AHSEC - 12: Business Environment Important Notes for March 2022 - 23 Exam | Business Studies Class 12 Notes

VERY SHORT QUESTIONS (1 Mark)

1. What is business environment?                                         2010

Ans: It refers to the sum total of all individuals, institution & other forces that are outside the control of business enterprise but that may affect its performance.

2. Give one importance of business environment.

Ans. It enables the firm to identify opportunities & getting the first movers advantages.

3. Why it is said that “Business Environment is a Relative Concept”.

Ans: Business environment is a relative concept since it differs from country to country and even region to region.

4. Which sector of the Indian economy was given greater importance after independence?

Ans: Public Sector

5. Mention two element of political environment?

Ans: (a) Political ideology & practices of the ruling party. (b). Nature of relationship of our country with foreign countries.

6. What is the main objective of FEMA?

Ans: To facilitate external trade and payments

7. Mention any two elements of social environment?

Ans: (a) Birth & death rates. (b) Concern with quality of life.

8. Give two changes introduced in industrial policy of July 1991?

Ans: (a.) Abolition of industrial licensing. (b) Dereservation of industries for public sector.

9. Give two changes introduced in industrial policy of July 1991?

Ans. (a.) Abolition of industrial licensing. (b.) De-reservation of industries for public sector.

10. Give one impact of govt. policy changes on business industries?

Ans. Increasing competition from multinational.

11. It is the process by which govt. control over the industry is being loosened. Give the term to which the statement is trying to indicate.

Ans. Liberalization.

12. What is privatization?

Ans: Privatization may be defined as the transfer of ownership & control from the public sector to Private sector.

13. What is Globalisation?

Ans: Globalisation means integrating our economy with world economy.

14. Name two elements of technological environment?

Ans: 1.Recent technological developments. 2. Advances in computers & electronics.

15. Which environment prohibits the advertisement of alcoholic beverages?                     2014

Ans: legal Environment

16. Which economic policy of the Indian Government initiated globalisation?              2011, 2012, 2019, 2020

Ans: Industrial Policy 1991. This policy opened up the Indian economy.

17. What is Social Environment? Give an example of social environment.

And: Social environment describes characteristics of the society in which the organization exists. For example, reservation in jobs for minorities, Characteristics of the society.

18. Name the Act that protects the interest of consumers in India.

Ans: Consumer Protection Act, 1986

19. In which year the World Trade Organisation came into being?

Ans: 1-1-1995

20. The Information Technology Act. 2002 comes under what type of environment?

Ans: Legal Environment

21. Give two examples of marketing intermediaries.

Ans: Wholesalers and Retailers

22. What is the name of the economy where both public and private sectors co-exist?

Ans: Mixed Economy

23. Which act aims at controlling production, supply and distribution of essential commodities? 

Ans: Essential Commodities Act, 1955.

24. Under which environmental factor does fiscal policy fall?

Ans: Economic Environment

25. What does legal environment prescribe?

Ans: It prescribes rules or laws that all members of business community must follow.

26. Name two component of economic environment?

Ans:  1.Volume of imports & exports of different items. 2. Rates of saving & investment.

27. Which element / dimension of business environment involve improvement and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business?

Ans.: Technological Environment

28. Banking sector reforms have led to easier credit terms and better services. This is an example of a key component of the “Business Environment “name this component?

Ans: Economic Environment

29. ‘Demand for reservation in jobs for minorities refers to an example of key component of general environment of business. Name this component.

Ans: Social Environment

30.  What is meant by environment scanning?

Ans: Environment scanning is a process by which organizations monitor their relevant environment so that they can consider the impact of different events, trends, issues, expectation on its strategic management process.

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ALSO READ (AHSEC ASSAM BOARD CLASS 12)

1. AHSEC CLASS 12 BUSINESS STUDIES CHAPTERWISE NOTES

2. AHSEC CLASS 12 BUSINESS STUDIES QUESTION PAPERS (FROM 2012 TILL DATE)

3. AHSEC CLASS 12 BUSINESS STUDIES SOLVED QUESTION PAPERS (FROM 2012 TILL DATE)

4. AHSEC CLASS 12 BUSINESS STUDIES IMPORTANT QUESTIONS

5. BUSINESS STUDIES MCQs

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Short and Long Questions (2/3/5 Marks)

Q.N.1.What is business environment? Explain the features of business environment.                  2010

Ans:  Business environment means forces, Factors and institutions which the members of a firm must deal with in order to achieve the objectives of the organization. It refers to the aggregate of all conditions, events and influences that surrounds and affects the business. Forces includes politic, economic, social, technological, etc and Institutions include competitors, customers, suppliers, etc.

Following are the features of Business environment:

a)      Totality of external forces: Business environment is the sum total of all things external to business firms and, as such, is aggregative in nature.

b)      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.

c)       Dynamic nature: Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market.

d)      Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings.

e)      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.

Q.N.2. Explain the importance of Business Environment.                             2011

Ans: Following are the Importance of Business Environment:

(a)    Determining Opportunities and Threats: The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises for meeting the challenges successfully.

(b)   Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities.

(c)    Continuous Learning: Environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in realm of business.

(d)   Image Building: Environmental understanding helps the business organisations in improving their image by showing their sensitivity to the environment within which they are working.

(e)   Meeting Competition: It helps the firms to analyse the competitors’ strategies and formulate their own strategies accordingly.

(f)     Identifying Firm’s Strength and Weakness: Business environment helps to identify the individual strengths and weaknesses in view of the technological and global developments.

Q.N.3. State the features of the industrial policy 1991. Or Mention the changes initiated by the government of India since 1991.                     2013

Ans: As a part of economic reforms, the Government of India announced a new industrial policy in July 1991. The broad features of this policy were as follows:

(a)    Delicencing: The Government reduced the number of industries under compulsory licensing to six.

(b)   Disinvestment: Disinvestment was carried out in case of many public sector industrial enterprises.

(c)    Liberalisation of foreign policy: 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.

(d)   Liberalisation in technical area: Automatic permission was now granted for technology agreements with foreign companies.

(e)   Promotion of foreign investment: Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India.

Q.N.4. Explain the impact of environment policy changes on business and industry after 1991.  2008, 13, 16, 18, 19, 2020

Ans: Liberalisation and Globalisation of Indian economy through industrial policy change in 1991 have created both challenges and opportunities for the Indian business. Impact of Government Policy Changes on Business and Industry (Significance of liberalisation and globalisation) can be studied under the following heads:

a)      Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines.

b)      More demanding customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.

c)       Rapidly changing technological environment: Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services.

d)      Necessity for change: In a regulated environment of pre-1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.

e)      Threat from MNC: Massive entry of multi-nationals in Indian marker constitutes new challenge. The Indian subsidiaries of multi-nationals gained strategic advantage. Many of these companies could get limited support in technology from their foreign partners due to restrictions in ownerships. Once these restrictions have been limited to reasonable levels, there is increased technology transfer from the foreign partners

Q.N.5. What is “liberalisation”? Mention its process and objectives.     2010, 2016

Ans.: Liberalisation of economy means to free it from direct or physical control imposed by the government.  In other words, it is the process by which government control over the industry is being loosened. It implies liberating the trade and industry from unwanted government control and restriction. Liberalization of the Indian industry has been taken in the following way:

a)      Abolishing licensing requirements in most of the industries except a short list.

b)      Freedom in deciding the scale of business activities.

c)       Freedom in fixing the prices of goods services.

d)      Removal of restriction on the movement of goods and services.

e)      Liberalisation in import and export.

Objectives of Liberalisation

a) To accelerate the rate of industrial development.

b) To ensure better utilisation of capacity.

c) To achieve economies of scale.

d) To work towards the development of backward areas.

e) To ensure export promotion and import substitution.

Q.N.6. What is privatization? Mention the steps taken by government for privatisation.

Ans: Privatisation refers to reducing the role of public sector by involving the private sectors in most activities. Due to the policy reforms announced in 1991, the expansion of public sector has literally come to a halt and the private sector registered fast growth in the post liberalised period.  To execute policy of privatisation government took the following steps:

a) Disinvestment of public sector i.e. transfers of public sector enterprise to private sector.

b) Setting up of board of industrial and financial reconstruction (BIFR) to revive sick units in public sector.

c) Dilution of stake of the government by transferring more than 51% shares to the private sector.

Q.N.7. What is Globalisation?   Mention its merits and demerits.            2008

Ans:  Globalisation means ‘integrating’ the economy of a country with the world economy.  This implies free flow of goods and services, capital, technology and labour across national boundaries. To achieve these objectives of globalisation, the government has adopted various measures such as:

a)      Reduction in custom duties.

b)      Removal of quantitative restrictions or quotas on exports and imports.

c)       Facilitating foreign investment and encouragement of foreign technology.

d)      These measures are expected to achieve a higher rate of growth, enlargement of employment potential, and reduction of regional disparities.

Merits and Demerits of Globalization

The Merits of Globalization are as follows:

1.       There is an International market for companies and for consumers there is a wider range of products to choose from.

2.       Increase in flow of investments from developed countries to developing countries, which can be used for economic reconstruction.

3.       Greater and faster flow of information between countries and greater cultural interaction has helped to overcome cultural barriers.

4.       Technological development has resulted in reverse brain drain in developing countries.

The Demerits of Globalization are as follows:

1.       The outsourcing of jobs to developing countries has resulted in loss of jobs in developed countries.

2.       There is a greater threat of spread of communicable diseases.

3.       There is an underlying threat of multinational corporations with immense power ruling the globe.

4.       For smaller developing nations at the receiving end, it could indirectly lead to a subtle form of colonization.

Q.N.8. State the features of LPG model. (Liberalisation, Privatisation and Globalisation)             2019

Ans: Features of Liberalisation:

a)      The industry is given freedom of producing and distributing the goods and services.

b)      Freedom in deciding the scale of business activities.

c)       No restriction on fixation of the prices of goods services.

d)      Removing unnecessary controls over the economy.

e)      Removing unnecessary control over the economy through delicensing.

Features of Privatisation

a)      Transfer of complete or partial ownership from public enterprise to private individuals.

b)      Disinvestment of government companies by selling more than 51% share to the private individuals.

Features of globalisation:

c)       Integration of domestic economy with global economy.

d)      Opening up of the economy to foreign capital, foreign technology and free competition.

e)      Free flow of international capital.

f)       Free world trade, elimination of tariffs and quotas.

g)      Expansion of multinational corporations.

Q.N.9. What is truly globalised economy? Mention various obstacles to globalisation.

Ans:  A truly global economy implies a boundary less world where there is:

a)      Free flow of goods and services across nations.

b)      Free flow of capital across nations.

c)       Free flow of information and technology.

d)      Free movement of people across border.

e)      A global governance perspective.

Obstacles to Globalisation: The Indian business suffers from many disadvantages in respect of globalization of business. The important problems are following:

a)      Complex and confusing Government Policy & Procedures.

b)      High Cost of materials, powers, finance etc.

c)       Inadequate and insufficient infrastructural facilities.

d)      Socio-political factors resist change and this comes in the way of modernization, rationalization and efficiency improvement.

e)      Poor quality image of Indian product.                        

f)       Small size and the low level of resources of Indian firms.

Q.N.10. Explain in detail various components of Business environment. 2007, 2009, 2010, 2011, 2012, 2014, 2015

Ans: The business environment can be classified into two major categories:

1.       Economic environment  (VVI – 2010, 2011, 2013, 2014, 2017)

2.       Non economic environment

ECONOMIC ENVIRONMENT: Economic environment consist of Grosse national product, corporate profits, inflation rate productivity, employment rates, interest rates, debt and spending economic environment has stronger influence over organization policies and action. The survival and success of each and every business enterprise depend fully on its economic environment. The three main factors/components that affect the economic environment are:

(a)    Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great influence on business organisations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital etc.

(b)   Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are: Industrial policy, Fiscal policy, Monetary policy, Foreign investment policy, Export –Import policy (Exim policy)

(c)    Economic System: The world economy is primarily governed by three types of economic systems, viz., (i) Capitalist economy; (ii) Socialist economy; and (iii) Mixed economy. India has adopted the mixed economy system which implies co-existence of public sector and private sector.

(d)   Economic Planning: The management of national economy must begin with national level economic planning within the framework provided by the general economic policy of the government. An economic planning is a mechanism for allocation of available resources and encourages efficient decision making process in an economy to achieve pre determined objectives of plans like increasing growth rate, reducing inflation, creating employment , obtaining self sufficiency etc. A government plays an important role as it has the authority of drafting and implementing financial plans keeping in mind the interest of various business industries and social welfare.

(e)   Regional economic groups: They promote cooperation and free trade among members by removing tariff and other restrictions. They provide opportunities to member countries and threats to non-member counties. Examples are: SA ARC: South Asian Association for Regional Cooperation. ASIAN: Association of South East Asian Nations. EU: European Union.

NON-ECONOMIC ENVIRONMENT: Non-economic environment refers to social, cultural, political, legal, technological factor etc. that have a significant effect on the business activities of our country. The various elements of non-economic environment are as follow:

(a) Social Environment: The social environment of business includes social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The businessman cannot overlook the components of social environment of social environment as these components may not have immediate impact on the business but in the long run the social environment has great impact on the business.

(b) Political Environment:  This includes the political system, the government policies and attitude towards the business community and the unionism. The political environment has immediate and great impact on the business transactions so businessman must scan this environment very carefully. All these aspects have a bearing on the strategies adopted by the business firms.

© Legal Environment: This refers to set of laws, regulations, which influence the business organisations and their operations.  Every business organisation has to obey, and work within the framework of the law. The important legislations that concern the business enterprises include Companies Act, 1956; Foreign Exchange Management Act, 1999; The Factories Act, 1948 etc. Besides the above legislations, Provisions of the Constitution and Judicial Decisions are also form part of the legal environment of business.

Recent changes in India legal environment:

Ø  Deregulation of capital market.

Ø  Removal of control from the foreign exchange market

Ø  Delicencing policy of industries.

(d) Technological Environment: Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time. The recent technological changes of the Indian market are:   2018

Ø  Shift from steam locomotives to electric engines.

Ø  Shift from typewriter to word processors.

Ø  Shift from demand of vacuum tubes to transistors.

(e) Demographic Environment: This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services.

(f) Natural Environment:  The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc. Business is greatly influenced by the nature of natural environment.

Q.N.10. Explain four strategies that are available to the managers to deal with changing business environment.

Ans: Management strategies to deal with changing business environment:

Business environment are changing day by day. In order to survive in the modern competitive market, every manager must adopt some strategies which are stated below:

(i) Installation of MIS (Management Information System): For scientific decision making under conditions of environmental uncertainties, accurate, precise and timely information is needed by management. This purpose may be well-served by installing a MIS. MIS is a planned and well organized information system; under which vital information for management decision-making is collected, processed, evaluated and timely supplied to executives – needing such information.

(ii) Forecasting: Systematic forecasting of relevant business environmental factors may help management in taking sound strategic decisions. Statistical and mathematical techniques like probability, index numbers, correlation, regression, time-series etc. may be used for purposes of scientific forecasting.

(iii) Recruitment of Experts: Experts from social, economic, financial and political fields may be recruited by business enterprises; that may help management in skilled decision-making by providing the advantage of their expert knowledge.

(iv) Innovations: Management must be innovative to survive in the competitive market. Managerial innovation can be tested in the following fields:

1. Development of new shapes, sizes and designs of old products

2. Expansion of old markets, by introducing new products.

3. Discovery of new markets – for old and new products.