Key Notes: Business Environment | Business Studies (BST) Class 12 - Commerce PDF Download

Definition of Business Environment:

• Business environment refers to the external forces and institutions that impact a business organization and its operations.
• Forces encompass economical, social, political, technological, etc.
• Institutions include suppliers, customers, competitors, etc.
• It includes constraints and forces external to a business within which it operates.

Features of Business Environment:

• Totality of External Forces: Business environment comprises all external forces affecting a firm.
• Specific and General Forces: It includes specific forces (directly impacting the firm) and general forces (indirectly affecting the firm).
• Inter-Relatedness: All forces are closely interconnected.
• Dynamic: Business environment is subject to constant change.
• Uncertainty: It is difficult to predict future environmental changes with full accuracy.
• Complexity: It is easier to understand in parts than in totality.
• Relativity: The impact varies by country, region, and firm.

Importance of Business Environment:

• Identification of Opportunities: Helps identify advantageous opportunities for a competitive edge.
• Identification of Threats: Aids in recognizing potential threats.
• Tapping Useful Resources: Facilitates access to essential resources.
• Coping with Rapid Changes: Allows businesses to adapt effectively.
• Assistance in Planning and Policy Formulation: Supports strategic decision-making.
• Improving Performance: Aids in enhancing organizational performance.

Economic Environment in India:

• New Economic Policy (NEP) in 1991 aimed at economic liberalization.
• Key features: licensing reduction, limited public sector roles, disinvestment, foreign investment promotion, benefits for small-scale industries.

Dimensions/Components of Business Environment:

• Economic Environment: Impact on business through interest rates, inflation, income changes, monetary policy, etc.
• Social Environment: Influenced by customs, beliefs, literacy, lifestyle, values, etc.
• Technological Environment: Offers advanced production methods and innovation.
• Political Environment: Political stability or instability affects businesses.
• Legal Environment: Encompasses government laws, regulations, and orders.

Major Steps in Economic Reforms:

• New Industrial Policy: Reduced licensing, encouraged foreign investment.
• New Trade Policy: Freed foreign trade from unnecessary controls.
• Fiscal Reforms: Addressed excessive fiscal deficit.
• Monetary Reform: Central bank control of money supply.
• Capital Market Reforms: SEBI establishment, liberalization of debenture interest, private sector mutual funds.
• Dismantling Price Control: Removal of price controls in various sectors.

Impact of Government Policy Changes on Business and Industry:

• Increasing Competition: De-licensing and foreign entry increased competition.
• More Demanding Customers: Market is customer-oriented with informed buyers.
• Rapid Changing Technological Environment: Challenges and opportunities for firms.
• Necessity for Change: Frequent policy changes necessitate adaptation.
• Need for Developing Human Resources: Competence and commitment required.
• Market Orientation: Shift from selling to marketing concept.
• Reduction in Budgetary Support to Public Sector: Public sector self-reliance.