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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.
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