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Business environment chapter 3 - class 12 business studies
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- 3. MEANING • Business environmentis the sum total of all external and internal factors that influence a business. • sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance • Example – changes in government’s economic policies, rapid technological developments, political uncertainty.
- 4. • Totality ofexternal forces – BE is the sum totals of all those factors which are available outside the business and which the business has no control. Ex –Business has no control over Government Policies. • Specific and general forces: Specific forces means investors, customers, competitors and suppliers. General forces such as social, political, legal and technological conditions . Any changes in these two factors affect the business directly or indirectly • Inter-relatedness: Different parts of business are inter-related to each other Ex- As customer awareness on Health increase they demand healthy products such as Diet Coke, olive oil etc • Dynamic nature: Business environment keeps on changing, the business should also change its methods, rules, as environment changes. For ex – changes in new technology, shifts in consumer FEATURES/NATURE/CHARACTERISTICS OF BUSINESS ENVIRONMENT (8marks)
- 5. FEATURES/NATURE/CHARACTERISTICS OF BUSINESS ENVIRONMENT(8marks) • Uncertainty: it is very difficult to predict future when environment changes are taking place too quickly. EX- Dell company manufactures 1lakh monitors, however customers are now demanding LED screen laptops, hence it is a loss to the company and such situations cannot be predicted • Complexity-Business environment is too complex, and not easily understood. Ex- It is difficult for the business to understand the market & consumer behaviour. • Relativity- it differs from country to country and even region to region. Ex- In Europe people prefer to buy Warm clothes due to Cold climate, however in India people buy both Warm clothes & cotton clothes due to its tropical climate
- 6. • It enablesthe firm to identify opportunities By analysing the environment the business can take up opportunity in the market. For Ex- ICICI BANK took the COVID 19 opportunity and created new Covid Insurance policy & sold to its customers. • It helps the firm to identify threats and early warning signals- the Business manager should find if there are any problems that may arise and follow the environment closely. Ex- Maruti company finds that TOYOTA company will launch a low budget family car in India, and this affects Maruti’s business hence it should find a solution. • It helps in tapping useful resources: business enterprise assembles various resources called inputs like finance, machines, raw materials, power and water, labour, etc., SIGNIFICANCE/IMPORTANCE OF BUSINESS ENVIRONMENT (8marks)
- 7. •It helps incoping with rapid changes: environment is dynamic it keeps on changing hence the managers should cope up with any problems in the business and adapt to the changes. EX- due to COVID crisis the local vegetable vendors had problems since their business was shut down however it made a tie up with BBMP to deliver vegetable online through what's app booking •It helps in assisting in planning and policy formulation: Business environment helps to set up policies and frame plans for the business. •It helps in improving performance: By observing the market closely the managers can take decisions that helps the company’s growth & performance. EX-Government has reduced EXPORT TAX ON TEA hence BRU – HLL company decided to manufacture & sell Tea. SIGNIFICANCE/IMPORTANCE OF BUSINESS ENVIRONMENT (8marks)
- 8. DIMENSIONS/ELEMENTS OF BUSINESS ENVIRONMENT Businesshas many dimensions, Any changes in this environment Will affect the business positively or negatively
- 9. Elements / Dimensions/Types of Business Environment ECONOMIC ENVIRONMENT Business needs to monitor the economy closely. Economic Environment includes - •INTEREST RATES BY BANKS- if Loan rate is less business can borrow more, if interest is high it will borrow less •INFLATION RATES- refers to rise in the price of goods . If price is high business sales are low If price is less then business sales are high It increase the various costs of business • CHANGES IN INCOME – If consumers income is high they buy more hence it is profitable to the business. If peoples income is low then they buy less hence it affects the business •VALUE OF RUPEE- If value of rupee is less then it is beneficial to export business. The firms can export goods to other countries and earn higher income however if rupee value is more then it discourages outside counties to not buy from India . •Hence any changes in the economic environment of our country will affect the business directly or indirectly
- 10. SOCIAL ENVIRONMENT • Socialenvironment includes social factors in our society like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. • The social structure and the values that a society cherishes have a n influence on the functioning of business firms. • For example, during festive seasons there is an increase in the demand for new clothes, sweets, fruits, flower, etc • During Christmas There is demand for Santa Clause clothes, cakes , & toys hence such business earns higher profits • Northern Parts of India mostly consume vegetarian food hence business firms selling Non-Veg products cannot earn profits in this region due to socio-cultural background of people • Hindus do not consume Cow meat hence business cannot sell them such products. Hence it affects the business.
- 11. TECHNOLOGICAL ENVIRONMENT • Scientificimprovements and innovations • New ways of producing goods and services and new methods and techniques • For example, recent technological, advances in computers – monitors to LED/LCD – touch pad screens. Medical field- manual operation to laser Typewriters- computers Telecommunication- video calling, mail & web meetings Fountain pens to ballpoint • As technology changes, business also should adjust to new technology, if not it will be shut down . • New technology will keep the business up-to-date and helps to manage competition
- 12. POLITICAL ENVIRONMENT • includespolitical conditions -general stability and peace in the country • attitudes of government representatives -towards business. • Business Success depends on stable conditions of Government- if government changes - they change the law – it affects the business operations. • Political Threats & problems to business Ex. Forcing business to favor In terms of politicians • Political instability can shake confidence among investors • For example, even after opening up of our economy in 1991, foreign companies found it extremely difficult to cut through the bureaucratic red tape to get permits for doing business in India. • Sometimes, it took months to process even their application for the purpose. As a result these companies were discouraged from investing in our country.
- 13. LEGAL ENVIRONMENT • Legalenvironment includes various legislations –Rules/ regulations passed by the Government., orders issued by government authorities, court judgments & decisions. • It is compulsory for the management to obey the laws of the government. Therefore, management should have knowledge of rules and regulations framed by the Government. • If business is not aware of rules and regulations and violate those, it may face troubles. • Examples of Laws & Acts – Indian Partnership Act, Companies Act- Business needs to follow these rules. • For example, the advertisement of alcoholic beverages is prohibited. Advertisements, including packets of cigarettes carry the statutory warning ‘Cigarette smoking is injurious to health’ • Business dealing with Cigarette are not allowed to sell its products near school & colleges- Such business not following rules will be fined • National Green Tribunal in Delhi NCR introduced a ban on disposable plastic- Business involved in production of Plastic will be sealed.
- 14. ECONOMONIC SOCIAL TECHNOLOGICALPOLITICAL LEGAL Changes in the surrounding of the country’s economy. •Changes in Interest Rate •Inflation •Rupee Value •Consumer Income Any changes in the above will affect the business -Positively or Negatively -Directly or Indirectly Peoples or Customers belief , values, customs, tradition & lifestyle will affect the business. The attitude of the people towards their social & family rules will affect the business sales. Any changes in the above will affect the business -Positively or Negatively -Directly or Indirectly Technology keeps on changing, There are lot of scientific developments & new inventions in technology Hence business should adopt new changing technology If it doesn’t it fails & cannot face competition. Any changes in the above will affect the business -Positively or Negatively -Directly or Indirectly A Country’s Political condition, should be stable and it should support the business. Politicians should not be corrupt and not encourage Bribe, it should not fear the business. A good political system will ensure good working of a Business. If government changes- policies change- hence it affects the business Any changes in the above will affect the business -Positively or Negatively -Directly or Indirectly Refers to rules, laws, court orders, Act & regulations. Government should ensure that laws should be favorable to business. If new rules are introduced business should follow it & keep itself updated. Any changes in the above will affect the business -Positively or Negatively -Directly or Indirectly
- 15. ECONOMIC ENVIRONMENT IN INDIA The economic environment of business in India has been changing due to the government policies. At the time of Independence: (a) The Indian economy was mainly agricultural and rural in character; (b) About 70% of the working population was employed in agriculture; (c) About 85% of the population was living in the villages; (d) Production was carried out using old, low productivity technology; (e) Communicable diseases were widespread, death rates were high. In order to solve economic problems of our country, the government took several steps- The main objectives of India’s development plans were: (a) To increase economic growth to raise the standard of living, reduce unemployment and poverty; (b) Become self-reliant and set up a strong industrial base with importance on heavy and basic industries; (c) Reduce inequalities of income and wealth; (d) Bring equality in society
- 16. ECONOMIC ENVIRONMENT ININDIA- REFORMS OF 1991- NEW INDUSTRIAL POLICY • The economic planning of India did not go as expected hence in 1991, India could not repay the debt / balance for the imports made and this led a serious foreign exchange crisis and rising of prices. • As Government of India wanted to improve this condition it announced a new industrial policy in July 1991. The broad features of this policy were as follows: (a) The Government reduced the number of industries under compulsory licensing to six. (b) Many of the industries reserved for the public sector under the earlier policy, were de reserved. (c) Disinvestment (with drawl of money from Government companies suffering losses) was carried out in case of many public sector industrial enterprises. (d) Policy towards foreign capital was liberalised. (no strict policy) The share of foreign equity participation was increased and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted. (e) Automatic permission was now granted for technology agreements with foreign companies. (f ) Foreign Investment Promotion Board (FIPB) was set up to promote and foreign investment in India.
- 17. LIBERALISATION Means removing allunnecessary controls and restrictions. Private industries need not obtain license to start a business. (i) abolishing licensing for most of the industries (ii) Freedom in deciding the nature of business, no restrictions on expansion of business. (iii) removal of restrictions on the movement of goods and services, (iv) freedom in fixing the prices of goods services, (v) Reduction in tax rates. (vi) simple procedures for imports and experts, and (vii) making it easier to attract foreign capital and technology to India. PRIVATISATION • Means giving control to private industry, or giving greater role to the private sector and a reduced role to the public sector. • Adopting dis-investment (withdrawing money from loss making government companies and referring them to BIFR-Board of Industrial and Financial Reconstruction • Transfer of ownership from Public sector to Private Sector Ex- Telecommunication services were handled by BSNL only later it was privatised to others like Airtel, Idea & Vodafone. Banks were operated only by Government such as SBI, VIJAYA BANK, CANARA BANK later permission was given to private banks like AXIS , ICICI & HDFC MEASURES TAKEN BY GOVERNMENT FOR EXPANSION OF INDUSTRIES & SMALL SCALE INDUSTRIES- LPG
- 18. GLOBALISATION Globalisation: Means the integrationof the various economies of the world towards one economy. • Opening our doors to the other companies in the world. • Permission to International companies to invest or start business in INDIA • EX- Audi, Suzuki, Mc.Donalds, KFC, Nike etc Till 1991, the Government of India had followed a policy of strictly policy on imports These regulations were with respect to (a) licensing of imports, (b) tariff restrictions and (c) Quantitative restrictions. Globalisation involves an increased level of interaction and interdependence among the various nations of the global economy.
- 20. DEMONITIZATION • Act ofcancelling a currency, removing its legal validity. • A currency will circulation & printing will be officially stopped • Process that involved a change of national currency, where old currency is banned and new currency is introduced. • The Government of India on Nov 8, 2016 demonetized Rs.500 & Rs. 1000 notes • To reduce corruption, to stop circulation of fake/duplicate currency • To prevent Illegal activities.
- 21. FEATURES OF DEMONITIZATION •Tax Administration- Used to monitor Tax • To create a cash less economy. • To bring out the unaccounted wealth and ensure people play tax on time, if not pay penalty. • To explain & warn people that avoiding of tax will be not be acceptable b the government.
- 22. IMPACT OF GOVERNMENTPOLICY CHANGES ON BUSINESS AND INDUSTRY The policy of liberalisation, privatisation and globalisation of the Government has made a impact on the working of enterprises in business and industry. The Indian corporate sector has faced challenges due to government policy changes. (i) Increasing competition: since the government reduced license system it led many foreign companies to enter Indian Markets and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines, banking, insurance, etc. (Ex- Vodafone, Emirates, Citi bank, AXA insurance) (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: competition forces business to update technology and improve products and it increases cost , The rapidly changing technological environment creates tough challenges before smaller firms.
- 23. Contd.. (iv) Necessity forchange: After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations. (v) Need for developing human resource: Indian enterprises do not have quality trained employees. The new market conditions require people with higher competence and greater commitment. (vi) Market orientation: Earlier firms used to produce first and go to the market for sale later. Now the firms need to understand what are the demands & needs of a market hence the firms have to study and analyse the market first and produce goods accordingly.
- 24. ACTIVITY • In anA4 Sheet write all the points related to PESTL environment with examples. (Explain in points not paragraph) • In an A4 sheet, explain the meaning & features of LPG • In an A4 sheet draw a neat diagram of DIMENSIONS/ELEMENTS of Business Environment.