XII. B. St. Chapt. 3 Business Environment notes (World)

RANA COMMERCE, MATHURA
Ch. 3 Business Environment (Notes)
 
STD: -12^th                                                                                  SUBJECT: - BUSINESS STUDIES Business Environment

Meaning :

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.

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·         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.

 

Features:

1.                  Totality of external forces: 

                 Sum total of all things external to business firms and, as such, is aggregative in nature.

2.                  Specific and general forces: 

Business environment includes both specific and general forces.

·         Specific forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and immediately in their day-to-day 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.

3.                  Inter-relatedness: 

                  Parts of business environment are closely interrelated.

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.

4.                  Dynamic nature: 

it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market.

5.                  Uncertainty: 

it is very difficult to predict future happenings, especially when environment changes are taking place too frequently as in the case of information technology or fashion industries.

6.                  Complexity: 

Environment is a complex phenomenon that is relatively easier to understand in parts but difficult to grasp in its 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.

7.                  Relativity: 

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.

Importance of Business Environment

 

(i)  It enables the firm to identify opportunities and getting the first mover advantage:

Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors.

 

(ii)  It helps the firm to identify threats and early warning signals:

Besides opportunities, 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.

 

(iii) It helps in tapping useful resources:

A business enterprise assembles various resources

called inputs like finance, machines, raw materials, power and water, labour, etc.,

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:

All sizes and all types of enterprises are facing increasingly dynamic environment. In order to effectively cope with these significant changes, managers must understand and examine the environment and develop suitable courses of action.

Turbulent market conditions, less brand loyalty, divisions and sub-divisions (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.

 

(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).

 

(vi) It helps in improving performance:

The enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period.

 

Dimensions of Business Environment

 

1.      Social Environment

2.      Legal Environment

3.      Economic Environment

4.      Political Environment

5.      Technological Environment

 

1.      Social Environment:

Include the social forces like customs and traditions, values, social trends, society’s expectations from business, etc.

For example, the celebration of Diwali, Eid, Christmas, and Guru Parv in India provides significant financial opportunities for greetings card companies, sweets or confectionery manufacturers, tailoring outlets and many other related businesses.

Values - individual freedom, social justice, equality of opportunity and national integration are examples of major values cherished by all of us.

In business terms, these values translate into freedom of choice in the market, business’s responsibility towards the society and non-discriminatory employment practices.

Social trends example, the health-and-fitness trend has become popular among large number of urban dwellers. This has created a demand for products like organic food, gyms, bottled (mineral) water and food supplements.

-           attitudes towards product innovations, lifestyles, occupational distribution and consumer preferences Concern with quality of life

-           Life expectancy

-             Expectations from the workforce

 

2.      Legal Environment:

-           Shifts in the presence of women in the workforce

-           Birth and death rates

-           Population shifts

-           Educational system and literacy rates

-           Consumption habits

-           Composition of family

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. Therefore, an adequate knowledge of rules and regulations framed by the Government is a pre-requisite for better business performance. Non-compliance of laws can land the business enterprise into legal problems.

 

-       Companies Act 2013;

-       Industries          (Development           and

Regulations) Act 1951;

-       Foreign Exchange Management Act

-       The Imports and Exports (Control) Act 1947;

-       Factories Act, 1948;

-       Trade Union Act; 1926;

-       Workmen’s Compensation Act, 1923;

-       Industrial Disputes Act, 1947,

-       Consumer Protection Act, 2019,

-       Competition Act, 2002

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Impact of legal environment can be illustrated with the help of government regulations to protect

consumer’s  interests.

For example, the advertisement of alcoholic beverages is prohibited. Advertisements, including packets of cigarettes carry the statutory warning ‘Cigarette smoking is injurious to health’. Similarly, advertisements of baby food must necessarily inform the potential buyer that mother’s milk is the best. All these regulations are require.

 

3.      Economic Environment:

-       Interest rates,

-       Inflation rates,

-       Changes in disposable income of people,

-       Stock market indices and

-       The value of rupee

Short and long term interest rates significantly affect the demand for product and services.  For

example, in case of construction companies and automobile manufacturers, low longer-term rates are beneficial because they result in increased spending by consumers for buying homes and cars on borrowed money.

Similarly, a rise in the disposable income of people due to increase in the gross domestic product of a country creates increasing demand for products.

High inflation rates generally result in constraints on business enterprises as they increase the various costs of business such as the purchase of raw materials or machinery and payment of wages and salaries to employees.

 

 

4.      Political Environment:

-       General stability and peace in the country and

-       Specific attitudes that elected government representatives hold towards business.

Political stability, thus, builds up confidence among business people to invest in the long term projects

for the growth of the economy.

-        Prevailing political system

-       The degree of politicisation of business and economic issues

-        Dominant ideologies and values of

major political parties

-       The nature and profile of political leadership and thinking of political

personalities

-       The level of political morality

-       Political institutions like the government

and allied agencies

-       Political ideology and practices of the ruling party

-       The extent and nature of government

intervention in business

-       The nature of relationship of our country with foreign countries

 

5.      Technological Environment:

Scientific improvements and innovations which provide new ways of producing Goods and services and new methods and techniques of operating a business.

For example, recent technological, advances in computers and electronics have modified the ways in which companies advertise their products.

Similarly, retailers have direct links with suppliers who replenish stocks when needed. Manufacturers have flexible manufacturing systems.

Airline companies have Internet and World Wide Web pages where customers can look for flight times, destinations and fares and book their tickets online.

-       Lasers, robotics,

-       Biotechnology,

-       Food preservatives,

Shifts in demand from

-       Vaccum tubes to transistors,

-       Steam locomotives to diesel and electric engines,

-       Fountain pens to ballpoint,

-       Propeller airplanes to jets,

-       Typewriters to computer based word processors

-       Medicine,

-       Telecommunication and

-       Synthetic fuels