Page 1 CHAPTER - 3 BUSINESS ENVIRONMENT CONCEPT MAPPING Meaning : The totality of all individuals, institutions and other forces that are outside a business enterprise but that may affect its functioning and performance. Nature : (a) totality of external forces (b) specific and general forces (c) Inter-relatedness (d) dynamic (e) uncertainty (f) complexity (g) Relativity Importance : (a) first mover advantage (b) early warning signal (c) tapping useful resources (d) coping with rapid change (e) planning and policy formulation (f) improving performance Dimensions : (a) economic (b) social (c) technological (d) political (e) legal Liberalisation : Liberating industry from licensing and other regulations. Privatisation : transferring ownership and management of public enterprises to private sector Globalisation : integrating different economies into a world economy by removing barriers to free flow of goods, services, capital, labour, etc. from one country to another. Impact of Policy Changes: (a) increasing competition (b) more demanding customers (c) rapidly changing technology (d) necessity for change (e) need to develop human resources (f) market orientation (g) loss of budgetary support to public sector. KEY CONCEPTS IN NUTSHELL 1. MEANING: It is the sum total of all individuals or institutions comprising of consumers, competitors, suppliers government, courts, media and also the forces like economic, social, political, legal and technological that are outside the ambit and control of business enterprise but that which can affect its performance. 2. FEATURES OF BUSINESS ENVIRONMENT: i. Constitutes totally of external forces - it comprises of the sum total of all forces that are external to the business firm which it must deal with. ii. Specific and general forces - the forces present outside can be divided Page 2 CHAPTER - 3 BUSINESS ENVIRONMENT CONCEPT MAPPING Meaning : The totality of all individuals, institutions and other forces that are outside a business enterprise but that may affect its functioning and performance. Nature : (a) totality of external forces (b) specific and general forces (c) Inter-relatedness (d) dynamic (e) uncertainty (f) complexity (g) Relativity Importance : (a) first mover advantage (b) early warning signal (c) tapping useful resources (d) coping with rapid change (e) planning and policy formulation (f) improving performance Dimensions : (a) economic (b) social (c) technological (d) political (e) legal Liberalisation : Liberating industry from licensing and other regulations. Privatisation : transferring ownership and management of public enterprises to private sector Globalisation : integrating different economies into a world economy by removing barriers to free flow of goods, services, capital, labour, etc. from one country to another. Impact of Policy Changes: (a) increasing competition (b) more demanding customers (c) rapidly changing technology (d) necessity for change (e) need to develop human resources (f) market orientation (g) loss of budgetary support to public sector. KEY CONCEPTS IN NUTSHELL 1. MEANING: It is the sum total of all individuals or institutions comprising of consumers, competitors, suppliers government, courts, media and also the forces like economic, social, political, legal and technological that are outside the ambit and control of business enterprise but that which can affect its performance. 2. FEATURES OF BUSINESS ENVIRONMENT: i. Constitutes totally of external forces - it comprises of the sum total of all forces that are external to the business firm which it must deal with. ii. Specific and general forces - the forces present outside can be divided into two parts Specific- these forces affect the firms of an industry separately e.g. Customers, suppliers, competitive firms etc. General - these forces affect all the firms of an industry equally e.g. Social, political. iii. Inter- related - the different factors are co-related e.g. Change in the import- export policy is a political change that gives rise to economic change as well iv. Uncertainty - business environment are susceptible to rapid changes, no one can predict with certainty the changes in the factors. e.g. change in technology and fashion. v. Dynamic - business environment keeps on changing. vi. Complex - it is difficult to know the extent of impact of the changes that the factors can bring in. vii. Relative - business environment is a relative concept as it differs from country to country, region to region. 3. IMPORTANCE OF BUSINESS ENVIRONMENT: i. Identify the opportunities and getting the first mover advantage - by being aware of the changes in business environment, enterprises can identify opportunity and strategize ways to capitalise on them. ii. Identify threats and early warning signals - environment scanning helps in detecting possible threats in future. iii. Basis for planning and policy for formulation - identification of threats and opportunity serves as basis for deciding the future course of action. iv. Tapping useful resources - the resources are required to carry on a successful business enterprise. These have to be procured from the business environment. v. Helps in coping with rapid changes - turbulent markets, less brand loyalty, divisions and sub-divisions (fragmentation) of markets, more demanding customers, rapid changes in technology and intense global competition combined with complex business environment calls for a flexible planning to cope with the changes. vi. Improvement in organisation performance - continuous and constant monitoring and adapting suitable business practices result in improved business performance. 4. DIMENSIONS OF BUSINESS ENVIRONMENT: The various dimensions of business environment in terms of general environment are: Page 3 CHAPTER - 3 BUSINESS ENVIRONMENT CONCEPT MAPPING Meaning : The totality of all individuals, institutions and other forces that are outside a business enterprise but that may affect its functioning and performance. Nature : (a) totality of external forces (b) specific and general forces (c) Inter-relatedness (d) dynamic (e) uncertainty (f) complexity (g) Relativity Importance : (a) first mover advantage (b) early warning signal (c) tapping useful resources (d) coping with rapid change (e) planning and policy formulation (f) improving performance Dimensions : (a) economic (b) social (c) technological (d) political (e) legal Liberalisation : Liberating industry from licensing and other regulations. Privatisation : transferring ownership and management of public enterprises to private sector Globalisation : integrating different economies into a world economy by removing barriers to free flow of goods, services, capital, labour, etc. from one country to another. Impact of Policy Changes: (a) increasing competition (b) more demanding customers (c) rapidly changing technology (d) necessity for change (e) need to develop human resources (f) market orientation (g) loss of budgetary support to public sector. KEY CONCEPTS IN NUTSHELL 1. MEANING: It is the sum total of all individuals or institutions comprising of consumers, competitors, suppliers government, courts, media and also the forces like economic, social, political, legal and technological that are outside the ambit and control of business enterprise but that which can affect its performance. 2. FEATURES OF BUSINESS ENVIRONMENT: i. Constitutes totally of external forces - it comprises of the sum total of all forces that are external to the business firm which it must deal with. ii. Specific and general forces - the forces present outside can be divided into two parts Specific- these forces affect the firms of an industry separately e.g. Customers, suppliers, competitive firms etc. General - these forces affect all the firms of an industry equally e.g. Social, political. iii. Inter- related - the different factors are co-related e.g. Change in the import- export policy is a political change that gives rise to economic change as well iv. Uncertainty - business environment are susceptible to rapid changes, no one can predict with certainty the changes in the factors. e.g. change in technology and fashion. v. Dynamic - business environment keeps on changing. vi. Complex - it is difficult to know the extent of impact of the changes that the factors can bring in. vii. Relative - business environment is a relative concept as it differs from country to country, region to region. 3. IMPORTANCE OF BUSINESS ENVIRONMENT: i. Identify the opportunities and getting the first mover advantage - by being aware of the changes in business environment, enterprises can identify opportunity and strategize ways to capitalise on them. ii. Identify threats and early warning signals - environment scanning helps in detecting possible threats in future. iii. Basis for planning and policy for formulation - identification of threats and opportunity serves as basis for deciding the future course of action. iv. Tapping useful resources - the resources are required to carry on a successful business enterprise. These have to be procured from the business environment. v. Helps in coping with rapid changes - turbulent markets, less brand loyalty, divisions and sub-divisions (fragmentation) of markets, more demanding customers, rapid changes in technology and intense global competition combined with complex business environment calls for a flexible planning to cope with the changes. vi. Improvement in organisation performance - continuous and constant monitoring and adapting suitable business practices result in improved business performance. 4. DIMENSIONS OF BUSINESS ENVIRONMENT: The various dimensions of business environment in terms of general environment are: Economic Environment : Refers to all those forces that have economic impact on the business activity Components of economic environment are GDP , Inflation rate, Interest rate, Rupee value, Stock exchange index, T ax rate Political Environment: includes political conditions such as political leadership, political stability, practices of the ruling party and the nature of the government in power and their level of interference Components of political environment are Constitution of the country, Political ideology of the ruling party, nature and extent of government interference, international relations. Legal Environment: refers to the framework of laws and various legislations within which the business activities take place Components of Legal Environment are Government legislations, court judgements, Decisions of various commissions. Social Environment: represents the customs and traditions, values, culture, social trends, beliefs, norms and ethics of a society in which business enterprises operate. Components of Social Environment are customs traditions, social expectations, lifestyles, values, literacy level Technological Environment: refers to the influence of the changes in the technology on the business environment. Components of Technological Environment: new methods and techniques of business operations, Scientific improvements and innovations, As a part of economic reforms the Government of India announced New Industrial Policy in July 1991 which emphasised on three major elements which were: • Liberalisation - from the clutches of licensing policy. Therefore, removal of entry and growth restrictions on the private sector enterprises. Page 4 CHAPTER - 3 BUSINESS ENVIRONMENT CONCEPT MAPPING Meaning : The totality of all individuals, institutions and other forces that are outside a business enterprise but that may affect its functioning and performance. Nature : (a) totality of external forces (b) specific and general forces (c) Inter-relatedness (d) dynamic (e) uncertainty (f) complexity (g) Relativity Importance : (a) first mover advantage (b) early warning signal (c) tapping useful resources (d) coping with rapid change (e) planning and policy formulation (f) improving performance Dimensions : (a) economic (b) social (c) technological (d) political (e) legal Liberalisation : Liberating industry from licensing and other regulations. Privatisation : transferring ownership and management of public enterprises to private sector Globalisation : integrating different economies into a world economy by removing barriers to free flow of goods, services, capital, labour, etc. from one country to another. Impact of Policy Changes: (a) increasing competition (b) more demanding customers (c) rapidly changing technology (d) necessity for change (e) need to develop human resources (f) market orientation (g) loss of budgetary support to public sector. KEY CONCEPTS IN NUTSHELL 1. MEANING: It is the sum total of all individuals or institutions comprising of consumers, competitors, suppliers government, courts, media and also the forces like economic, social, political, legal and technological that are outside the ambit and control of business enterprise but that which can affect its performance. 2. FEATURES OF BUSINESS ENVIRONMENT: i. Constitutes totally of external forces - it comprises of the sum total of all forces that are external to the business firm which it must deal with. ii. Specific and general forces - the forces present outside can be divided into two parts Specific- these forces affect the firms of an industry separately e.g. Customers, suppliers, competitive firms etc. General - these forces affect all the firms of an industry equally e.g. Social, political. iii. Inter- related - the different factors are co-related e.g. Change in the import- export policy is a political change that gives rise to economic change as well iv. Uncertainty - business environment are susceptible to rapid changes, no one can predict with certainty the changes in the factors. e.g. change in technology and fashion. v. Dynamic - business environment keeps on changing. vi. Complex - it is difficult to know the extent of impact of the changes that the factors can bring in. vii. Relative - business environment is a relative concept as it differs from country to country, region to region. 3. IMPORTANCE OF BUSINESS ENVIRONMENT: i. Identify the opportunities and getting the first mover advantage - by being aware of the changes in business environment, enterprises can identify opportunity and strategize ways to capitalise on them. ii. Identify threats and early warning signals - environment scanning helps in detecting possible threats in future. iii. Basis for planning and policy for formulation - identification of threats and opportunity serves as basis for deciding the future course of action. iv. Tapping useful resources - the resources are required to carry on a successful business enterprise. These have to be procured from the business environment. v. Helps in coping with rapid changes - turbulent markets, less brand loyalty, divisions and sub-divisions (fragmentation) of markets, more demanding customers, rapid changes in technology and intense global competition combined with complex business environment calls for a flexible planning to cope with the changes. vi. Improvement in organisation performance - continuous and constant monitoring and adapting suitable business practices result in improved business performance. 4. DIMENSIONS OF BUSINESS ENVIRONMENT: The various dimensions of business environment in terms of general environment are: Economic Environment : Refers to all those forces that have economic impact on the business activity Components of economic environment are GDP , Inflation rate, Interest rate, Rupee value, Stock exchange index, T ax rate Political Environment: includes political conditions such as political leadership, political stability, practices of the ruling party and the nature of the government in power and their level of interference Components of political environment are Constitution of the country, Political ideology of the ruling party, nature and extent of government interference, international relations. Legal Environment: refers to the framework of laws and various legislations within which the business activities take place Components of Legal Environment are Government legislations, court judgements, Decisions of various commissions. Social Environment: represents the customs and traditions, values, culture, social trends, beliefs, norms and ethics of a society in which business enterprises operate. Components of Social Environment are customs traditions, social expectations, lifestyles, values, literacy level Technological Environment: refers to the influence of the changes in the technology on the business environment. Components of Technological Environment: new methods and techniques of business operations, Scientific improvements and innovations, As a part of economic reforms the Government of India announced New Industrial Policy in July 1991 which emphasised on three major elements which were: • Liberalisation - from the clutches of licensing policy. Therefore, removal of entry and growth restrictions on the private sector enterprises. • Globalisation - encouragement of foreign private participation in industrial development. This step mainly intended at integrating the national economy with the world economy through the removal of barriers on international trade and capital movements. • Privatisation - drastic reduction in the role of public sector. Further it aimed at transfer of ownership ,management and control of the public sector enterprise to the private sector. The new industrial policy aimed at creating a more competent environment in the economy so as to strengthen the process of industrialisation. Its features are as follows • Delicensing of all projects except six industries • Decreased role of public sector to merely 4 industries • Disinvestment: selling of a part or whole of the shares of the public sector undertaking • Liberalisation of Foreign capital • Setting up of Foreign Investment board (FIPB) • Liberal policy for technical collaborations 7. IMPACT OF GOVERNMENT POLICY CHANGES ON BUSINESS AND INDUSTRY: • Increase in competition • Demanding customers • Technical change and increased investment in R and D • Necessity of change • Development of human resource • Market orientation • Loss of budgetary support to the public sector. Page 5 CHAPTER - 3 BUSINESS ENVIRONMENT CONCEPT MAPPING Meaning : The totality of all individuals, institutions and other forces that are outside a business enterprise but that may affect its functioning and performance. Nature : (a) totality of external forces (b) specific and general forces (c) Inter-relatedness (d) dynamic (e) uncertainty (f) complexity (g) Relativity Importance : (a) first mover advantage (b) early warning signal (c) tapping useful resources (d) coping with rapid change (e) planning and policy formulation (f) improving performance Dimensions : (a) economic (b) social (c) technological (d) political (e) legal Liberalisation : Liberating industry from licensing and other regulations. Privatisation : transferring ownership and management of public enterprises to private sector Globalisation : integrating different economies into a world economy by removing barriers to free flow of goods, services, capital, labour, etc. from one country to another. Impact of Policy Changes: (a) increasing competition (b) more demanding customers (c) rapidly changing technology (d) necessity for change (e) need to develop human resources (f) market orientation (g) loss of budgetary support to public sector. KEY CONCEPTS IN NUTSHELL 1. MEANING: It is the sum total of all individuals or institutions comprising of consumers, competitors, suppliers government, courts, media and also the forces like economic, social, political, legal and technological that are outside the ambit and control of business enterprise but that which can affect its performance. 2. FEATURES OF BUSINESS ENVIRONMENT: i. Constitutes totally of external forces - it comprises of the sum total of all forces that are external to the business firm which it must deal with. ii. Specific and general forces - the forces present outside can be divided into two parts Specific- these forces affect the firms of an industry separately e.g. Customers, suppliers, competitive firms etc. General - these forces affect all the firms of an industry equally e.g. Social, political. iii. Inter- related - the different factors are co-related e.g. Change in the import- export policy is a political change that gives rise to economic change as well iv. Uncertainty - business environment are susceptible to rapid changes, no one can predict with certainty the changes in the factors. e.g. change in technology and fashion. v. Dynamic - business environment keeps on changing. vi. Complex - it is difficult to know the extent of impact of the changes that the factors can bring in. vii. Relative - business environment is a relative concept as it differs from country to country, region to region. 3. IMPORTANCE OF BUSINESS ENVIRONMENT: i. Identify the opportunities and getting the first mover advantage - by being aware of the changes in business environment, enterprises can identify opportunity and strategize ways to capitalise on them. ii. Identify threats and early warning signals - environment scanning helps in detecting possible threats in future. iii. Basis for planning and policy for formulation - identification of threats and opportunity serves as basis for deciding the future course of action. iv. Tapping useful resources - the resources are required to carry on a successful business enterprise. These have to be procured from the business environment. v. Helps in coping with rapid changes - turbulent markets, less brand loyalty, divisions and sub-divisions (fragmentation) of markets, more demanding customers, rapid changes in technology and intense global competition combined with complex business environment calls for a flexible planning to cope with the changes. vi. Improvement in organisation performance - continuous and constant monitoring and adapting suitable business practices result in improved business performance. 4. DIMENSIONS OF BUSINESS ENVIRONMENT: The various dimensions of business environment in terms of general environment are: Economic Environment : Refers to all those forces that have economic impact on the business activity Components of economic environment are GDP , Inflation rate, Interest rate, Rupee value, Stock exchange index, T ax rate Political Environment: includes political conditions such as political leadership, political stability, practices of the ruling party and the nature of the government in power and their level of interference Components of political environment are Constitution of the country, Political ideology of the ruling party, nature and extent of government interference, international relations. Legal Environment: refers to the framework of laws and various legislations within which the business activities take place Components of Legal Environment are Government legislations, court judgements, Decisions of various commissions. Social Environment: represents the customs and traditions, values, culture, social trends, beliefs, norms and ethics of a society in which business enterprises operate. Components of Social Environment are customs traditions, social expectations, lifestyles, values, literacy level Technological Environment: refers to the influence of the changes in the technology on the business environment. Components of Technological Environment: new methods and techniques of business operations, Scientific improvements and innovations, As a part of economic reforms the Government of India announced New Industrial Policy in July 1991 which emphasised on three major elements which were: • Liberalisation - from the clutches of licensing policy. Therefore, removal of entry and growth restrictions on the private sector enterprises. • Globalisation - encouragement of foreign private participation in industrial development. This step mainly intended at integrating the national economy with the world economy through the removal of barriers on international trade and capital movements. • Privatisation - drastic reduction in the role of public sector. Further it aimed at transfer of ownership ,management and control of the public sector enterprise to the private sector. The new industrial policy aimed at creating a more competent environment in the economy so as to strengthen the process of industrialisation. Its features are as follows • Delicensing of all projects except six industries • Decreased role of public sector to merely 4 industries • Disinvestment: selling of a part or whole of the shares of the public sector undertaking • Liberalisation of Foreign capital • Setting up of Foreign Investment board (FIPB) • Liberal policy for technical collaborations 7. IMPACT OF GOVERNMENT POLICY CHANGES ON BUSINESS AND INDUSTRY: • Increase in competition • Demanding customers • Technical change and increased investment in R and D • Necessity of change • Development of human resource • Market orientation • Loss of budgetary support to the public sector. VERY SHORT ANSWER TYPE QUESTIONS (1 MARK) 1. What is Business Environment? Ans. Forces affecting the performance of an organisation but outside its control are called as Business Environment. 2. How have customers benefited by increased competition after liberalisation and globalisation? Ans. While purchasing they get a better quality and wider choice of goods and services. 3. How can the firms cope up with changing technological environment? Ans. They have to develop new ways. 4. What do you mean by Globalisation? Ans. When the various economies of the world integrate, it is known as Globalisation. 5. Which policy of Indian Government has moved India towards globalisation? Ans. The Industrial Policy of 1991. 6. What do you mean by disinvestment? Ans. When the private sector takes over public sector, it is called disinvestment. 7. Give one measure taken by Indian Government to introduce liberalisation. Ans. Abolishing licensing requirements. 8. What do you mean by first mover advantage? Ans. Early identification of opportunities. 9. What are Values? Ans. Concepts held by a society in high esteem are values. 10. Which of the sector was given importance after independence? Ans. Public sector. 11. What was the responsibility given to private sector after independence? Ans. Developing consumer goods industry was the responsibility gives to private sector. 12. What do you mean by Liberalisation?Read More
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