CH-3 BUSINESS ENVIRONMENT

by

TOPIC-1 MEANING OF BUSINSESS ENVIRONMENT

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

Business environment can be characterized in terms of :-

  1. Totality of external forces
  2. Specific and general forces
  3. Inter-relatedness
  4. Dynamic nature
  5. Uncertainty
  6. Complexity
  7. Relativity

TOPIC-2 Features of Business Environment

  1. Totality of External Forces
    • Business environment includes all external forces, such as economic, social, political, legal, and technological factors that affect business decisions.
  2. Specific and General Forces
    • It consists of:
      • Specific forces: Customers, suppliers, competitors, investors, etc.
      • General forces: Social, political, legal, economic, and technological conditions.
  1. Inter-relatedness
    • Different elements of the business environment are closely connected. A change in one factor affects others.
      Example: A change in technology may affect the marketing and production strategy.
  2. Dynamic Nature
    • The business environment is constantly changing due to innovation, global trends, customer preferences, etc.
  3. Uncertainty
    • The environment is unpredictable. Changes can be sudden and unexpected.
      Example: A sudden change in government policy can impact business plans.
  4. Complexity
    • It is difficult to understand the impact of environmental forces because of their interrelated and multifaceted nature.
  5. Relativity
    • Business environment is relative; it varies from country to country and even region to region.
      Example: The political environment in India differs from that in the USA.

TOPIC-3 IMPORTANCE OF BUSINESS ENVIRONMENT

  1. Helps in Identifying Opportunities and Getting First Mover Advantage
    • By understanding trends and changes in the environment, businesses can identify emerging markets and take early action to benefit from them.
  2. Helps in Identifying Threats and Early Warning Signals
    • A proper understanding of the environment helps managers spot dangers in advance and take preventive measures.
      Example: Falling demand for a product may signal the need for innovation.
  3. Helps in Tapping Useful Resources
    • A good understanding of the environment helps the firm in acquiring necessary resources like raw materials, capital, labor, and technology from the environment efficiently.
  4. Helps in Coping with Rapid Changes
    • Businesses that monitor their environment regularly can adapt better to social, political, and technological changes.
  5. Helps in Assisting in Planning and Policy Formulation
    • Environmental understanding is crucial for making realistic plans and framing effective policies for the future.
  6. Helps in Improving Performance

Continuous monitoring of the environment leads to better strategies and decisions, which ultimately improve overall business performance.

TOPIC-4 DIMENSIONS OF BUSINESS ENVIRONMENT

  • Economic environment
  • Legal environment
  • Political environment
  • Technological environment
  • Social environment
  1. Economic Environment

🔹 Meaning:

It includes all economic factors that influence business operations and decision-making.

🔹 Key Elements:

  • Inflation rate
  • Interest rate
  • Taxation policy
  • Exchange rate
  • Industrial and trade policies
  • Economic growth rate

🔹 Example: If the government reduces corporate tax, it increases business profits and encourages investment.

  1. Social Environment

🔹 Meaning:

It refers to the social and cultural aspects of the environment that affect business, such as values, beliefs, customs, and lifestyle of people.

🔹 Key Elements:

  • Demographic trends (age, gender, population)
  • Education levels
  • Changing lifestyle and buying habits
  • Family structure
  • Attitudes towards health, safety, women, and work

Example: Growing preference for eco-friendly products has increased demand for biodegradable packaging.

3. Technological Environment

Meaning: It includes forces related to scientific innovations and improvements in production and delivery processes.

🔹 Key Elements:

  • Automation and AI
  • E-commerce
  • Mobile and internet technology
  • Research and development (R&D)

🔹 Example: The rise of online payment systems (like UPI, Google Pay) has changed how businesses receive payments.

  1. Political Environment

🔹 Meaning:

It refers to the influence of government, political parties, and their policies on the business.

🔹 Key Elements:

  • Stability of government
  • Government’s attitude towards business (pro-business or restrictive)
  • Foreign policy
  • Regulation and de-regulation measures

🔹 Example:

A stable political environment attracts foreign investors and boosts business confidence.

  1. Legal Environment

🔹 Meaning: It includes all laws, rules, and regulations that businesses must follow.

🔹 Key Elements:

  • Labour laws
  • Consumer Protection Act
  • Environment Protection Act
  • Competition Act
  • Company law

🔹 Example: The consumer protection act safeguards consumer interests.

TOPIC-5 ECONOMIC ENVIRONMENT IN INDIA

Production and distribution of wealth which have an impact on business and industry:

  • Stage of economic development of the country
  • The economic structure in the form of mixed economy which recognize the role of both public and private sectors
  • Economic policies of the government ,including industrial ,monetary and fiscal policies.
  • Economic planning ,including five years plans,annual budgets , and so on.
  • Economic indices , like national income , distribution oh income ,rate and growth of GNP , per capita income , disposal personal income, rate of savings and investments ,value of exports and imports , balance of payments, and so on.

The economic environment of business in india has been steadily changing mainly due to the government policies. At the time of independence:

  • The Indian economy was mainly agriculture and rural in character.
  • About 70% of the working population was employed in agriculture.
  • About 85%of the population was living in the villages.
  • Production was carried out using irrational , low productivity technology.

State of certain industries ,central planning and reduced importance of the private sector .  the main objectives of india’s development plans were:

  • Initiate rapid economic growth to raise the standard of living ,reduce unemployment abd poverty.
  • Become self-reliant and set up a strong industrial base with emphasis on heavy and basic industries.
  • Reduce inequalities of income and wealth.
  • Adopt a socialist pattern of development –based on equality and prevent exploitation of man by man.

As a part of economic reforms , the government of india announced a new industrial policy in July 1991. The broad features of the  policy were as follows:

  • The government reduced the number of industries under compulsory licensing to six.
  • Disinvestment was carried out in case of many public sector industrial enterprises.
  • Automatic permission was now granted for technology agreements withforeign companies.

In this case this policy has sought to liberate industry from the shackles of the licensing system (liberalization), drastically reduced the role of the public sector (privatisaton)and ecourage foreign private participation in india’s industrial development (globalization).

TOPIC-6 LIBERALISATION

  • Abolishing licensing requirement in most of the industries except a short list,
  • Freedom in deciding the scale of business activities i,e ., no restrictions on expansion or contraction of business activites ,
  • Removal of restrictions on the movement of goods and services ,
  • Freedom in fixing the prices of goods services.

TOPIC-7 PRIVATISATION

  • The new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector.
  • This was a reversal of the development strategy purused so far by Indian planners.
  • Adopted the policy of planned disinvestment of the public sector and decided to refer the los making and sick enterprises to the board of industrial and financial recontruction.
  • If there is diluton of government ownership beyond 51 percent ,it would result in transfer of ownership and management of the enterprise to the private sector.

TOPIC-8 Globalization

  • Globalization means the integration of the various economies of the world leading towards the emergence of a cohesive global economy .
  • Till 1991 ,the government of india had followed a policy of strictly regulating imports in value and volume terms
  • The regulations were wit respect to
  1. Licensing of imports
  2. Tariff restrictions
  • Quantitative restrictions
  • This has been made possible by the rapid advancement in technology and liberal trade policies by government .
  • Through the policy of 1991, the government of moved the country to this globalization pattern.

TOPIC-9 Demonetization

Meaning of Demonetisation

Demonetisation means the withdrawal of a currency unit from circulation as legal tender.
In India, demonetisation was announced on 8th November 2016, when the Government of India declared that the ₹500 and ₹1000 currency notes would no longer be legal tender. This move aimed to curb black money, counterfeit currency, and promote digital payments.

Features of Demonetisation

  1. Announcement Date: 8th November 2016
    • The government announced that ₹500 and ₹1000 notes would cease to be legal tender from midnight.
  2. Issued by the Government and RBI
    • The decision was taken by the Central Government in consultation with the Reserve Bank of India (RBI).
  3. Legal Tender Withdrawn
    • Currency notes of ₹500 and ₹1000 were no longer acceptable for transactions, except for essential services for a limited time.
  4. Aimed to Curb Black Money
    • One of the main goals was to eliminate unaccounted wealth held in cash.
  5. Promoted Digital Transactions
    • The government encouraged people to use digital payment methods like UPI, credit/debit cards, mobile wallets, etc.
  6. Short-Term Cash Shortage
    • There was a temporary lack of cash in the economy, affecting businesses and common people.
  7. Exchange and Deposit System
    • Citizens were allowed to deposit old notes in banks or exchange them for new currency under specific limits.
  8. Impact on Informal Sector
    • The unorganized sector, which relies heavily on cash, was temporarily affected,

TOPIC-10 Impact of government policy changes on business and industry

Impact of Government Policy Changes on Business and Industry

The Government of India introduced major economic policy changes in 1991, focusing on Liberalisation, Privatisation, and Globalisation—known as the LPG Policy. These changes had a significant impact on how businesses and industries operate in India.

Major Impacts on Business and Industry

  1. Increased Competition
    • Removal of trade barriers allowed foreign companies to enter Indian markets.
    • Indian companies had to improve quality, technology, and efficiency to survive.
  2. More Demanding Customers
    • With more choices available, customers became more informed and quality-conscious.
    • Businesses had to focus on customer satisfaction and value for money.
  3. Rapidly Changing Technological Environment
    • Businesses had to keep up with global technological advancements.
    • Investment in R&D and adoption of modern technology became necessary.
  4. Need for Change in Business Strategies
    • Companies had to rethink their operations, marketing, and management styles.
    • Flexibility and innovation became key to staying competitive.
  5. Market Orientation
    • Focus shifted from production-oriented to market/customer-oriented strategies.
    • Businesses started conducting market research and customer feedback analysis.
  6. Loss of Protective Environment
    • Earlier, many industries were protected from foreign competition by the government.
    • With liberalisation, these protections were removed, and businesses had to stand on their own.
  7. Encouragement to Foreign Investment and Collaboration
    • Policy changes encouraged Foreign Direct Investment (FDI) and joint ventures, bringing in capital, technology, and expertise.

Example to Understand:

Before 1991, Indian car companies like Ambassador faced little competition. After liberalisation, global brands like Hyundai, Honda, and Toyota entered the Indian market, pushing Indian companies to improve.

Conclusion:

Government policy changes have led to greater efficiency, quality, and global competitiveness, but also increased the challenges for domestic industries. Businesses must adapt quickly to thrive in this dynamic environment.

Leave a Comment