Business Environment

NCERT Solution

Part 1 Very Short Answer Type

Question 1: What is meant by business environment?

Answer: The term business environment means the totality of all individuals, institutions and other forces that are outside a business but that potentially affect its performance.

Question 2: How does understanding of business environment help in improving performance of a business?

Answer: Understanding of business environment helps in improving performance of a business in many ways. It helps in understanding strengths, weaknesses, threats and opportunities. A proper understanding of threats and opportunities helps a business to chalk out proper steps to improve performance.

Question 3: Give an example to show that a business firm operates within numerous inter-related factors constituting the business environment. (Hint: example highlighting the inter relatedness of dimensions of business environment).

Answer: Let us assume a company is in the business of selling beef burger all over the world. When the company enters the Indian market, it cannot sell beef burger because of religious sensibilities. Even the political and legal establishments would not give it a permission to do so. As a result, the company will have to change its product offering and will have to switch to chicken burgers. This shows the inter-related nature of social, political and legal dimensions of business environment.

Question 4: 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).

Answer: Two changes in business environment and their effects on Krishna Furnishers are as follows:

Increase in Competition: It gave more choices to customers.
Market Orientation: Krishna Furnishers had virtual monopoly on the market which may have resulted in the company ignoring uncovered needs of the customer. New entrants discovered new needs and catered to them. So, Krishna Furnishers was forced to reorient towards the changes in customer preferences.

Question 5: Name any two Specific forces of business environment affecting business.

Answer: Two specific forces of business environment affecting business are: Customers and Competition.

Short Answer Type

Question 1: Why it is important for business enterprises to understand their environment? Explain.

Answer: Understanding of business environment is important for business enterprises for various reasons. It helps in identification of opportunities and getting the first mover advantage. It helps in the identification of threats and early warning signals. It helps in coping with the rapid changes, assisting in planning and policy, and improving the performance.

Question 2: Explain the following terms:

(a) Liberalisation

Answer: Liberalisation was aimed at removing the shackles of the licensing system. For manufacturing most of the products license was no longer needed. It helped many companies to enter a new market segment.

(b) Privatization

Answer: Privatization was aimed at reducing the role of the public sector and increasing private participation in manufacturing and other sectors of the economy. Earlier, many market segments or product categories were monopolies of the Public Sector. Doors were opened for private players to do business and compete in such market segments.

Answer: It involves opening the economy for international players and integrating the domestic market with the world market. While globalization helped in bringing leading global brands to the Indian consumers, it also helped many Indian companies to increase global footprints. Infosys and TCS are examples of Indian companies which sell their services to international customers.

Question 3: Briefly discuss the impact of Government policy changes on business and industry.

Answer: Changes in Government policies has huge impact on business and industry. Liberalization helped various companies in increasing production and market share. Globalization helped in providing more choices to consumers. This helped in increased demand and market value. It also helped in job creating and thereby in increasing disposable income of people.

Question 4: 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 single-window search facility. It provides support to all academic levels including researchers, life-long learners and differently-abled learners free of cost. State the dimensions of business environment highlighted above.

Answer: There are two dimensions at play in this example: technological and social. Technology helped in digitization of books and other academic materials. Better data storage facilities helped in storing and retrieval of data a cakewalk. Learning and education are the social dimensions in this case.

Question 5: State the impact of demonetization on interest rates, private wealth and real estate.

Answer: Demonetization had huge impact on almost every sphere of life. It helped in cooling down the interest rates by infusing more money in the system. It helped in reducing the black money in private hands. Prices of real estate were very high because of involvement of black money. Demonetization helped in price correction in the real estate.

Long Answer Type

Question 1: How would you characterize business environment? Explain with examples, the difference between general and specific environment.

Answer: Following are the characters of features of business environment:

Totality of external forces

All the external forces have cumulative effect on the business. In other words, they are aggregating in nature.

Specific and general forces

Some of the forces are of general nature, while some others are specific in nature. The general forces affect all sorts of business entities in more or less the same way. Social, political and legal factors are examples of general forces. Customers, competitors and investors are examples of specific forces.

Inter-relatedness

All the forces of the business environment are related to each other. For example: political system of a country is influenced by social norms and vice versa is also true. Similarly, legal system is a product of social norms and political system of the country.

Dynamic nature

Business environment is dynamic in nature, i.e. it keeps on changing. The business environment of the country in the 1980s was entirely different from that in the 1990s. Things have undergone massive changes in the 21st century.

Uncertainty

Business environment is always uncertain. Sometimes, a well chalked out plan of a business organisation may go off the track because of unforeseen circumstances. The pandemic that engulfed the whole world in 2020 is a good example of uncertainty of business environment. While the pandemic entailed windfall gains for the pharmaceutical industry, it spelt doom for the hospitality industry.

Complexity

Business environment is too complex to be understood by mere mortals. It is easier to understand in parts but very difficult to understand in totality.

Relativity

Business environment is relative in the sense that it changes from one country to another. In a large country, like India the business environment changes even from one region to another. Glass bangles have huge market in our country but that is not the case for the market in the USA. Similarly, coconut oil is used for cooking in south India but it is primarily sold as hair oil in north India.

Question 2: How would you argue that the success of a business enterprise is significantly influenced by its environment?

Answer: It is beyond doubt that the success of a business enterprise is significantly influenced by its environment.

Let us assume two states A and B. State A has good infrastructure, law and order and business-friendly laws and taxes. It is famous for some of the top educational institutions in the country. So, supply of well-trained human resources is not an issue.

State B has bad infrastructure. Roads are poorly maintained and there is a single airport in this state. There is severe problem of law and order, and crime rate is very high. This state is at the bottom of literacy rate. Well-trained manpower is scarce in this state. Even per capita income is at the bottom in this state.

For any business enterprise, it is always advisable to start business in state A. This state should be given preference over another because of obvious reasons. Good infrastructure helps in seamless movement of raw materials, finished goods and people. Good law and order helps in attracting investors and human resources. Business-friendly laws and taxes attract investors.

State B does not stand a chance to come on the radar of any business enterprise when starting a business.