Business Environment NCERT Solutions | Business Studies (BST) Class 12 - Commerce PDF Download

Very Short Answer Question

Q1. What is meant by business environment?
Ans: Business environment refers to the total of all individuals, institutions, and forces outside a business that can impact its performance. It encompasses various factors, including:

• Economic conditions
• Social influences
• Political factors
• Technological advancements
• Legal regulations

Q2. How does understanding of business environment help in improving performance of a business?
Ans: Understanding the business environment aids in:

• Identifying opportunities to gain a competitive advantage.
• Recognising threats early and taking proactive measures.
• Adapting to rapid changes in the external landscape.
• Assisting in planning and policy formulation to align with external factors.
• Enhancing overall performance and sustainability of the business.

Q3. Give an example to show that a business firm operates within numerous interrelated factors constituting the business environment. (Hint: example highlighting the interrelatedness of dimensions of business environment).
Ans: An example of how a business operates within various interrelated factors is the growing consumer awareness of health and fitness. This shift has led to an increased demand for Fat-free cooking oil and Organic food.

This change is influenced by several interconnected dimensions of the business environment:

• Social trends: Rising health awareness among consumers.
• Technological advances: Improved production methods for healthier products.
• Economic factors: Higher disposable income allows consumers to spend on healthier options.

Q4. Krishna Furnishers Mart started its operations in the year 1954 and emerged as the market leader in the industry because of their original designs and efficiency in operations. They had a steady demand for their products but over the years, they found their market share declining because of new entrants in the field. The firm decided to review their operations and decided that in order to meet the competition, they need to study and analyze the market trends and then design and develop their products accordingly. List any two impacts of changes in business environment on Krishna Furnishers Mart’s operations. (Hint: increase in competition and Market orientation).
Ans:

• Increase in Competition: The entry of new players in the market has caused a reduction in Krishna Furnishers Mart's market share.
• Market Orientation: The firm must now analyse market trends and adjust its products to meet customer preferences for continued success.

Q5. Name any two specific forces of business environment affecting business.
Ans: Specific forces of business environment affecting business include:

• Customers: Their preferences and buying behaviour directly influence business strategies.
• Competitors: The actions and strategies of competitors can impact market share and pricing.

Short Answer Type Questions

Q1. Why it is important for business enterprises to understand their environment? Explain.
Ans: Understanding the business environment is crucial for enterprises for several reasons:

• Identifying Opportunities: It helps businesses discover and seize new market prospects.
• Recognising Threats: Early detection of potential risks allows businesses to take preventive measures.
• Adapting to Changes: It aids in adjusting to shifts in technology, economy, or regulations effectively.
• Improving Performance: Insights gained can enhance strategic planning and decision-making.
• Aligning with Trends: Staying informed about consumer preferences and industry trends is essential.

Q2. Explain the following terms: (a) Liberalisation (b) Privatization (c) Globalisation
Ans: Liberalisation: This term means reducing or removing government restrictions on businesses. Key points include:

• Deregulation of industries
• Lowering of trade barriers
• Encouraging private investment
• Promoting competition and growth

Privatisation: This refers to transferring ownership and management of public sector enterprises to private companies. The main aims are:

• Improving efficiency
• Boosting profitability

Globalisation: This term describes the integration of local economies into the global economy. It involves:

• Increased trade
• Foreign investment
• Technological advancements
• Free movement of goods, services, and information across borders

Q3. National Digital Library of India (NDL India) is a pilot project initiated by the HRD ministry. It works towards developing a framework of virtual repository of learning resources with a single­window search facility. It provides support to all academic levels including researchers, life­long learners and differentlyabled learners free of cost. State the dimensions of business environment highlighted above.
Ans: The dimensions of the business environment highlighted are:

• Technological Environment: The development of a virtual repository showcases advancements in technology.
• Social Environment: It encourages lifelong learning and inclusivity, supporting differently-abled individuals and learners at all academic levels.
• Political Environment: As a government initiative by the Ministry of HRD, it reflects the impact of political decisions.

Q4. State the impact of demonetization on interest rates, private wealth and real estate.
Ans: Impact of demonetization on interest rates, private wealth, and real estate:

• Interest Rates: Increased bank deposits led to lower interest rates.
• Private Wealth: Unaccounted wealth decreased as people were forced to deposit cash in banks.
• Real Estate: The market declined due to fewer cash transactions and reduced speculative investments.

Long Answer Question

Q1. How would you characterize business environment? Explain with examples, the difference between general and specific environment.
Ans: Features of Business Environment

• Totality of external forces: The business environment is the sum of all external factors affecting firms, making it aggregative in nature.
• Specific and general forces:
  • Specific forces (e.g., customers, suppliers) directly impact individual businesses.
  • General forces (e.g., social, political conditions) influence all firms indirectly.
• Inter-relatedness: Different elements of the business environment are interconnected. For instance, increased life expectancy and health awareness lead to a higher demand for health products, which in turn affects lifestyles.
• Dynamic nature: The business environment is constantly changing due to technological advancements, shifts in consumer preferences, and new market competition.
• Uncertainty: Predicting future changes is challenging, especially in fast-evolving sectors like technology and fashion.
• Complexity: The business environment consists of numerous interrelated factors, making it easier to understand in parts than as a whole.
• Relativity: The business environment varies by country and region. For example, political conditions in the USA differ from those in China or Pakistan.

Importance of Business Environment

• Identifying opportunities and gaining a competitive edge.
• Recognising threats and early warning signals.
• Coping with rapid changes.
• Assisting in planning and policy formulation.
• Enhancing overall performance.

Difference between Specific and General Environment

• Specific forces directly affect individual enterprises, such as customers and suppliers.
• General forces impact all firms indirectly, including social and political conditions.

Q2. How would you argue that the success of a business enterprise is significantly influenced by its environment?
Ans: Importance of Business Environment

• Identifying Opportunities: The business environment presents numerous opportunities for success. Recognising these early allows a firm to be the first to act, gaining a competitive edge. For instance, Maruti Udyog became a leader in the small car market by recognising the need for affordable cars amidst rising fuel prices.
• Identifying Threats: Environmental awareness enables firms to spot potential threats early. For example, if a foreign company enters the market with new products, it serves as a warning for local firms to enhance their offerings and marketing strategies.
• Tapping Useful Resources: The environment provides essential resources like finance, materials, and labour. Understanding these resources helps businesses acquire what they need to produce goods and services effectively.
• Coping with Rapid Changes: The pace of change in today's business environment is swift. Managers must analyse these changes to develop appropriate strategies. Factors like technological advancements and shifting customer preferences require constant adaptation.
• Assisting in Planning and Policy Formulation: Understanding the environment aids in crafting effective policies. By recognising both opportunities and threats, businesses can make informed decisions about their future direction.
• Improving Performance: Continuous monitoring of the environment can significantly enhance a firm's performance. Studies show that businesses that adapt to their surroundings tend to thrive in the long run.

Q3. Explain, with examples, the various dimensions of business environment.
Ans: Economic Environment: This dimension encompasses changes influenced by government economic policies. The Reserve Bank of India plays a crucial role in regulating the economy by managing interest rates and controlling money flow. For example:

• When banks lower interest rates on long-term loans, it stimulates spending in sectors like automobiles and construction, as consumers are more inclined to purchase homes and cars.

Social Environment: The social environment of business includes the social forces like customs and traditions, values, social trends, society’s expectations from business etc. In business terms, these values translate into freedom of choice in the market. Major elements of social environment are 
(a) life expectancy 
(b) shifts in the presence of women in the workforce 
(c) consumption habits 
Example: Due to the shift in the presence of women in the workforce, the demand for ready-made ladles, formal wear, cosmetics, packed/processed food, and electronic gadgets has gone up. 

Technological Environment: This dimension relates to scientific advancements that create new methods for producing goods and services. An example is:

• The ability to book railway tickets online making travel planning more convenient for consumers.

Political Environment: This includes the political stability of a country and the attitudes of elected officials towards business. Important elements are:

• The constitution and political ideologies of the ruling party.
• For example, after the New Economic Policy of 1991, globalisation attracted foreign companies to India, although bureaucratic hurdles initially posed challenges.

Legal Environment: This dimension consists of laws and regulations that govern business practices. Key points include:

• Compliance with legislation and administrative orders is essential for business operations.
• For instance, regulations prohibit advertising alcoholic beverages to protect consumer interests.

Q4. The government of India announced Demonetization of ₹ 500 and ₹ 1,000 currency notes with effect from the midnight of November 8, 2016: As a result, the existing ₹ 500 and ₹ 1,000 currency notes ceased to be legal tender from that date. New currency notes of the denomination of ₹ 500 and ₹ 2,000 were issued by Reserve Bank of India after the announcement.

This step resulted in a substantial increase in the awareness about and use of Point of Sale machines, e­wallets, digital cash and other modes of cashless transactions. Also, increased transparency in monetary transactions and disclosure led to a rise in government revenue in the form of tax collection. 
(a) Enumerate the dimensions of business environment highlighted above. 
(b) State the features of Demonetization.

Ans: (a) Dimensions of Business Environment Highlighted:

Political Dimension:

• "The Government of India announced demonetization of ₹ 500 and ₹ 1,000 currency notes with effect from the midnight of November 8, 2016."
• This highlights the influence of government policies and decisions on business operations.

Legal Dimension:

• "As a result, the existing ₹ 500 and ₹ 1,000 currency notes ceased to be legal tender from that date."
• This emphasizes the role of legal changes in altering business practices and consumer behavior.

Technological Dimension:

• "The step resulted in a substantial increase in the awareness about and use of Point of Sale machines, e-wallets, digital cash, and other modes of cashless transactions."
• This reflects advancements in technology and its role in driving new business practices like digital payments.

Features of Demonetisation:

• Tax Administration: Black money holders had to declare unaccounted wealth and pay taxes at penalty rates, aiming to reduce illicit financial activities.
• Avoiding Tax Evasion: The government's action sent a strong message against tax evasion, reinforcing its zero-tolerance policy.
• Channelising Savings: Depositing demonetised currency into banks increased the formalisation of money within the financial system.
• Cash-less Economy: The initiative promoted digital transactions to enhance financial savings, reduce cash reliance, and curb tax evasion.

Q5. What economic changes were initiated by the Government under the Industrial Policy, 1991? What impact have these changes made on business and industry?
Ans: Economic changes initiated by the government under the Industrial Policy, 1991:

• The government reduced the number of industries requiring compulsory licensing to just six.
• The role of the public sector was limited to four industries deemed of strategic importance.
• Disinvestment occurred in several public sector enterprises.
• Foreign Direct Investment (FDI) was allowed, encouraging international investment.
• Automatic permission was granted for technology agreements with foreign firms.
• The Foreign Investment Promotion Board (FIPB) was established to facilitate foreign investment in India.

The Indian corporate sector has come face-to-face with several challenges due to government policy changes. Some of them are

1. Increasing Competition The competition has Increased due to entry of new players (pnvausanon and globalisation).
2. More Demanding Customers Customers today. has become more demanding because they are well-informed. Increased competition in the market gives the customers Wider choice In purchasing better quality of goods and services.
3. Rapidly Changes Technological Environment The rapidly changing technological environment creates tough challenges before smaller firms.
4. Necessity for Change After 1991. the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.
5. Need for Developing Human Resources Earlier. Indian enterprises worked with inadequately trained personnel The new market conditions require people with higher competence and greater commitment Hence. the need for developing human resources.
6. Market Orientation Before 1991. all firms worked with production oriented marketing operations. In a fast changing world. there was a shift to market orientation. The firms had to study and analyse the market first and produce goods accordingly.
7. Loss of Budgetary Support to the Public Sector 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.

Q6. What are the essential features of: (a) Liberalisation, (b) Privatization and (c) Globalisation?
Ans: The Essential features of Liberalisation:

• Abolishing licensing requirements in most industries.
• No restrictions on the expansion or contraction of businesses.
• Free movement of goods and services.
• Freedom to set prices for goods and services.
• Reduction in tax rates.
• Simplified procedures for imports and exports.
• Facilitated attraction of foreign capital and technology.

Essential features of Privatisation:

• Redefinition of the role of the public sector.
• Policy of planned disinvestments in the public sector.
• Referring sick enterprises to the Board of Industrial and Financial Reconstruction.

Essential features of Globalisation:

• Import liberalisation.
• Promotion of exports.
• Reforms in foreign exchange policies.