BUSINESS STUDIES NOTES CBSE CLASS XII

3. Business Environment

Summary

The survival and growth of a business concern greatly depends upon its capacity to adapt to its environment. A business draws all its resources—men, material, money, and machinery—from its environment. It also offers its products and services to its environment. The business environment may be said to consist of all the components that are likely to affect the supply of the business inputs and the demand for the output, i.e., suppliers, customers, government, technological level of economic development, social values, competition, money, market and political stability.The business environment is not considered to be dynamic in nature due to constant changes in its components. Therefore, in order to ensure the smooth running of a business concern it is important that managers constantly review and revise their plans in the light of changing conditions.

Meaning of Business EnvironmentThe term business environment refers to all forces external to a business under which it operates.

Categories of Business environment
•        Economic environment consists of monetary policy, fiscal policy, per capita income, level of economic development, etc.
•        Non-economic environment consists of social, cultural, political,  legal; technological factors.

Meaning of Environment Scanning
•        Environment scanning refers to the process of study of the business environment by  an enterprise  to identify forthcoming  challenges and opportunities.

Benefits of Environment Understanding
•        First movers advantage.
•        Warning signals.
•        Sensitization of the management.
•        Basis of strategy.
•        Source of intellectual stimulation.
•        Image building.
•        Continuous learning.

Levels of Business Environment

First level   General environment, consisting of economic, social, political, legal and technological  factors.

Second level   Operating    environment,    consisting    of    labour    relations, customers, competitors, suppliers and international economy.

Third level   Internal    environment   consisting   of   organizational   aspects, marketing aspects, financial aspects, personnel aspects and production aspects.

Components of the General Environment

•        Economic environment It consists of gross national product, corporate profits, inflation rate, per capita income, interest rates, tax rates, etc.
•        Social environment It consists of factors like literacy rates, educational levels, customers, beliefs, value, occupation of the people.
•        Political environment It consists of the outlook and policies of the ruling political party.
•        Legal environment  It includes the laws of the country which are likely to affect the working of an enterprise.
•        Technological environment It consists of the new technology and techniques for production of products.
•        Economic Changes Initiated by the government of India since 1991 New Industrial Policy, New Trade Policy, fiscal reforms, monetary reforms, capital market reforms, reduction in subsidies and removal of price controls.
•        Impact of changes in government policy on business and industry Removal of protective environment, threat from MNC, all-round competition, buyer’s market, export orientation, world-class technology, corporate vulnerability, restructuring of organisation.
•        Managerial responses to changes in business environment Acquisitions and mergers, diversification, consolidation of multinationals, brand building, innovative distribution and selling techniques, changes in capital structure, customer-oriented approach, enlarged production capacity, technological developments, better labour relations.