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3
BUSINESS ENVIRONMENT
CHAPTER
After studying this 
chapter you will be 
able to: 
n Explain the 
meaning 
of business 
environment;
n Discuss the 
importance 
of business 
environment;
n Describe the 
various elements 
of business 
environment; and
n Examine the 
economic 
environment 
in India and 
the impact of 
Government 
policies on 
business and 
industry.
LEARNING 
OBJE CT I VE S
On what seemed like a regular day at work Dharamveer Kamboj, 
a rickshaw puller, was riding through the streets of Delhi when 
he met with a terrible accident. This was an event that would 
change his life forever. Knowing that he wouldn’t be able to go 
back to his work, he made the decision of returning to his native 
village in the Yamunanagar district of Haryana to begin life anew. 
Being a school dropout with no technical training of any kind 
further restricted his scope in terms of employment.
The desire to do something out of the ordinary kept stirring 
in his heart time and again. He was on the lookout for the right 
inspiration and opportunity. Such an opportunity crossed his 
path during one of his visits to the outskirts of Jaipur, Ajmer and 
Pushkar regions of Rajasthan, where he observed a number of 
women self help groups at work. A common sight was women 
in the process of making gooseberry laddoos. While this process 
appeared to be rather simple, the grating of gooseberries 
on slabs of stone manually with hands was an excruciatingly  
painful exercise. There were machines available that could 
process the gooseberrys but none of them proved to be cost 
effective. The industry was so small in scale and the owners so 
modest in means that it was impossible for them to buy machines 
and put them in use.  Dharamveer Kamboj began to think of 
ways of making fruit and vegetable processing machines not only 
affordable, but also free of accidental health hazards. Observing 
that cutting, grating, juicing and pulverizing involved similar 
techniques made him come up with the idea of a multipurpose 
processing machine that could work equally well for all of these 
tasks. There was however a big hurdle in the way of Dharamveer . 
His limited education would prove his task to be an uphill battle. 
He however was not deterred. He knew problems would come 
his way, but to challenge and overcome them was his motto in 
life. “Sangharsh hi sabse badi kaamyaabi hai. Agar badhna hai toh 
peeche mud kar nahin dekhna hai.” 
How a Rickshaw Puller became an entrepreneur
Ch_03.indd   69 08-08-2022   09:37:32
Rationalised 2023-24
Page 2


3
BUSINESS ENVIRONMENT
CHAPTER
After studying this 
chapter you will be 
able to: 
n Explain the 
meaning 
of business 
environment;
n Discuss the 
importance 
of business 
environment;
n Describe the 
various elements 
of business 
environment; and
n Examine the 
economic 
environment 
in India and 
the impact of 
Government 
policies on 
business and 
industry.
LEARNING 
OBJE CT I VE S
On what seemed like a regular day at work Dharamveer Kamboj, 
a rickshaw puller, was riding through the streets of Delhi when 
he met with a terrible accident. This was an event that would 
change his life forever. Knowing that he wouldn’t be able to go 
back to his work, he made the decision of returning to his native 
village in the Yamunanagar district of Haryana to begin life anew. 
Being a school dropout with no technical training of any kind 
further restricted his scope in terms of employment.
The desire to do something out of the ordinary kept stirring 
in his heart time and again. He was on the lookout for the right 
inspiration and opportunity. Such an opportunity crossed his 
path during one of his visits to the outskirts of Jaipur, Ajmer and 
Pushkar regions of Rajasthan, where he observed a number of 
women self help groups at work. A common sight was women 
in the process of making gooseberry laddoos. While this process 
appeared to be rather simple, the grating of gooseberries 
on slabs of stone manually with hands was an excruciatingly  
painful exercise. There were machines available that could 
process the gooseberrys but none of them proved to be cost 
effective. The industry was so small in scale and the owners so 
modest in means that it was impossible for them to buy machines 
and put them in use.  Dharamveer Kamboj began to think of 
ways of making fruit and vegetable processing machines not only 
affordable, but also free of accidental health hazards. Observing 
that cutting, grating, juicing and pulverizing involved similar 
techniques made him come up with the idea of a multipurpose 
processing machine that could work equally well for all of these 
tasks. There was however a big hurdle in the way of Dharamveer . 
His limited education would prove his task to be an uphill battle. 
He however was not deterred. He knew problems would come 
his way, but to challenge and overcome them was his motto in 
life. “Sangharsh hi sabse badi kaamyaabi hai. Agar badhna hai toh 
peeche mud kar nahin dekhna hai.” 
How a Rickshaw Puller became an entrepreneur
Ch_03.indd   69 08-08-2022   09:37:32
Rationalised 2023-24
70 Business Studies
This is the truism that Dharamveer Singh Kamboj has always 
lived by and was able to somehow convince him and obtain a 
funding of ` 25,000 for his project. He began work immediately. 
The first prototype of his machine was ready in March 2005. 
An unexpected problem of overheating however cropped up. 
Even after Dharamveer’s constant trials for the elimination of 
this problem, the issue still persisted in the second prototype.  
But the thought of giving up never crossed Dharamveer’s mind. 
In his third prototype, he had successfully solved the problem of 
overheating at last. This prototype was bought by GIAN North 
and sent to Kenya on a pilot basis. Based on the feedback, GIAN 
asked him to modify it further incorporating provisions that 
would make it portable, including the incorporation of foldable 
legs. In the fourth machine he also incorporated a sieve to 
manage the flow of juice from the machine during the extraction 
process. The machine that Dharamveer developed is unique in a 
way  that it has the capacity to process a wide variety of products 
without damaging the seed of the fruit or vegetable. 
The above example shows how a 
machine invented by Dharamveer 
Kamboj made life easier for women  
workers in unorganised sector. This 
innovation resulted in a positive 
impact on food processing business 
i.e., social, economic and technological 
in addition to enhancing quality  
of life.
Meaning of Business 
e nvironMent The term ‘business environment’ 
means  the sum total of all 
individuals, institutions and other 
forces that are outside the control 
of a business enterprise but that 
may affect its performance. As one 
writer has put it– “Just take the 
universe, subtract from it the subset 
that represents the organisation, 
and the remainder is environment”. 
Thus, the economic, social, political, 
technological and other forces which 
operate outside a business enterprise 
are part of its environment. So 
also, the individual consumers 
or competing enterprises as well 
as the governments, consumer 
groups, competitors, courts, media 
and other institutions working 
outside an enterprise constitute its 
environment. The important point is 
that these individuals, institutions 
and forces are likely to influence the 
performance of a business enterprise 
although they happen to exist 
outside its boundaries. For example, 
changes in government’s economic 
Source: The National Innovation Foundation 
(NIF) – India (nif.org.in)
Ch_03.indd   70 08-08-2022   09:37:32
Rationalised 2023-24
Page 3


3
BUSINESS ENVIRONMENT
CHAPTER
After studying this 
chapter you will be 
able to: 
n Explain the 
meaning 
of business 
environment;
n Discuss the 
importance 
of business 
environment;
n Describe the 
various elements 
of business 
environment; and
n Examine the 
economic 
environment 
in India and 
the impact of 
Government 
policies on 
business and 
industry.
LEARNING 
OBJE CT I VE S
On what seemed like a regular day at work Dharamveer Kamboj, 
a rickshaw puller, was riding through the streets of Delhi when 
he met with a terrible accident. This was an event that would 
change his life forever. Knowing that he wouldn’t be able to go 
back to his work, he made the decision of returning to his native 
village in the Yamunanagar district of Haryana to begin life anew. 
Being a school dropout with no technical training of any kind 
further restricted his scope in terms of employment.
The desire to do something out of the ordinary kept stirring 
in his heart time and again. He was on the lookout for the right 
inspiration and opportunity. Such an opportunity crossed his 
path during one of his visits to the outskirts of Jaipur, Ajmer and 
Pushkar regions of Rajasthan, where he observed a number of 
women self help groups at work. A common sight was women 
in the process of making gooseberry laddoos. While this process 
appeared to be rather simple, the grating of gooseberries 
on slabs of stone manually with hands was an excruciatingly  
painful exercise. There were machines available that could 
process the gooseberrys but none of them proved to be cost 
effective. The industry was so small in scale and the owners so 
modest in means that it was impossible for them to buy machines 
and put them in use.  Dharamveer Kamboj began to think of 
ways of making fruit and vegetable processing machines not only 
affordable, but also free of accidental health hazards. Observing 
that cutting, grating, juicing and pulverizing involved similar 
techniques made him come up with the idea of a multipurpose 
processing machine that could work equally well for all of these 
tasks. There was however a big hurdle in the way of Dharamveer . 
His limited education would prove his task to be an uphill battle. 
He however was not deterred. He knew problems would come 
his way, but to challenge and overcome them was his motto in 
life. “Sangharsh hi sabse badi kaamyaabi hai. Agar badhna hai toh 
peeche mud kar nahin dekhna hai.” 
How a Rickshaw Puller became an entrepreneur
Ch_03.indd   69 08-08-2022   09:37:32
Rationalised 2023-24
70 Business Studies
This is the truism that Dharamveer Singh Kamboj has always 
lived by and was able to somehow convince him and obtain a 
funding of ` 25,000 for his project. He began work immediately. 
The first prototype of his machine was ready in March 2005. 
An unexpected problem of overheating however cropped up. 
Even after Dharamveer’s constant trials for the elimination of 
this problem, the issue still persisted in the second prototype.  
But the thought of giving up never crossed Dharamveer’s mind. 
In his third prototype, he had successfully solved the problem of 
overheating at last. This prototype was bought by GIAN North 
and sent to Kenya on a pilot basis. Based on the feedback, GIAN 
asked him to modify it further incorporating provisions that 
would make it portable, including the incorporation of foldable 
legs. In the fourth machine he also incorporated a sieve to 
manage the flow of juice from the machine during the extraction 
process. The machine that Dharamveer developed is unique in a 
way  that it has the capacity to process a wide variety of products 
without damaging the seed of the fruit or vegetable. 
The above example shows how a 
machine invented by Dharamveer 
Kamboj made life easier for women  
workers in unorganised sector. This 
innovation resulted in a positive 
impact on food processing business 
i.e., social, economic and technological 
in addition to enhancing quality  
of life.
Meaning of Business 
e nvironMent The term ‘business environment’ 
means  the sum total of all 
individuals, institutions and other 
forces that are outside the control 
of a business enterprise but that 
may affect its performance. As one 
writer has put it– “Just take the 
universe, subtract from it the subset 
that represents the organisation, 
and the remainder is environment”. 
Thus, the economic, social, political, 
technological and other forces which 
operate outside a business enterprise 
are part of its environment. So 
also, the individual consumers 
or competing enterprises as well 
as the governments, consumer 
groups, competitors, courts, media 
and other institutions working 
outside an enterprise constitute its 
environment. The important point is 
that these individuals, institutions 
and forces are likely to influence the 
performance of a business enterprise 
although they happen to exist 
outside its boundaries. For example, 
changes in government’s economic 
Source: The National Innovation Foundation 
(NIF) – India (nif.org.in)
Ch_03.indd   70 08-08-2022   09:37:32
Rationalised 2023-24
Business Environment 71
policies, rapid technological 
developments, political uncertainty, 
changes in fashions and tastes 
of consumers and increased 
competition in the market — all 
influence the working of a business 
enterprise in important ways. 
Increase in taxes by government 
can make things expensive to buy. 
Technological improvements may 
render existing products obsolete. 
Political uncertainty may create fear 
in the minds of investors. Changes 
in fashions and tastes of consumers 
may shift demand in the market 
from existing products to new 
ones. Increased competition in the 
market may reduce profit margins  
of firms.
On the basis of the foregoing 
disc ussion, it can be said business 
environment, has the following 
features: 
 (i) Totality of external forces: 
Business environment is the 
sum total of all things external 
to business firms and, as such, 
is aggregative in nature.
 (ii) Specific and general forces: 
Business environment includes 
both specific and general forces. 
Specific forces (such as investors, 
customers, competitors and supp­
liers) affect individual enterprises 
directly and immediately in 
their day­to­day working. 
General forces (such as social, 
political, legal and technological 
conditions) have impact on all 
business enterprises and thus 
may affect an individual firm  
only indirectly.
 (iii) Inter-relatedness: Different 
elements or parts of business 
environment are closely inter­ related. For example, increased 
life expectancy of people and 
increased awareness for health  
care have increased the demand 
for many health products and 
services like soft drinks, fat­ free 
cooking oil, and health resorts. 
New health products and 
services have, in turn, changed 
people’s life styles.
 (iv) Dynamic nature: Business 
environment is dynamic in that 
it keeps on changing whether 
in terms of technological imp­
rovement, shifts in consumer 
preferences or entry of new 
competition in the market.
 (v) Uncertainty: Business envir­ onment is largely uncertain as it 
is very difficult to predict future 
happenings, especially when 
environment changes are taking 
place too frequently as in the 
case of information tech nology 
or fashion industries.
 (v i ) Complexity: Since business 
env ironment consists of 
numerous interrelated and 
dynamic conditions or forces 
which arise from different 
sources, it becomes difficult 
to comprehend at once what 
exactly constitutes a given 
environment. In other words, 
environment is a complex 
phenomenon that is relatively 
easier to understand in parts 
but difficult to grasp in its 
Ch_03.indd   71 08-08-2022   09:37:32
Rationalised 2023-24
Page 4


3
BUSINESS ENVIRONMENT
CHAPTER
After studying this 
chapter you will be 
able to: 
n Explain the 
meaning 
of business 
environment;
n Discuss the 
importance 
of business 
environment;
n Describe the 
various elements 
of business 
environment; and
n Examine the 
economic 
environment 
in India and 
the impact of 
Government 
policies on 
business and 
industry.
LEARNING 
OBJE CT I VE S
On what seemed like a regular day at work Dharamveer Kamboj, 
a rickshaw puller, was riding through the streets of Delhi when 
he met with a terrible accident. This was an event that would 
change his life forever. Knowing that he wouldn’t be able to go 
back to his work, he made the decision of returning to his native 
village in the Yamunanagar district of Haryana to begin life anew. 
Being a school dropout with no technical training of any kind 
further restricted his scope in terms of employment.
The desire to do something out of the ordinary kept stirring 
in his heart time and again. He was on the lookout for the right 
inspiration and opportunity. Such an opportunity crossed his 
path during one of his visits to the outskirts of Jaipur, Ajmer and 
Pushkar regions of Rajasthan, where he observed a number of 
women self help groups at work. A common sight was women 
in the process of making gooseberry laddoos. While this process 
appeared to be rather simple, the grating of gooseberries 
on slabs of stone manually with hands was an excruciatingly  
painful exercise. There were machines available that could 
process the gooseberrys but none of them proved to be cost 
effective. The industry was so small in scale and the owners so 
modest in means that it was impossible for them to buy machines 
and put them in use.  Dharamveer Kamboj began to think of 
ways of making fruit and vegetable processing machines not only 
affordable, but also free of accidental health hazards. Observing 
that cutting, grating, juicing and pulverizing involved similar 
techniques made him come up with the idea of a multipurpose 
processing machine that could work equally well for all of these 
tasks. There was however a big hurdle in the way of Dharamveer . 
His limited education would prove his task to be an uphill battle. 
He however was not deterred. He knew problems would come 
his way, but to challenge and overcome them was his motto in 
life. “Sangharsh hi sabse badi kaamyaabi hai. Agar badhna hai toh 
peeche mud kar nahin dekhna hai.” 
How a Rickshaw Puller became an entrepreneur
Ch_03.indd   69 08-08-2022   09:37:32
Rationalised 2023-24
70 Business Studies
This is the truism that Dharamveer Singh Kamboj has always 
lived by and was able to somehow convince him and obtain a 
funding of ` 25,000 for his project. He began work immediately. 
The first prototype of his machine was ready in March 2005. 
An unexpected problem of overheating however cropped up. 
Even after Dharamveer’s constant trials for the elimination of 
this problem, the issue still persisted in the second prototype.  
But the thought of giving up never crossed Dharamveer’s mind. 
In his third prototype, he had successfully solved the problem of 
overheating at last. This prototype was bought by GIAN North 
and sent to Kenya on a pilot basis. Based on the feedback, GIAN 
asked him to modify it further incorporating provisions that 
would make it portable, including the incorporation of foldable 
legs. In the fourth machine he also incorporated a sieve to 
manage the flow of juice from the machine during the extraction 
process. The machine that Dharamveer developed is unique in a 
way  that it has the capacity to process a wide variety of products 
without damaging the seed of the fruit or vegetable. 
The above example shows how a 
machine invented by Dharamveer 
Kamboj made life easier for women  
workers in unorganised sector. This 
innovation resulted in a positive 
impact on food processing business 
i.e., social, economic and technological 
in addition to enhancing quality  
of life.
Meaning of Business 
e nvironMent The term ‘business environment’ 
means  the sum total of all 
individuals, institutions and other 
forces that are outside the control 
of a business enterprise but that 
may affect its performance. As one 
writer has put it– “Just take the 
universe, subtract from it the subset 
that represents the organisation, 
and the remainder is environment”. 
Thus, the economic, social, political, 
technological and other forces which 
operate outside a business enterprise 
are part of its environment. So 
also, the individual consumers 
or competing enterprises as well 
as the governments, consumer 
groups, competitors, courts, media 
and other institutions working 
outside an enterprise constitute its 
environment. The important point is 
that these individuals, institutions 
and forces are likely to influence the 
performance of a business enterprise 
although they happen to exist 
outside its boundaries. For example, 
changes in government’s economic 
Source: The National Innovation Foundation 
(NIF) – India (nif.org.in)
Ch_03.indd   70 08-08-2022   09:37:32
Rationalised 2023-24
Business Environment 71
policies, rapid technological 
developments, political uncertainty, 
changes in fashions and tastes 
of consumers and increased 
competition in the market — all 
influence the working of a business 
enterprise in important ways. 
Increase in taxes by government 
can make things expensive to buy. 
Technological improvements may 
render existing products obsolete. 
Political uncertainty may create fear 
in the minds of investors. Changes 
in fashions and tastes of consumers 
may shift demand in the market 
from existing products to new 
ones. Increased competition in the 
market may reduce profit margins  
of firms.
On the basis of the foregoing 
disc ussion, it can be said business 
environment, has the following 
features: 
 (i) Totality of external forces: 
Business environment is the 
sum total of all things external 
to business firms and, as such, 
is aggregative in nature.
 (ii) Specific and general forces: 
Business environment includes 
both specific and general forces. 
Specific forces (such as investors, 
customers, competitors and supp­
liers) affect individual enterprises 
directly and immediately in 
their day­to­day working. 
General forces (such as social, 
political, legal and technological 
conditions) have impact on all 
business enterprises and thus 
may affect an individual firm  
only indirectly.
 (iii) Inter-relatedness: Different 
elements or parts of business 
environment are closely inter­ related. For example, increased 
life expectancy of people and 
increased awareness for health  
care have increased the demand 
for many health products and 
services like soft drinks, fat­ free 
cooking oil, and health resorts. 
New health products and 
services have, in turn, changed 
people’s life styles.
 (iv) Dynamic nature: Business 
environment is dynamic in that 
it keeps on changing whether 
in terms of technological imp­
rovement, shifts in consumer 
preferences or entry of new 
competition in the market.
 (v) Uncertainty: Business envir­ onment is largely uncertain as it 
is very difficult to predict future 
happenings, especially when 
environment changes are taking 
place too frequently as in the 
case of information tech nology 
or fashion industries.
 (v i ) Complexity: Since business 
env ironment consists of 
numerous interrelated and 
dynamic conditions or forces 
which arise from different 
sources, it becomes difficult 
to comprehend at once what 
exactly constitutes a given 
environment. In other words, 
environment is a complex 
phenomenon that is relatively 
easier to understand in parts 
but difficult to grasp in its 
Ch_03.indd   71 08-08-2022   09:37:32
Rationalised 2023-24
72 Business Studies
totality. For example, it may 
be difficult to know the extent 
of the relative impact of the 
social, economic, political, 
technological or legal factors on 
change in demand of a product 
in the market.
(vii) Relativity: Business environment 
is a relative concept since it 
differs from country to country 
and even region to region. 
Political conditions in the USA, 
for instance, differ from those 
in China or Pakistan. Similarly, 
demand for sarees may be fairly 
high in India whereas it may be 
almost non­ existent in France.
i Mportance of Business 
e nvironMent Just like human beings, business 
enterprises do not exist in isolation. 
Each business firm is not an 
island unto itself; it exists, survives 
and grows within the context 
of the element and forces of its 
environment. While an individual  
firm is able to do little to change 
or control these forces, it has 
no alternative to responding or 
adapting according to them. A good 
understanding of environment by 
business managers enables them not 
only to identify and evaluate, but also 
to react to the forces external to their 
firms. The importance of business 
environment and its understanding 
by managers can be appreciated if we 
consider the following facts:
 (i) It enables the firm to identify 
opportunities and getting 
the first mover advantage: 
Opportunities refer to the positive 
external trends or changes that  
will help a firm to improve its 
performance. Environment prov­
ides numerous opportunities for 
business success. Early identi­
fication of opportunities helps an 
enterprise to be the first to exploit 
them instead of losing them to 
competitors. For example, Maruti 
Udyog became the leader in the 
small car market because it was 
the first to recognise the need 
for small cars in an environment 
of rising petroleum prices and  
a large middle class population 
in India.
 (ii) It helps the firm to identify 
threats and early warning 
signals: Threats refer to the 
external environment trends and 
changes that will hinder a firm’s 
performance. Besides oppor­ tunities, environment happens 
to be the source of many threats. 
Environmental awareness can 
help managers to identify various 
threats  on time and serve as an 
early warning signal. For 
example, if an Indian firm finds 
that a foreign multinational is 
entering the Indian market with 
new substitutes, it should act as 
a warning signal. On the basis of 
this information, the Indian 
firms can prepare themselves to 
meet the threat by adopting such 
Ch_03.indd   72 08-08-2022   09:37:32
Rationalised 2023-24
Page 5


3
BUSINESS ENVIRONMENT
CHAPTER
After studying this 
chapter you will be 
able to: 
n Explain the 
meaning 
of business 
environment;
n Discuss the 
importance 
of business 
environment;
n Describe the 
various elements 
of business 
environment; and
n Examine the 
economic 
environment 
in India and 
the impact of 
Government 
policies on 
business and 
industry.
LEARNING 
OBJE CT I VE S
On what seemed like a regular day at work Dharamveer Kamboj, 
a rickshaw puller, was riding through the streets of Delhi when 
he met with a terrible accident. This was an event that would 
change his life forever. Knowing that he wouldn’t be able to go 
back to his work, he made the decision of returning to his native 
village in the Yamunanagar district of Haryana to begin life anew. 
Being a school dropout with no technical training of any kind 
further restricted his scope in terms of employment.
The desire to do something out of the ordinary kept stirring 
in his heart time and again. He was on the lookout for the right 
inspiration and opportunity. Such an opportunity crossed his 
path during one of his visits to the outskirts of Jaipur, Ajmer and 
Pushkar regions of Rajasthan, where he observed a number of 
women self help groups at work. A common sight was women 
in the process of making gooseberry laddoos. While this process 
appeared to be rather simple, the grating of gooseberries 
on slabs of stone manually with hands was an excruciatingly  
painful exercise. There were machines available that could 
process the gooseberrys but none of them proved to be cost 
effective. The industry was so small in scale and the owners so 
modest in means that it was impossible for them to buy machines 
and put them in use.  Dharamveer Kamboj began to think of 
ways of making fruit and vegetable processing machines not only 
affordable, but also free of accidental health hazards. Observing 
that cutting, grating, juicing and pulverizing involved similar 
techniques made him come up with the idea of a multipurpose 
processing machine that could work equally well for all of these 
tasks. There was however a big hurdle in the way of Dharamveer . 
His limited education would prove his task to be an uphill battle. 
He however was not deterred. He knew problems would come 
his way, but to challenge and overcome them was his motto in 
life. “Sangharsh hi sabse badi kaamyaabi hai. Agar badhna hai toh 
peeche mud kar nahin dekhna hai.” 
How a Rickshaw Puller became an entrepreneur
Ch_03.indd   69 08-08-2022   09:37:32
Rationalised 2023-24
70 Business Studies
This is the truism that Dharamveer Singh Kamboj has always 
lived by and was able to somehow convince him and obtain a 
funding of ` 25,000 for his project. He began work immediately. 
The first prototype of his machine was ready in March 2005. 
An unexpected problem of overheating however cropped up. 
Even after Dharamveer’s constant trials for the elimination of 
this problem, the issue still persisted in the second prototype.  
But the thought of giving up never crossed Dharamveer’s mind. 
In his third prototype, he had successfully solved the problem of 
overheating at last. This prototype was bought by GIAN North 
and sent to Kenya on a pilot basis. Based on the feedback, GIAN 
asked him to modify it further incorporating provisions that 
would make it portable, including the incorporation of foldable 
legs. In the fourth machine he also incorporated a sieve to 
manage the flow of juice from the machine during the extraction 
process. The machine that Dharamveer developed is unique in a 
way  that it has the capacity to process a wide variety of products 
without damaging the seed of the fruit or vegetable. 
The above example shows how a 
machine invented by Dharamveer 
Kamboj made life easier for women  
workers in unorganised sector. This 
innovation resulted in a positive 
impact on food processing business 
i.e., social, economic and technological 
in addition to enhancing quality  
of life.
Meaning of Business 
e nvironMent The term ‘business environment’ 
means  the sum total of all 
individuals, institutions and other 
forces that are outside the control 
of a business enterprise but that 
may affect its performance. As one 
writer has put it– “Just take the 
universe, subtract from it the subset 
that represents the organisation, 
and the remainder is environment”. 
Thus, the economic, social, political, 
technological and other forces which 
operate outside a business enterprise 
are part of its environment. So 
also, the individual consumers 
or competing enterprises as well 
as the governments, consumer 
groups, competitors, courts, media 
and other institutions working 
outside an enterprise constitute its 
environment. The important point is 
that these individuals, institutions 
and forces are likely to influence the 
performance of a business enterprise 
although they happen to exist 
outside its boundaries. For example, 
changes in government’s economic 
Source: The National Innovation Foundation 
(NIF) – India (nif.org.in)
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Business Environment 71
policies, rapid technological 
developments, political uncertainty, 
changes in fashions and tastes 
of consumers and increased 
competition in the market — all 
influence the working of a business 
enterprise in important ways. 
Increase in taxes by government 
can make things expensive to buy. 
Technological improvements may 
render existing products obsolete. 
Political uncertainty may create fear 
in the minds of investors. Changes 
in fashions and tastes of consumers 
may shift demand in the market 
from existing products to new 
ones. Increased competition in the 
market may reduce profit margins  
of firms.
On the basis of the foregoing 
disc ussion, it can be said business 
environment, has the following 
features: 
 (i) Totality of external forces: 
Business environment is the 
sum total of all things external 
to business firms and, as such, 
is aggregative in nature.
 (ii) Specific and general forces: 
Business environment includes 
both specific and general forces. 
Specific forces (such as investors, 
customers, competitors and supp­
liers) affect individual enterprises 
directly and immediately in 
their day­to­day working. 
General forces (such as social, 
political, legal and technological 
conditions) have impact on all 
business enterprises and thus 
may affect an individual firm  
only indirectly.
 (iii) Inter-relatedness: Different 
elements or parts of business 
environment are closely inter­ related. For example, increased 
life expectancy of people and 
increased awareness for health  
care have increased the demand 
for many health products and 
services like soft drinks, fat­ free 
cooking oil, and health resorts. 
New health products and 
services have, in turn, changed 
people’s life styles.
 (iv) Dynamic nature: Business 
environment is dynamic in that 
it keeps on changing whether 
in terms of technological imp­
rovement, shifts in consumer 
preferences or entry of new 
competition in the market.
 (v) Uncertainty: Business envir­ onment is largely uncertain as it 
is very difficult to predict future 
happenings, especially when 
environment changes are taking 
place too frequently as in the 
case of information tech nology 
or fashion industries.
 (v i ) Complexity: Since business 
env ironment consists of 
numerous interrelated and 
dynamic conditions or forces 
which arise from different 
sources, it becomes difficult 
to comprehend at once what 
exactly constitutes a given 
environment. In other words, 
environment is a complex 
phenomenon that is relatively 
easier to understand in parts 
but difficult to grasp in its 
Ch_03.indd   71 08-08-2022   09:37:32
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72 Business Studies
totality. For example, it may 
be difficult to know the extent 
of the relative impact of the 
social, economic, political, 
technological or legal factors on 
change in demand of a product 
in the market.
(vii) Relativity: Business environment 
is a relative concept since it 
differs from country to country 
and even region to region. 
Political conditions in the USA, 
for instance, differ from those 
in China or Pakistan. Similarly, 
demand for sarees may be fairly 
high in India whereas it may be 
almost non­ existent in France.
i Mportance of Business 
e nvironMent Just like human beings, business 
enterprises do not exist in isolation. 
Each business firm is not an 
island unto itself; it exists, survives 
and grows within the context 
of the element and forces of its 
environment. While an individual  
firm is able to do little to change 
or control these forces, it has 
no alternative to responding or 
adapting according to them. A good 
understanding of environment by 
business managers enables them not 
only to identify and evaluate, but also 
to react to the forces external to their 
firms. The importance of business 
environment and its understanding 
by managers can be appreciated if we 
consider the following facts:
 (i) It enables the firm to identify 
opportunities and getting 
the first mover advantage: 
Opportunities refer to the positive 
external trends or changes that  
will help a firm to improve its 
performance. Environment prov­
ides numerous opportunities for 
business success. Early identi­
fication of opportunities helps an 
enterprise to be the first to exploit 
them instead of losing them to 
competitors. For example, Maruti 
Udyog became the leader in the 
small car market because it was 
the first to recognise the need 
for small cars in an environment 
of rising petroleum prices and  
a large middle class population 
in India.
 (ii) It helps the firm to identify 
threats and early warning 
signals: Threats refer to the 
external environment trends and 
changes that will hinder a firm’s 
performance. Besides oppor­ tunities, environment happens 
to be the source of many threats. 
Environmental awareness can 
help managers to identify various 
threats  on time and serve as an 
early warning signal. For 
example, if an Indian firm finds 
that a foreign multinational is 
entering the Indian market with 
new substitutes, it should act as 
a warning signal. On the basis of 
this information, the Indian 
firms can prepare themselves to 
meet the threat by adopting such 
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Business Environment 73
measures as improving the 
quality of the product, reducing 
cost of the production, engaging 
in aggr essive advertising, and  
so on.
 (iii) It helps in tapping useful 
resources: Environment is a 
source of various resources 
for running a business. 
To engage in any type of 
activity, a business enterprise 
assembles various resources 
called inputs like finance, 
machines, raw materials, 
power and water, labour, etc., 
from its environment including 
financiers, government and 
suppliers. They decide to provide 
these resources with their own 
expectations to get something in 
return from the enterprise. The 
business enterprise supplies the 
environment with its outputs 
such as goods and services for 
customers, payment of taxes to 
government, return on financial 
investment to investors and 
so on. Because the enterprise 
depends on the environment as 
a source of inputs or resources 
and as an outlet for outputs, 
it only makes sense that the 
enterprise designs policies that 
allow it to get the resources 
that it needs so that it can 
convert those resources into 
outputs that the environment 
desires. This can be done better 
by understanding what the 
environment has to offer.
 (iv) It helps in coping with rapid 
changes: Today’s business envir­ onment is getting increasingly 
dynamic where changes are 
taking place at a fast pace. It is not 
the fact of change itself that is so 
important as the pace of change. 
Turbulent market conditions, 
less brand loyalty, divisions and 
sub­divisions (fragmentation) 
of markets, more demanding 
customers, rapid changes in 
technology and intense global 
competition are just a few of the 
images used to describe today’s 
business environment. All sizes 
and all types of enterprises are 
facing increasingly dynamic 
environment. In order to eff­
ectively cope with these signifi­
cant changes, managers must 
understand and examine the 
environment and develop suit­
able courses of action.
 (v) It helps in assisting in planning 
and policy formulation:   Since 
environment is a source of 
both opportunities and threats 
for a business enterprise, its 
understanding and analysis 
can be the basis for deciding 
the future course of action 
(planning) or training guidelines 
for decision making (policy). For 
instance, entry of new players 
in the market, which means 
more competition may make an 
enterprise think afresh about 
how to deal with the situation.
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FAQs on NCERT Textbook - Business Environment - Business Studies (BST) Class 12 - Commerce

1. What is the concept of business environment?
Ans. Business environment refers to the external factors and forces that affect the functioning of a business. These factors include economic, social, technological, political, and legal aspects that shape the business environment. Understanding the business environment helps businesses adapt to changes, identify opportunities, and make informed decisions.
2. How does the economic environment impact businesses?
Ans. The economic environment plays a significant role in shaping businesses. Changes in the economic environment, such as inflation, interest rates, economic growth, and government policies, can directly impact businesses' profitability, demand for goods and services, and cost of production. Businesses need to analyze and adapt to economic trends to remain competitive and achieve sustainable growth.
3. What are the social factors that influence the business environment?
Ans. Social factors in the business environment refer to the cultural, demographic, and societal aspects that affect businesses. These factors include population trends, consumer behavior, lifestyle preferences, cultural values, and social norms. Understanding social factors helps businesses identify target markets, develop suitable products and services, and establish effective marketing strategies.
4. How does technology impact the business environment?
Ans. Technology has a profound impact on the business environment. Advancements in technology, such as the internet, automation, artificial intelligence, and digital platforms, have revolutionized the way businesses operate, communicate, and reach customers. Technology has improved efficiency, enabled global connectivity, and created new business models. Businesses need to embrace technology to stay competitive and meet evolving customer expectations.
5. What role does the political environment play in the business environment?
Ans. The political environment encompasses government policies, regulations, and political stability that influence businesses. Political decisions can affect taxation, trade policies, labor laws, intellectual property rights, and market accessibility. Businesses need to monitor the political environment to anticipate changes, comply with regulations, and assess potential risks and opportunities. Political stability and favorable policies create a conducive business environment for growth and investment.
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