This page contains the NCERT Business Studies class 12 chapter 3 BUSINESS ENVIRONMENT from Part 1 Principles and Functions of Management. You can find the solutions for the chapter 3 of NCERT class 12 Business Studies, for the Short Answer Questions, Long Answer Questions and Projects/Assignments Questions in this page. So is the case if you are looking for NCERT class 12 Business Studies related topic BUSINESS ENVIRONMENT question and answers.
Very Short Answer Type:
1. What is meant by business environment?
Business environment refers to the various macrolevel factors related to the means of production and distribution of wealth that impact business and industry in a country. It encompasses elements like economic development, economic structure, government policies, economic planning, and infrastructural factors.
2. How does understanding of business environment help in improving performance of a business?
Understanding the business environment helps enterprises to realize its impact on their operations. By assessing the prevailing economic environment, businesses can make informed decisions, adapt to changes, and strategize effectively, leading to improved performance.
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).
A business firm in India aiming to launch an agricultural product may have to consider the country’s predominantly agricultural and rural character, adhere to government policies and regulations, assess the current economic indices like national income and growth rate, and ensure the product aligns with available infrastructural factors like transportation and communication facilities. This highlights the interrelatedness of various dimensions of the business environment.
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).
The two impacts of changes in the business environment on Krishna Furnishers Mart’s operations are:
i.
Increase in competition due to new entrants in the market.
ii.
Shift towards market orientation, emphasizing the need to analyze market trends and design products accordingly.
5. Name any two Specific forces of business environment affecting business.
Two specific forces of the business environment affecting business, as mentioned in the passage, are:
i.
Economic policies of the Government, including industrial, monetary, and fiscal policies.
ii.
Infrastructural factors, such as financial institutions, banks, and modes of transportation communication facilities.
Short Answer Type:
1. Why it is important for business enterprises to understand their environment? Explain.
It is crucial for business enterprises to understand their environment because the economic environment consists of various macro-level factors that impact the means of production and distribution of wealth. By understanding the environment, businesses can anticipate changes, adapt to shifts, and make informed decisions. Almost all annual company reports presented by their chairpersons devote considerable attention to the general economic environment prevailing in the country and assess its impact on their companies.
2. Explain the following terms:
a.
Liberalisation
b.
Privatization
c.
Globalisation
a.
Liberalisation: Liberalisation refers to the economic reforms introduced to free the Indian business and industry from unnecessary controls and restrictions. It signaled the end of the licence-permit-quota raj, allowing businesses more freedom in their operations, such as abolishing licensing requirements in most industries, freedom in deciding the scale of business activities, and simplifying procedures for imports and exports.
b.
Privatisation: Privatisation aims to give a greater role to the private sector in the nation-building process while reducing the role of the public sector. This marked a shift from the earlier strategy pursued by Indian planners. The government redefined the role of the public sector in the New Industrial Policy of 1991, adopted a policy of planned disinvestments, and referred loss-making and sick enterprises to the Board of Industrial and Financial Reconstruction.
c.
Globalisation: Globalisation means the integration of various economies of the world, leading towards the emergence of a cohesive global economy. The new economic reforms in India aimed at trade liberalisation, import liberalisation, export promotion, and reforms related to foreign exchange to ensure that the country does not remain isolated from the rest of the world. It involves an increased level of interaction and interdependence among the various nations of the global economy.
3. 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 differentlyabled learners free of cost. State the dimensions of business environment highlighted above.
The dimensions of the business environment highlighted in the given case are:
a.
Technological Dimension: The development of a virtual repository and a single-window search facility indicates the use of advanced technology in the library system.
b.
Legal Dimension: The initiative being a pilot project initiated by the HRD ministry suggests governmental involvement and regulatory oversight.
c.
Social Dimension: The library’s support to all academic levels, including differently-abled learners, indicates a focus on inclusivity and societal welfare.
4. State the impact of demonetization on interest rates, private wealth and real estate.
The impact of demonetization on various sectors was as follows:
a.
Interest Rates: Due to demonetization, there was a decline in cash transactions, an increase in bank deposits, and an increase in financial savings, which could potentially influence interest rates.
b.
Private Wealth: Private wealth declined as some high-denomination notes were not returned, and real estate prices fell.
c.
Real Estate: The real estate sector experienced a decline in prices post-demonetization.
Long Answer Type:
1. How would you characterize business environment? Explain with examples, the difference between general and specific environment.
Characterization of Business Environment:
The business environment refers to various macro-level factors related to the means of production and distribution of wealth that impact business and industry. It encompasses factors like the stage of economic development, the structure of the economy, government policies, economic planning, economic indices, and infrastructural factors. The business environment is dynamic and consists of numerous interrelated factors that influence the operations and performance of businesses.
General Environment:
The general environment, also known as the macro environment, includes the broader societal forces that affect all the organizations within an industry. These forces are external to the business and are not directly connected but do influence the business indirectly. Examples from the passage include:
–
Stage of economic development of the country.
–
Economic policies of the Government, including industrial, monetary, and fiscal policies.
–
Economic indices like national income, rate of savings and investments, balance of payments, etc.
Specific Environment:
The specific environment, also known as the micro environment, pertains to the unique factors that are directly related to a particular business and have a direct impact on its operations. These factors are specific to the industry or market in which the business operates. Examples from the passage include:
–
Economic structure in the form of a mixed economy which recognizes the role of both public and private sectors.
–
Economic planning, including five-year plans, annual budgets, etc.
–
Infrastructural factors like financial institutions, banks, modes of transportation, and communication facilities.
In essence, while the general environment affects all businesses operating in an industry or economy, the specific environment is unique to each business and has a direct bearing on its operations.
2. How would you argue that the success of a businessenterprise is significantly influenced by its environment?
The success of a business enterprise is not solely determined by its internal management practices or business strategies. The external environment, comprising various macro and micro factors, plays a pivotal role in shaping the trajectory of a business’s growth and sustainability.
Macro-level Influences:
i.
Economic Development Stage: The stage of a country’s economic development can dictate the kind of opportunities and challenges a business might face. For instance, in a primarily agricultural economy, agro-based industries might thrive, while high-tech industries might face challenges.
ii.
Government Policies: The economic policies of the government, including industrial, monetary, and fiscal policies, can either promote or hinder business growth. For example, a favorable industrial policy can lead to business expansion, while stringent regulations might stifle growth.
iii.
Economic Indices: Factors like national income, rate of savings, balance of payments, etc., can influence consumer purchasing power and business investment decisions. A rising national income might indicate a prosperous economy where businesses can expect higher demand for their products or services.
Micro-level Influences:
i.
Economic Structure: The balance between public and private sectors in a mixed economy can determine the level of competition and collaboration a business might experience. For instance, sectors dominated by public enterprises might have different operational challenges compared to those with a significant private sector presence.
ii.
Economic Planning: Directives like five-year plans or annual budgets can set the tone for sectors that will receive government focus and investment. Businesses in these sectors might benefit from favorable policies and subsidies.
iii.
Infrastructural Factors: The presence of robust infrastructure, including financial institutions, transportation, and communication facilities, can significantly impact a business’s operational efficiency and market reach.
Real-life Implications:
The case of the Indian economy post-independence serves as a testament to the influence of the environment on businesses. Initially, with a focus on public sector dominance and stringent regulations on the private sector, businesses faced numerous operational challenges. However, the economic reforms of 1991, which emphasized liberalization, privatization, and globalization, transformed the business landscape, leading to increased competition, foreign investments, and business opportunities.
Conclusion:
In light of the above arguments, it’s evident that the environment, both macro and micro, exerts a significant influence on the success of a business enterprise. Adapting to and navigating these environmental factors is crucial for businesses to thrive and sustain in the long run.
3. Explain, with examples, the various dimensions of businessenvironment.
The business environment comprises a myriad of external forces and factors that influence an organization’s operations, decisions, and overall performance. These dimensions can be broadly categorized into various segments, each having its unique impact on businesses.
i.
Economic Dimension: This pertains to the macroeconomic and microeconomic factors that influence business operations.
Example: The economic policies of the Government, such as fiscal and monetary policies, can determine the lending rates of banks. A reduction in lending rates might encourage businesses to take loans and expand their operations.
ii.
Political Dimension: This encompasses the role of government, its policies, and political stability in the country.
Example: The announcement of a new industrial policy in July 1991 by the Indian government led to a reduction in industries under compulsory licensing and opened doors for increased Foreign Direct Investment (FDI).
iii.
Social Dimension: It refers to the societal norms, values, customs, and lifestyle of people in a particular region.
Example: At the time of Independence, about 85% of India’s population lived in villages, indicating a predominantly rural consumer base. Businesses catering to rural needs and preferences might have found more success during that period.
iv.
Technological Dimension: This pertains to the advancements and innovations in technology that can influence business operations.
Example: The liberalization of policies towards foreign capital allowed businesses to collaborate with foreign companies for technology agreements, leading to technological upgradation in various sectors.
v.
Legal Dimension: It involves the legal framework and regulations within which businesses operate.
Example: The government imposed several restrictions and controls on the working of private sector enterprises before the 1991 reforms. Post-reforms, many of these restrictions were lifted, allowing businesses to operate with more freedom.
vi.
Environmental Dimension: This relates to the physical environment and the issues concerning environmental sustainability.
Example: The emphasis on sustainable practices and green technologies has led businesses to adopt eco-friendly operations, given the increasing awareness and regulations around environmental conservation.
vii.
Global Dimension: This dimension focuses on the global forces that might influence a business, especially those operating internationally.
Example: The 1991 reforms in India emphasized globalization, leading to trade liberalization and increased integration with the global economy. This allowed Indian businesses to explore international markets and also attracted foreign businesses to India.
Conclusion: The business environment is multifaceted, with each dimension playing a crucial role in shaping the operations and strategies of businesses. By understanding and adapting to these dimensions, businesses can navigate challenges and capitalize on opportunities effectively.
4. 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, e-wallets, 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.
a. Dimensions of Business Environment Highlighted:
i.
Economic Dimension: The demonetization move directly impacted the monetary system of the country, leading to changes in currency circulation and promoting digital transactions.
ii.
Technological Dimension: The push towards cashless transactions led to a surge in the use of digital platforms, e-wallets, and Point of Sale machines.
iii.
Legal Dimension: The announcement made the existing ₹ 500 and ₹ 1,000 currency notes non-legal tender, introducing new legal guidelines for currency usage.
iv.
Political Dimension: The decision of demonetization was a significant political move by the government, reflecting its stance on curbing black money and promoting transparency.
v.
Social Dimension: The move affected the daily lives of the citizens, leading to a change in their spending habits and an increased awareness about digital modes of payment.
b. Features of Demonetization:
i.
Invalidation of Currency: The existing ₹ 500 and ₹ 1,000 currency notes were declared non-legal tender post the announcement.
ii.
Introduction of New Notes: New currency notes of the denomination of ₹ 500 and ₹ 2,000 were introduced by the Reserve Bank of India.
iii.
Promotion of Cashless Transactions: The move led to a significant rise in the use of digital payment methods, including e-wallets, Point of Sale machines, and online banking.
iv.
Increased Transparency: The step aimed at curbing black money, leading to increased transparency in monetary transactions.
v.
Rise in Government Revenue: Due to increased transparency and disclosure, there was a surge in tax collections, boosting government revenue.
vi.
Public Awareness: The move brought about a heightened awareness among the public about the importance of legitimate monetary transactions and the benefits of digital payments.
5. What economic changes were initiated by the Government under the Industrial Policy, 1991? What impact have these changes made on business and industry?
Economic Changes Initiated under the Industrial Policy, 1991:
i.
Reduction in Licensing: The government reduced the number of industries under compulsory licensing to only six.
ii.
Public Sector Role: The role of the public sector was limited to only four industries of strategic importance. Many of the industries reserved for the public sector under the earlier policy were dereserved.
iii.
Disinvestment: The government carried out disinvestment in many public sector industrial enterprises.
iv.
Liberalization of Foreign Capital: The policy towards foreign capital was liberalized. The share of foreign equity participation was increased, and in many activities, 100 per cent Foreign Direct Investment (FDI) was permitted.
v.
Technology Agreements: Automatic permission was granted for technology agreements with foreign companies.
vi.
Foreign Investment Promotion Board (FIPB): The FIPB was set up to promote and channelize foreign investment in India.
vii.
Support to Small-scale Sector: The small-scale sector was assured all help and was accorded due recognition.
Impact of these Changes on Business and Industry:
i.
Increased Competition: With the reduction in licensing and the entry of foreign businesses, there was an increase in competition in the Indian market.
ii.
Technological Advancements: Due to the liberalization of technology agreements, Indian industries started adopting advanced technologies, leading to better products and services.
iii.
Growth in Foreign Investments: The establishment of FIPB and the liberalization of foreign capital policies attracted more foreign investments into the country.
iv.
Privatization: With the government reducing its role in many sectors and promoting disinvestment, there was a significant move towards privatization.
v.
Globalization: The liberal policies adopted in 1991 paved the way for globalization, integrating the Indian economy with the global economy.
vi.
Boost to Small-scale Industries: The support and recognition to the small-scale sector led to its growth and development, promoting entrepreneurship.
vii.
Shift from Public to Private: The emphasis shifted from public sector dominance to a balanced role between the public and private sectors, leading to efficiency and innovation in business operations.
6. What are the essential features of:
a.
Liberalisation,
b.
Privatization and
c.
Globalisation?
a. Essential Features of Liberalisation:
Liberalisation refers to the relaxation of government restrictions and controls in the realm of economic and business policies. The essential features of liberalisation are:
i.
Abolishing Licensing: The licensing requirement was abolished for most industries, except a few that are of strategic importance.
ii.
Freedom in Business Operations: Businesses were given the freedom to decide the scale of their activities, meaning there were no restrictions on expansion or contraction.
iii.
Movement of Goods and Services: Restrictions on the movement of goods and services were removed.
iv.
Price Determination: Companies were given the freedom to fix the prices of goods and services without much interference.
v.
Tax Rate Reduction: Tax rates were reduced, and unnecessary controls over the economy were lifted.
vi.
Simplified Import-Export Procedures: Procedures for imports and exports were simplified, promoting foreign trade.
vii.
Attracting Foreign Capital: Measures were taken to make it easier to attract foreign capital and technology to India.
b. Essential Features of Privatization:
Privatization implies reducing the role of the public sector and increasing the role of the private sector in the economy. The essential features of privatization are:
i.
Reduced Role of Public Sector: The role of the public sector was limited to only a few industries of strategic importance.
ii.
Disinvestment: The government carried out disinvestment in many public sector enterprises, transferring some of the public sector enterprises to the private sector.
iii.
Ownership Transfer: If the government ownership in a public enterprise was diluted beyond 51 percent, it would result in the transfer of ownership and management to the private sector.
iv.
Increased Efficiency: Privatization aimed at increasing efficiency, innovation, and competitiveness in business operations.
c. Essential Features of Globalisation:
Globalisation refers to the integration of various economies of the world, leading towards the emergence of a cohesive global economy. The essential features of globalisation are:
i.
Integration of Economies: Different national economies are integrated into a single global economy.
ii.
Liberal Trade Policies: Governments adopted liberal trade policies to promote foreign trade.
iii.
Import Liberalisation: The government aimed at import liberalisation, export promotion, and reforms related to foreign exchange.
iv.
Increased Interaction: There is an increased level of interaction and interdependence among nations.
v.
Overcoming Geographical Barriers: Physical geographical gaps or political boundaries no longer remain significant barriers for businesses.
vi.
Technological Advancements: Rapid advancements in technology have facilitated globalisation, making it easier for businesses to operate internationally.
