BUSINESS STUDIES-XII CHAPTER 3-BUSINESS ENVIRONMENT Meaning of Business Environment eavioatient ofa business means the external forces influencing the bi decisions, They can be forces. t economic, Social, political and technological factors. These factors arc outside the control of the business. he business can do little to change them. Featares: 1. -Totality of external forces: Business environment is the sum total of all things external to business © flems and, as such, is agercgative in nature. } 2. 3Specific and general forces: Business environment includes both specific and general fore ‘Borees (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 aflect an individual firm only indirectly. 3. Dynamic nature: Business cnvironment is dynamic in that it keeps on changing whether in terms of technological improvement, shifis in consumer preferences or entry of new competition in the market. 4. Uncertainty: Business environment is largely uncertain as it is very difficult to predict fiture happenings, especially when environment changes are king place too frequently as in the case of information technology or fashion industries. 5, Relativity: Business environment is a relative concept since 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, 4. Imerrelated: ‘The different forces of a business environment are interrelated with one another, For example,t in income of the consumers => 7 in demand for consumer durables i Complex: Asa business environment is the aggregate of different interrelated forces, understanding it is quite difficult, Importance of Bu 1. Firm to identify opportunities and getting the first mover advantag arly identification of opportunities helps an enterprise 10 be the first to exploit them instead of losing them to competitors. For example, Maruti Udyog became the leader in the small car market because it was the first to recognize the need for small ears in Indi 2, Firm to identify threats and early warning signals: 10 an Indian firm finds that _a_ foreign multinational is entering the Indian market it should gives a warning signal and Indian firms can mect the threat by adopting by improving the quality of the product, reducing cost of the production, engaging in aggressive advertising, and so on, / / on 3. Coping, with rapid changes: All sizes and all types of enterprises are facing inerensingly dynamic environmerit, In order to effectively cope with these significant change: ss must understand nd examine the environment and develop suitable courses of action, 4. Improving performanee: the enterprises that continuously monitor their enviranment and do 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. A business environment, on the one hand, provides an organisation various “a for ity functioning, and on the other hand, acts a source of demand for the goods and vices produced by it. Thus, i is important for an organization to understand its environment and use those resources from it that are required for the production of the goods und services in demand 6. Formulation of plans and policies: Through a study of a business environment, an organisation ean identity various threats and opporwnitigs to it, and accordingly frame suitable plans and policies, Scanned with CamScaDimens vironment What constitutes the g general environme 1 of a business? ‘The following are the key components of general environment of a busines: 1, Economic environment economic environment consists of economic factors that influence the business in a country, These factors include gross national product, corporate profits, inflation rate, ployment, balance of payments, interest rates consumer incume el environment It describes the characteristics of the society'in which the organization exists, y rate, customs, values, belicls, lifestyle, demographic features and mobility of population are parto the social environment. It is important for managers to notice the direction in which the society is moving and formulate progressive policies according to the changing social scenario. ‘ ability and the policies of the government. Ideological ation of polit I parties, personal interest on politicians, influence of party forums ete, create il environment. For example, Bangalore established itself as the most important IT cenlre of India mainly because of political support. ' 46 Legal environment This consists of | tion that is passed by the parliament and state legislatures. [Examples of such legislation specifically aimed at business operations include the ‘Trade mark Act 1969, Essential Commodities Act 1955, Standards of Weights and Measures Act 1969 and Consumer Protection Act 196. 5. ‘Technological environment It includes the level of technology available in a country. It also indicates the pace of research and development and progress made in introducing modern technology in production. ‘Technology provides capital intensive but cost effective alternative to traditional labor intensive methods. In a competitive business environment technology is the key to development. Scanned with CamSca