management.
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Need/significance/importance of understanding and analyzing the business environment:
• B.E. offers immense potential: B.E. poses threats to a firm. It also offers immense opportunities for potential market
exploitation. A firm is able to locate the new markets, new customers and understand the competitors in a better way by
analyzing B.E.
• Effective decisions and strategies: B.E. factors exert lot of influence over business decisions and strategies. The
business decisions become more effective by properly conducting environmental analysis.
• Dynamic B.E. instills more capabilities: The B.E. is dynamic and ever changing. The factors are volatile. So ,
a business unit is able to cope-up with the challenges posed by B.E. factors. A business unit becomes more
capable, competent and strong through conducting environmental analysis. Internal and external environment
decide the working.
• Environmental analysis: It enables a business unit to understand its strengths and weaknesses. The external
environmental factors open many and immense opportunities for market exploitation. They also warn the enterprise
about threats from competitors, government policy, etc.
5. BBALLAB 205- Economic Environment of Business 5
Environmental Scanning
Organizations operate in a given and fast changing environment. Business strategy is formulated in response to
the environment it operates in. Some organizations do not adapt to the environmental changes, and come to
grief. Organization have learnt that keeping pace with the environment provides them commercial advantages.
The faster we adapt, the more competitive we become.
Plans remain effective if they are linked to business opportunities and overcome business threats. Opportunities
and threat emerge from the changing environment. Sometimes, these changes are too rapid. Organizations must
have suitable warning systems, marketing research and contingency plans in place to operate successfully in the
fast changing environment. The changes encountered every 5-10 years are awesome. Environment must
therefore, be scanned continuously.
Organizations can gather intelligence informally by keen observation or formally in a systematic manner. A
retailer sees a residential colony developing and keeps merchandise to satisfy the needs of the expanding
clients. A large business has a formal intelligence gathering arrangement that keeps the data flowing. It becomes
handy while developing a business plan. The volume of data generated becomes problematic. We have to
decide which data is relevant and important.
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The Type of Environmental Factors to be Scanned:
There are countless environmental factors that influence the operation of business system of an
economy. There is no need to take into all these factors because, as seen from the angle of a particular
form, not all are relevant. That is why the organization in question is to concentrate only on relevant
factors of environment. The relevance of a factor will depend on the answers to two very pertinent
questions.
These questions are:
(i) Whether a particular factor has an impact on the organization?
(ii) If so, what is the degree of impact?
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A matrix of this kind can Configureas under:
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Environmental Scanning Process
The various processes or steps can be described as follows:
1. The assignment of environmental study project depends on the organisation and its practice of environmental study. If it is
monitoring the environment on a continuous basis and some personnel are assigned for this purpose, these personnel can take
up this job in addition to their duties.
However, suitable personnel can be added to take up additional load of the work. If the organisation does not have this section,
a special task force can be created for the purpose which may be termed as Environmental Analysis Unit (EAU). The task
between EAU and strategists should be clearly demarcated so that exact term of reference can be fixed.
2. The trigger is an event or set of events that initiates strategy changes or creates need for environmental data. Events serving
as triggers may take place outside the organisation, e.g., a change in the Government’s policy towards foreign technical
collaboration or entry of new competitor with some unique features; or hiring of a new key executive. In fact, various triggers
outside the organisation force managers to take environmental studies on specific project basis.
3. Direct use of environmental analysis in strategy making requires translation of environmental analysis into specific changes.
When large amount of data is collected and analysed, either strategy makers can make decisions leading to strategic changes
or they may create special task force whose task may be to make environmental analysis action- oriented.
4. Every organisation undertakes analysis of environment either on formal basis or informal basis depending on the size of the
organisation, its managerial philosophy, the nature of its environment, etc. However, if environmental analysis is taken as on-
going basis, it serves the organisational purpose in much better way.
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Capitalism Definition
Capitalism is an economic system under which private individuals own and control businesses, property,
and capital—the “means of production.” The volume of goods and services produced is based on a
system of “supply and demand,” which encourages businesses to manufacture quality products as
efficiently and inexpensively as possible.
In the purest form of capitalism—free market or laissez-faire capitalism—individuals are unrestrained in
participating in the economy. They decide where to invest their money, as well as what to produce and
sell at what prices. True laissez-faire capitalism operates without government controls. In reality,
however, most capitalist countries employ some degree of government regulation of business and
private investment.
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Socialism Definition
Socialism describes a variety of economic systems under which the means of production are
owned equally by everyone in society. In some socialist economies, the democratically
elected government owns and controls major businesses and industries. In other socialist
economies, production is controlled by worker cooperatives. In a few others, individual
ownership of enterprise and property is allowed, but with high taxes and government control.
The mantra of socialism is, “From each according to his ability, to each according to his
contribution.” This means that each person in society gets a share of the economy’s collective
production—goods and wealth—based on how much they have contributed to generating it.
Workers are paid their share of production after a percentage has been deducted to help pay
for social programs that serve “the common good.”
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Capitalism Socialism
Ownership of Assets
Means of production owned by
private individuals
Means of production owned by
government or cooperatives
Income Equality
Income determined by free market
forces
Income equally distributed
according to need
Consumer Prices
Prices determined by supply and
demand
Prices set by the government
Efficiency and Innovation
Free market competition
encourages efficiency and
innovation
Government-owned businesses have
less incentive for efficiency and
innovation
Healthcare
Healthcare provided by private
sector
Healthcare provided free or
subsidized by the government
Taxation
Limited taxes based on individual
income
High taxes necessary to pay for
public services
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1. Which sector got priority in the 1st five year plan?
(a) Agriculture
(b) Industrial
(c) Infrastructure
(d) Communication
Ans-A
2. The low income economies are sometimes referred to as ———-
(a) First world
(b) Second world
(c) Third world
(d) None of these
Ans-C
3. This is the Govt.’s strategy in respect of public expenditure and revenue which have a significant
Impact on business.
(a) Monetary policy
(b) Fiscal Policy
(c) Trade policy
(d) Foreign exchange policy
Ans-B
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4. In which year the constitution of India was amended to add, among other things, that India should be a
socialist state?
(a) 1954
(b) 1976
(c) 1980
(d) 1985
Ans-B
5. The method used for transferring complex technology is ———–
(a) Trunkey contracts
(b) Licensing agreements
(c)Training of experts
(d) None of these
Ans-A
6. In which year the Adrian Cadbury Committee on corporate governance was appointed?
(a) 1991
(b) 1996
(c) 1980
(d) 2000
Ans-A
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7. CII stands for
(a) Confederation of Indian Industries
(b) Condition of Indian Industries
(c) Classes of Indian Industries
(d) Civilians of Indian Industries
Ans-A
8. According to Birla Committee on Corporate governance, the non executive directors should comprise at
least ——– per cent of the Board, if one of them is the chairman
(a) 30%
(b) 20
(c) 10
(d) 70
Ans-A
9. In which year Govt. of India appointed the Rangarajan Committee on disinvestment in PSEs
(a) 1990,
(b) 1991
(c) 1993
(d) 1996
Ans-C
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10. The Govt. of India constituted a Public sector Disinvestment commission on——
(a) 15 March 1991
(b) 23 Aug 1993
(c) 23 Sept 1993
(d) 06 May 1994
Ans-B
11. Which Act was replaced with the introduction of Competition Act 2002?
(a) FERA
(b) MRTP
(c) POTA
(d) None of these
Ans-B
12. Competition Act was enacted in the year——-
(a) June 2002
(b) Dec. 2002
(c) January 1999
(d) None of these
Ans-B
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13. Which committee recommended the enactment of Competition Act
(a) High level Committee on competition policy and Law
(b) A Committee on Law and Order
(c) A Central Committee for Research and Policy
(d) None of these.
Ans-A
14. Who is concerned with the auditing of the receipts and expenditure of the State and Central Govt.
(a) Accountant General
(b) Comptroller and Auditor General
(c) Reserve Bank of India
(d) None of the above.
Ans-B
15. Which policy is concerned with raising revenue through taxation and deciding on the level and Pattern of
expenditure?
(a) Monetary policy
(b) fiscal Policy
(c) Cash policy
(d) None of these
Ans-B
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16. Who is responsible for presenting the Union Budget before the Parliament?
(a) Prime Minister
(b) Finance Minister
(c) RBI Governor
(d) None of these
Ans-B
17. The Planning commission was set up in India in ——–
(a) 1950
(b) 1951
(c) 1947
(d) 1952
Ans-B
18. Who is the President of National Development Council ?
(a) Finance Minister
(b) Prime Minister
(c) Monteng sing Aluvalia
(d) None
Ans-B
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19. From which five year plan ‘growth with social justice’ has received added emphasis?
(a) 5th
(b) 4th
(c) 3rd
(d) 6th
Ans-A
20. GATT was born in the year————–
(a) 1948
(b) 1945
(c) 1947
(d) 1950
Ans-A
