Business Studies for Class 12 | CBSE (NCERT Solved) | Examination 2023-2024 | By RK Singla
CH.3 - Business Environment
Business Environment - Concept & Importance
Dimensions of Business Environment - Economic, Social, Technological, Political & Legal
Demonetization – Concept & Features
CHAPTER -3
BUSUINESS ENVIRONMENT
Business is an economic activity. It has direct and indirect relationship with society. No
business can exist in the society without considering the forces such as government,
competitors, customers, suppliers, creditors etc.
Definition
‘Business environment is the aggregate of all conditions, events and influence that surround
and affect it.’ – Keith Davis
Business environment is the sum total of all the factors and forces in society which has
direct or indirect influences on business and its activities. Business environment may be
defined as a set of external forces which affect the business activities such as economic
factors, government and legal factors, technological factors and demographic factors. It also
includes all interest groups around the business like suppliers, customers, employees,
creditors etc.
FEATURES OF BUSINESS ENVIRONMENT
1 .Totality of external forces- Business environment is the sum total of all things external
to business firms and which are out of control.
2. Specific and general Forces:- Business Environment consists of both specific and
general forces. Specific forces have direct impact on individual enterprises. Eg: investors,
suppliers, competitors etc. Whereas general forces have indirect impact on all the business
enterprises. For eg: social, political, legal, technological condition.
3. Interrelations:- Various elements or parts of business environment are interrelated. For
eg: increased awareness for health care have increased the demand for fat free cooking oil,
sugar free products, health resorts etc.
4. Dynamic nature: The business environment is flexible as it keeps on changing in terms
of technological improvement, changes in consumers taste, and fashion.
5. Uncertainty:- Business environment is highly uncertain as one cannot predict the future
happening exactly.
6. Complexity:- Business environment is a very complex phenomenon. It consists of
numerous interrelated and dynamic conditions or forces which arise from different sources.
Therefore it is very difficult to comprehend its meaning and state what constitutes business
environment.
7. Relativity:- Business environment is relative since it differ from country to country and
even from region to region. For eg:- demand for saree may be high in India, where is it
almost nil in France .
, IMPORTANCE OF BUSINESS ENVIRONMENT
Successful business persons would be those who may be ready to adapt to its environment.
An in-depth understandings of the environment helps in planning and policy formulation.
The importance of the environment is discussed under the following heads
1. Identifying business opportunities and getting the first mover advantages
Identification of opportunities possible only through awareness of environment. Early
identification of opportunities helps an enterprise to be the first to exploit them instead of
losing them to competitors. Eg:- V – Guard establishing their amusement park Wonder la,
MarutiUdyog Ltd is small car segment, Eastern’s packed food items ( ready to eat, ready to
cook items) etc.
2. Identify threats and early warning signal
Threats refer to environmental changes that will hinder a firm’s performance. Environmental
awareness helps mangers identify various threats. It provides the business early warning
signals to plan its future course of action
3. Tapping useful resources:-
Environment is a source of various resources to business enterprises. Environment
provides inputs such as materials, machines, finance water, lab our etc. to the enterprises.
The enterprise assembles these inputs. The enterprise in turn supplies the environment with
its outputs such as goods and service for customers, taxes to govt. etc. thus environment
act as a sources of inputs and an outlets for outputs. Therefore enterprise should design
their policies making a provision for getting resources they need and giving what the
environment need.
4. Coping with rapid changes:- Today’s environment highly dynamic. To cope up with
rapid changes in the environment, management must be dynamic and examine the
environment and develop a suitable course of action to withstand competitors in the market.
5. Assisting in planning and policy formulation:- Environment provides both
opportunities and threats to a business. Environmental monitoring gives vital information
which can be taken as the basis for deciding the future course of action (planning) or
framing guidelines for decision making (policy)
6. Helps in improving performance:- The future of environment is very much linked with
what is happening the environment. Those enterprises which continuing monitor their
environment and adapt suitable policies and business practices will improve their
performance
Dimensions of Business Environment
1. Economic Environment:-
Economic environment refers to all factors which have an economic impact on business. It
includes tax and interest rates, insurance, foreign Investments, Corporate profits, Inflation
rates, employment rates, foreign trade balances, liberlisation, privatization, Disinvestment
etc. Economic environment has three aspect such as economic conditions, economic
policies and economic system of the country. Scanning of economic environment helps a
business enterprise to take advantage of these situations.
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