Short Answer Type Questions
Q. 1. Explain any four characteristics of business environment.
Ans. Characteristics of Business Environment:
(i) Totality of all external forces affecting a business.
(ii) Includes both general and specific forces.
(iii) Inter-relatedness.
(iv) Dynamic nature.
(v) Uncertainty.
(vi) Complexity.
(vii) Relativity.
Detailed Answer:
(i) Totality of all external forces affecting a business: It is aggregate of all things external to the business firms.
(ii) Specific and general forces: Specific forces affect individual firm directly, general forces affect indirectly.
(iii) Inter-relatedness: Different elements of business environment are closely inter-related.
(iv) Dynamic nature: It keeps on changing due to changes in its various components.
(v) Uncertainty: It is very difficult to predict future happenings in business environment with accuracy.
(vi) Complexity: It is relatively easier to understand in parts but difficult to grasp in totality.
(vii) Relativity: It differs from country to country and region to region.
Q. 2. Explain, how does the understanding of business environment help the management in the following:
(i) tapping useful resources;
(ii) coping with rapid changes.
Ans. (i) Understanding of business environment helps in tapping useful resources by designing the policies that allow it to get the resources it needs,so that, it can convert those resources into outputs that the environment desires.
(ii) Understanding of business environment helps in coping with rapid changes by developing suitable courses of action to deal with changes taking place in the environment as well as with the pace of change.
Q. 3. How does the understanding of business environment help the management in the following?
(i) Identification of threats and early warning signals,
(ii) Improving performance.
Ans. (i) Understanding of business environment helps the management in identification of threats on time which serves as an early warning signal enabling the firms to prepare themselves to meet the threats.
(ii) Understanding of business environment helps the management in improving performance as the firms can then adopt suitable business practices not only to improve present performance but to continue to succeed in the long run.
Q. 4. What is meant by ‘Business Environment’? State any three points of its importance.
OR
What do you understand by Business Environment?
OR
Explain any four points of importance of business environment?
Ans. Business Environment: It means the sum total of all individuals, institutions and other forces that are outside the control of business enterprise but that may affect its performance. Importance:
(i) It helps to identify opportunities and getting the first mover advantage instead of losing them to the competitors.
(ii) It helps to identify threats on time which serves as an early warning signal.
(iii) It helps in tapping useful resources so that it can convert them into output that the environment desires.
(iv) It helps in coping with rapid changes in an increasingly dynamic environment.
(v) It helps in assisting in planning and policy formulation.
(vi) It helps in improving performance by continuously monitoring the environment and adopting suitable practices.
Detailed Answer: Business environment: It is the sum total of all individuals, institutions and other forces that are outside the control of business enterprise but may affect its performance. Importance:
(i) It enables the firm to identify opportunities and getting the first mover advantage: Analysis of business environment helps to identify opportunities i.e., positive external changes to be exploited first instead of losing them to competitors.
(ii) It helps the firms to identify threats and early warning signals: A study of business environment helps an enterprise to identify threats i.e., negative signals that hinders business performance and take appropriate preventive measures on time.
(iii) It helps in tapping useful resources: A business enterprise depends on environment as a source of input like raw materials, labour, etc. and as an outlet for output i.e., goods, services, taxes, etc. Analysis helps to get resources that it needs to convert into outputs which an environment desires.
(iv) It helps in coping with rapid changes: It helps management to become more sensitive to ever changing needs of the customers. As a result, they are able to respond to such changes effectively.
(v) It helps in assisting in planning and policy formulation: Environmental scanning provides the basis for deciding future course of action (planning) and guidelines for decision making (policy).
(vi) It helps in improving performance: The continuous monitoring of environment and adopting suitable business practices not only improve their present performance but also continue to succeed in the market for a longer period.
Q. 5. 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.’ In light of the statement, explain any four important points of business environment.
OR
Why is the understanding of business environment important for managers? Explain with the help of any four points.
Ans. Understanding of Business Environment is very important for managers. It is highlighted through the following points.
(i) Identifying opportunities and getting first mover advantage: The businessmen, who are able to understand and scan the opportunities of business at early stage; can get maximum benefits or they can capture a big market before their competitors can grab these opportunities. For Example. Nerolac Goodlass company was the first company to understand the environment at an early stage to find out that there will be great demand of car painting in India and got all the car painting contract of Maruti company and today 90% of car paint work of Maruti is done by Nerolac Goodlass company.
(ii) Identifying threats and early warning signals: Threats refers to the external environmental trends and changes that will hinder a firm’s performance. Threats work as warning signals for organisation to take suitable actions. By identifying threats and early warning signals, the organisation may effectively overcome it by adopting counter strategy. Timely scanning of business environment acts as warning signals for a business to prepare itself to modify its working in advance and try to utilise the qualitative information it receives about the competitors.
(iii) Helps in tapping useful resources: Businessmen have to supply the goods and services according to the demand and consumer needs. To supply and produce output, they need inputs like finance, power, machines, raw-material etc., keeping in mind their availability in environment and demand of output in the market. So the existence enterprise depends on the environment as a source of inputs.
(iv) Improvement in performance: The study of environment acts as a major source of continuous learning on the part of managers. The enterprises that continuously monitor their environment and adopt suitable business practices at the right time are the ones which not only improve their present performance but also continue to succeed in the market for a longer period.
(v) Helps in assisting in planning and policy formulation: Environmental factors help in making plans and formulating policies for future. Scanning, understanding and analysing the business environment provides the base for planning and policy formulation (guidelines for decision making).
(vi) Helps in coping with rapid changes: It enables managements to become more sensitive to cover changing needs of customers. As a result, they are able to respond to such changes effectively.
Q. 6. It is heartening that the implementation of compliance requirements of the Companies Act, 2013 has progressed substantially with NIFTY 500 companies. Data shows a significant increase in women's participation in the top management of Indian Companies from 2% few years ago to 13% now. Even companies which are not in NIFTY 500 have undertaken drives to increase women's participation across different areas of work. The government had also announced that it would support such companies. Identify and explain the dimensions of business environment discussed above which brought about the change.
Ans. The dimensions of business environment discussed above which brought about the above change are:
(i) Legal environment: Legal environment includes various legislations passed by the government, administrative orders issued by government authorities, court judgments, as well as the decisions rendered by various commissions and agencies at every level of government-Center, State, Local, Non-compliance of laws can land the business enterprises into legal problems.
(ii) Political environment: Political environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business. Attitudes of the government officials may have either positive or negative impact upon business.
Q. 7. As per the directions issued by Supreme Court; the Government passed an order to ban the sale of tobacco products within the area of 200 metres of all educational institutions as:
(i) Its consumption is injurious to health.
(ii) People are becoming more conscious about health and fitness.
(iii) It is indicating the government’s attitude towards the business. Identify the ‘Business Environment‘ under four different dimensions quoting the lines from the above para.
Ans. (i) ‘‘As per the direction issued by Supreme Court the government passed an order to ban the sale of tobacco products’’ Legal Environment.
(ii) ‘‘Its consumption is injurious to health’’ Social Environment.
(iii) ‘‘People are becoming more conscious about health and fitness’’ Social Environment
(iv) ‘‘It is indicating government attitude towards business’’ Political Environment.
Q. 8. The Government encouraged foreign companies to invest in some sectors of retailing. The argument is:
(i) Customers can purchase the products of these companies as their income is rising.
(ii) It will increase innovations which will provide new ways of producing goods, this will ultimately improve the quality of life. Identify and explain the ‘Business Environment‘ under four different dimensions quoting the lines from the above description.
Ans. (i) ‘‘The Government encouraged foreign companies to invest in some sectors of retailing’’. Political environment consists political parties and their ideologies, stability of government, government policies towards business, etc. All these factors influence the stability, growth and profitability of the business.
(ii) ‘‘Customers can purchase the products of these companies as their income is rising’’. Economic Environment refers to the nature of economy, economic policies of the government, economic institutions, economic indices, economic relations etc.
(iii) ‘‘It will increase innovations’’. Technological Environment refers to innovation that includes scientific research, development of new methods of production, distribution and marketing of goods & services, discovery and inventions of new products and markets.
(iv) ‘‘This will ultimately improve the quality of life’’. Social environment includes the social values, lifestyles, traditions, customers, ethics and values, composition of family, occupational distribution, standard of living etc.
Q. 9. The Government of India has recently come up with an amendment to Section 6 of the Payment of Wages Act 1936, to allow employers of certain industries to make payment through various electronics modes of payments. The amendment will be applicable to all the public sector undertakings for wages disbursement using payment options. This is another milestone in the direction to further push to cashless economy. Identify and explain any two dimensions of business environment which relate to the above mentioned case.
Ans. The various dimensions of business environment which relate to the above mentioned case are stated below:
(i) Political Environment: Political environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business.
(ii) Legal Environment: Legal environment includes various legislations passed by the Government administrative orders issued by government authorities, court judgments as well as the decisions rendered by various commissions and agencies at every level of the government centre, state or local. It is imperative for the management of every enterprise to obey the law of the land.
(iii) Technological Environment: Technological environment includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.
Q. 10. How legal and political environment affect the functioning of Business organisation? Explain with the help of an example.
Ans. Impact of legal environment : Many Acts are passed from time to time in order to control and regulate business activities. For example, by removing control on the capital market, the huge amount of capital was collected by using various new issues in the primary market. This has increased the availability of funds with the business houses and promoted large scale production, expansion and growth of business. Impact of political environment : Its effect on the functioning of business organisations, is explained below through this example : It was only because of the political interest that Hyderabad came to be known as Cyberabad. In other words, it came to be known as Cyberabad because the IT companies were established there.
Q. 11. Identify the type or dimension of environment to which the following are related:
(i) Banks are reducing interest rates on housing loans.
(ii) An increasing number of working women.
(iii) Booking of air tickets through internet.
(iv) Alcohol beverages are prohibited to be advertised on ‘Doordarshan’.
Ans. (i) Economic environment
(ii) Social environment
(iii) Technological environment
(iv) Legal environment.
Q. 12. A recent rate cut in the interest on loans announced by the Banks encouraged Amit, a science student of Progressive School, to take a loan from State Bank of India to experiment and develop cars to be powered by fuel produced from garbage. He developed such a car and exhibited it in the Science Fair organised by the Directorate of Education. He was awarded first prize for his invention. Identify and explain the dimensions of business environment discussed in the above case.
Ans. Dimensions of Business Environment:
(i) Economic environment: Economic environment refers to factors and forces concerning means of production and distribution of wealth.
OR
Economic environment refers to factors like interest rates, inflation rates and changes in disposable income of people etc. which have an impact on business enterprise.
(ii) Technological environment: Technological environment of business includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business
Q. 13. With change in the consumption habits of people, Neelesh, who was running a sweets shop shifted to chocolate business. On the eve of Diwali, he offered chocolates in attractive packages at reasonable prices. He anticipated huge demand and created a website chocolove.com for taking orders online. He got a lot of orders online and earned huge profit by selling chocolates. Identify and explain the dimensions of business environment discussed in the above case.
Ans. (i) Social Environment: Social Environment includes social forces like custom and traditions, values, social trends and society’s expectation from business.
(ii) Technological Environment: Technological Environment of business includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.
Q. 14. Name and explain different types of Demonetisation of currency?
Ans. The two types of Demonetisation of currency are Total Demonetisation and Partial Demonetisation.
(i) Total Demonetisation: In this type of Demonetisation, the entire range of present currency units are replaced by a complete new range of currency units.
(ii) Partial Demonetisation: In this type of Demonetisation, only some or part of currency units (only partial and not complete) are replaced by new currency units and rest other currency units are continued for the circulation.
Q. 15. Which three currencies replaced Zimbabwean Dollar in 2015?
Ans. In 2015, the Zimbabwean Dollar was replaced by US Dollar, Botswana Pula and South African Rand currencies.
Q. 16. Define Demonetisation. What are the purposes served by Demonetisation of currency?
Ans. Demonetisation is the process of detaching a currency unit from its status as legal tender in the country. This process results in total or partial change in the existing national currency where the present currency unit in circulation is pulled off and new currency unit is circulated. The various purposes served by Demonetisation of currency include:
(i) It helps to combat corruption, crime, inflation, counterfeit currency and tax evasion.
(ii) It encourage cashless economy.
(iii) It sometimes facilitate trade also.
Q. 17. Give an instance when a currency has been demonetised to facilitate trade.
Ans. At the end of year 1993, the European Union of various European countries was formed. It removed the trading barriers among the united countries to facilitate trading among European countries. But the traders were feeling difficult to trade due to the difference in the currency types of different European countries. As a result, in the year 2002, European Union issued a new currency unit, named Euro, to be applicable all over the European Union countries. So, the currency units like German Marc, French Franc, and Italian Lira were demonetised, in favour of Euro issued, to facilitate trade.
Q. 18. Write a brief note on Partial Demonetisation of Indian currency in 2016?
Ans. The Partial Demonetisation of Indian currency took place in Nov. 2016. On the 8th day of November, a public announcement was made live by the Prime Minister of India, Mr. Narendra Modi at 8.00 pm that the `500 and `1000 denomination notes were demonetised and can only be used till 12 midnight the same day. The new series of `500 and `2000 notes were introduced and the time limit of 50 days was given for the exchange of the demonetised notes. During this time, some limits were put on exchange of demonetised notes per day and withdrawal per day (and week). The opposition strongly criticized the step of Demonetisation whereas there was a mixed reaction among the people of India. It was appreciated by the people on one hand but also faced criticism by some.
Q. 19. Give any two points to explain the impact of change in policy of the government on Business and Industry.
OR
Explain any two points of impact of change in policy of the government on business and industry.
OR
State any two impacts of change in policy of the government on Business & industry.
OR
Explain any two impacts of change in policy of the government on business and industry.
Ans. Impact of change in policy of the government on business and industry:
(i) Increase in competition: As a result of changes in the rules of industrial licensing, entry of foreign firms have increased especially in service industries like telecommunications, airlines, banking, insurance, etc. which were reserved for PSU sector earlier.
(ii) More Demanding Customers: Customers today have become more demanding because they are well informed. Increasing competition in the market gives the customers wider choice in purchasing better quality of goods and services at cheaper rates.
(iii) Rapidly Changing Technological Environment: Increasing competition forced the firms to develop new ways to survive and grow in the market. The rapidly changing technological environment creates tough challenges before smaller firms.
(iv) Necessity for Change: In a regulated environment of pre-1991 era, the firms could have relatively stable policies and practice. After 1991, the market forces have become turbulent, as a result of which, the enterprise have to continuously modify their operations.
(v) Need for Development of Human Resource: Indian enterprises lacked availability of trained technical personnel always. New market conditions require people with higher competence and greater commitment.
(vi) Market Orientation: Earlier firms used to decide production not the demand of products. In a fast changing world, there is a shift of market orientation as much as the firms have to study and analyse the market first and then produce goods accordingly.
(vii) Loss of Budgetary Support to the Public Sector: The central government’s budgetary support for financing the public sector outlays has declined over the years. The public sector undertakings have realised that, in order to survive and grow, they will have to be more efficient and generate their own resources for survival.
Q. 20. ‘‘The Indian Corporate Sector has come face-to-face with several challenges due to government policy changes.’’ Explain any four such challenges.
Ans. Challenges faced by the Indian corporate sector:
(i) Threat from MNC: The massive entry and consolidation of multinationals in the Indian markets constitute another new challenge.
(ii) Competition: Liberalisation of trade has led to more and more competition from multinationals and from imports. Competition has become global in nature. Local tailor is facing competition from PETER ENGLAND and HONEST SHIRT.
(iii) World Class Technology: Competitive advantage and core competency rests largely on technological strengths. Investment in R & D (Research and Development) and innovation becomes inescapable for companies which enjoyed protection under the regulated regime. For example, Pharmaceutical industry made 2% investment in R & D in India.
(iv) Brand-Building: Expenditures were enhanced by companies on branding & positioning of products. The expenditures on the launch of the Korean brands like, Hyundai, LG and Samsung companies are good examples.
Long Answer Type Questions
Q. 1. ‘Konark Ltd.’ is an electronic goods manufacturing enterprise situated in Shivpuri, Madhya Pradesh. It is earning a very low revenue in comparison to a competing electronic goods manufacturing enterprise, ‘Nova Ltd.’ situated in Mumbai. Both Konark’s and Nova’s operations are affected directly by the investors, customers, competitors and suppliers, which are unique to their respective locations. In addition to this, individual firms of this field are affected indirectly by the factors like the money supply in the economy, composition of the families, the technological changes, etc.
(i) Identify and state the feature of the concept discussed in the above paragraph.
(ii) Also, state any four points of importance of this concept. [Delhi & OD 2018]
Ans. (i) Specific and General Forces Business Environment includes both specific and general forces. Specific forces affect individual enterprises directly and immediately in their dayto- day working. General forces have impact on all business enterprises and thus may affect an individual firm only indirectly.
(ii) Importance of business environment: (a) It helps to identify opportunities and getting the first mover advantage instead of losing them to the competitors.
(b) It helps to identify threats on time which serves as an early warning signal.
(c) It helps in tapping useful resources so that it can convert them into output that the environment desires.
(d) It helps in coping with rapid changes in an increasingly dynamic environment.
(e) It helps in assisting in planning and policy formulation.
(f) It helps in improving performance by continuously monitoring the environment and adopting suitable practices.
Q. 2. ‘‘Management of every enterprise can be benefitted from being aware of different dimensions of business environment.’’ Explain any four such dimensions. [Delhi Comptt. Set III 2010]
OR
What constitutes general environment of business?
OR
Explain various dimensions of business environment with example. [NCERT]
Ans. Dimensions of Business Environment:
(i) Economic Environment: It consists of gross national product, corporate profit, inflation rate, productivity, employment rate, balance of payment, interest rates, rate of taxes and consumer income, debt and spendings. Economic environment has stronger influence over organisation’s policies and actions.
(ii) Social Environment: It describes characteristics of the society in which the organisation exists. Literacy rate, customs, beliefs, values, lifestyle, demographic distribution and mobility of population are part of the social environment. It is important for managers to remember that although changes in the attributes of a society may come either slowly or quickly, changes will come inevitably.
(iii) Political Environment: It comprises those elements which are related to governmental affairs e.g., attitude of government towards various industries, lobbying efforts by corporate groups.
(iv) Legal Environment: It consists of legislation that has been passed by parliament and state legislature. This component prescribes rules and regulations for all the members of the business community.
(v) Technological Environment: Under this component, new approaches of producing goods and services, new procedures as well as new equipment are included. For example, computerisation of business and industries is a fashion today.
Q. 3. Naman and Govind after finishing their graduation under vocational stream decided to start their own travel agency which will book Rail Tickets and Air Tickets on commission basis. They also thought of providing tickets within ten minutes through the use of internet. They discussed the idea with their professor Mr. Mehta who liked the idea and suggested them to first analyse the business environment which consists of investors, competitors and other forces like social, political, etc. that may affect their business directly or indirectly. He further told them about the technological improvements and shifts in consumer preferences that were taking place and hence they should be aware of the environmental trends and changes which may hinder their business performance. He emphasised on making plans keeping in mind the threat posed by the competitors, so that they can deal with the situation effectively. This alignment of business operations with the business environment will result in better performance.
(i) Identify and state the component of business environment highlighted in the above para.
(ii) State any two features of business environment as discussed by Professor Mehta with Naman and Govind.
(iii) Also state two points of importance of business environment as stated by Professor Mehta in the above situation. [SQP 2017]
Ans. (i) Technological Environment: It includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.
(ii) (a) Specific and general forces.
(b) Dynamic nature.
(iii) (a) It helps the firm to identify threats and early warning signals.
(b) It helps in planning and policy formulation.
Q. 4. With rapid advancements in the field of replacing manual work with machines, a Robot named ‘Sujan’ has been invented and developed and is likely to get the citizenship of the country of its origin. It has led to a stage where machines are being used in place of human beings. ‘Sujan’ is doing all types of work whether routine or hazardous and even answering the queries of people. However, this issue has to be carefully looked into keeping in mind the consumer attitude towards product innovations, problem of unemployment and its impact on the quality of life. Through the orders and decisions of various commissions and agencies at Centre, State or local level the Indian Government is playing a very significant role in balancing the use of human and machine power. Various dimensions of business environment are being discussed in the above para. By quoting the lines from the above identify and explain any three dimensions. [Comptt. Delhi Set-I, II, III 2017-18]
Ans. (i) Technological Environment ‘With rapid advancements in the field of replacing manual work with machines, a robot named ‘Sujan’ has been invented and developed’. Technological Environment includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.
(ii) Social Environment ‘However, this issue has to be carefully looked into keeping in mind the consumer attitude towards product innovations, problem of unemployment and its impact on the quality of life’. Social Environment includes social forces like customs and traditions, values, social trends and society’s expectation from business.
(iii) Legal environment ‘Through the orders and decisions of various commissions and agencies at Centre, State or local level the Indian Government is playing a very significant role in balancing the use of human and machine power.’ Legal environment includes various legislations passed by the Government administrative orders issued by government authorities, court judgments as well as the decisions rendered by various commissions and agencies at every level of the government— Centre,state or local.
Q. 5. State any five points of impact of liberalisation on business and industry [Outside Delhi Set-I Comptt. 2017]
Ans. Impact of government policy changes on business and industry in India:
(i) Competition has increased for Indian firms due to the entry of foreign firms.
(ii) Customers have become more demanding as they have a wider choice.
(iii) Technological environment is rapidly changing creating thought challenges for small businesses.
(iv) It has become necessary for enterprises to change and modify their operations to cope with the turbulent market forces.
(v) There is a need for developing human resource as the new market conditions require people with higher competence and greater commitment.
(vi) Enterprises are forced to adopt a market orientation so that they could study the market and produce goods accordingly.
(vii) There is loss of budgetary support to the public sector as the government felt that the public sector needs to be more efficient in order to survive and grow.
