Business Environment

 Ans 1 It is important for business enterprises to understand their environment.

Understanding the business environment is important for the business enterprise because it provides a lot of benefits to the businessman. Following are the benefits of understanding business environment:

1. It enables the firm to identify opportunities and get the first mover advantage: Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors.

2. It helps the firm to identify threats and early warning signals: Threats means external environmental changes that hinder the performance of the firm. And proper awareness of the business environment helps the manager to identify the threats on time and then they can prepare themselves to meet the threats.

3. It helps in tapping useful resources: Environment is a source of various resources for running a business and it provides inputs to the business like finance, machines, raw materials, power, and water, labour etc. Every enterprise depends on the environment as a source of inputs or resources and in return the enterprise supplies outputs such as goods and services. And for that enterprise designs policies that allow it to get resources that it needs so that it can convert those resources into outputs that the environment desires.

4. It helps in coping with rapid changes: Business environment is dynamic in nature and changes are taking place at a fast pace. And to cope effectively with the changes managers must understand and examine the environment and develop suitable courses of action.

5. It helps in assisting in planning and policy formulation: Environment is a source of both opportunities and threats for the business enterprise. And its understanding and analyzing helps them to decide future course of action or training guidelines for making policies to deal with the present situation.

6. It helps in improving performance: The future of the business is bound with what is happening in the environment. And a continuous monitor to the environment helps to adopt suitable business policies and practices which not only improve the performance of the business but also continue to succeed in the market for long terms.

Ans 3 The policies of liberalisation, privatisation and globalisation by the government affect the functioning of the business enterprises. The following points highlight the impact of government policy changes on the business and industry.

i. Increased Competition: As a result of the policies such as relaxation of the licensing policy and reduction of import duties, the competition faced by the domestic firms increases. India companies experienced competition in service industry such as telecommunication, banking, insurance, etc.

ii. Increased Demand: As competition increases, the choice of goods and services for the consumers also increases. Thus, consumers also gain from quality products and greater variety.

iii. Change in Business Policies: The government policies directly impact the functioning of the business enterprises. As a result, they have to alter their policies appropriately.

iv. Technological Changes: As competition increases firms tend to find new and innovative ways to survive in the market. In such a scenario, technological improvements become imperative.

v. Need for Trained Personnel: Innovations and improvement in product, application of improved technologies requires skilled and trained personnel. Thus, there arises a need for the development of human resources.

vi. Greater Market Orientation: With increased competition, the production has become market oriented. That is, the enterprises produce as per the demand market.

vii. Less Reliance on Budgetary Support by Public Sector Enterprises: To survive the increased competition, the public sector enterprises must improve efficiency and productivity rather than relying on budgetary support to cover their losses.

Ans 6 The following are the dimensions of business environment.

i. Economic Environment: It comprises of the economic variables such as interest rates, income, stock market indices that affect the functioning of the enterprises. For example, an increase in the income of the consumers increases the demand for goods and services of the enterprises. Similarly, a fall in the interest rates for loans for consumer durables increases the spending capacity and thereby, increases the demand for such products.

ii. Social Environment: Social environment refers to the social forces such as customs, traditions, social values, social trend etc. For example, religious celebrations provide business opportunities to many enterprises such as those producing sweets, decoration items, etc. Similarly, in India a change in social trend towards western lifestyle has increased the demand for western wear, fast food, etc.

iii. Technological Environment: Technological environment comprises of the technological changes and improvements. For example, introduction of computers, internet, have changed the way organisations work today. Similarly, continuous improvement and innovations in the technology used in the production improves the quality of production. While on one hand, improvement in technology provides new business opportunities for the enterprises, on the other hand, is a threat for the enterprises using obsolete technology.

iv. Legal Environment: It refers to the legislation and rules passed by the government such as the Companies Act, Trade union Act, etc. Knowledge of these legislation is essential for enterprises as their non-compliance can lead to legal trouble for them. For example, an export-import company in India has to follow the rules and regulations as stated under the EXIM policy and the Foreign Trade (Development and Regulation) Act, 1992. Similarly, the refining, processing, distribution, sale of petroleum, petroleum products is governed by the Petroleum and Natural Gas Regulatory Board Act, 2006.

v. Political Environment: Political environment comprises of political conditions such as peace and stability, law and order, etc. For example, a situation of political unrest such as frequent change in the ruling government implies a change in the rules and policies of the government regarding production and manufacturing. Such a frequent change in the regulations regarding production discourages investment. Similarly, the opening up of our economy under the New Economic Policy in 1991, provided business opportunity to many foreign companies.

Ans 8 Any organisation cannot function in isolation. Rather, its working and actions are influenced by many external forces such as social and political conditions, technological changes, etc. Such external forces compose environment for an organisation. It is of prime importance for any organisation to have an understanding of the business environment. A continuous study of the business environment enables an organisation to identify the forces that affects it functioning and thereby, helps it in reacting and coping with these forces in an appropriate manner. The following points highlight the importance of environment for the success of a business organisation.

i. Identification of Opportunities: Changing business environment offers many positive opportunities for business. A careful analysis of the environment enables an enterprise to identify these positive opportunities and take first hand advantage in competition. That is, it enables the organisation to gain maximum benefit and move ahead of its competitors. For example, Tata recognised the demand for a small and economical car in India and thereby, launched the popular Tata Nano at a price of just one lakh. Thus, it became the leader in low cost car in India.

ii. Identification of Threats: Besides positive opportunities, certain changes in the environment may also affect the functioning of an environment adversely. A study of business environment helps an enterprise in the identification of these threats or negative signals. Thereby, it enables it to take appropriate preventive measures. For example, if a mobile manufacturing company finds that another company is coming up with new and improved features in its product, then it acts a competition for it. An identification of the threats can enable the organisation to take appropriate measures such as improving the quality and features of its mobile, advertising, etc.

iii. Accumulating Useful Resources: Environment acts a source of inputs or resources such as raw material, machinery, labour, etc. required for the functioning of an organisation. On the other hand, environment also acts a source of demand for goods and services produced by the organisation. Thus, it is rational for the organisations to

take up those resources from the environment that can be converted into the desired output. This is possible only if the enterprises have an understanding of what the environment desires and what it can offer. For example, with a rise in demand for the touch screen technology in mobile phones, manufacturers are accumulating resources required for manufacturing touch screen phones.

iv. Adjusting to Changes: Business environment is dynamic in nature. Technology, consumers taste and preference, government policies, political conditions change continuously. A careful analysis and understanding of the environment helps an enterprise in dealing with these changes in a better manner and take appropriate actions. For example, by a study of business environment many bakery enterprises have realised the growing demand for sugar-free products and are increasing the production of such bakery products.

v. Formulating Plans and Policies: With a continuous study of the environment an organisation can identify various threats and opportunities for its business. Accordingly, it can frame suitable plans and policies in view of the current scenario. For example, if on analysing the market for clothes in India, it is found that there is an increasing demand for western wear, then a cloth manufacturing company can frame policies and strategies to incorporate western wear in its production.

vi. Improving Performance: An analysis of the business environment helps the enterprises in identifying various threats and opportunities that affect its performance. It helps the organisation in dealing with these changes in an appropriate manner. Thereby, it helps it in improving its performance.

Ans 9 Any organisation cannot function in isolation. Rather, its working and actions are influenced by many external forces such as social and political conditions, technological changes, etc. Such external forces compose environment for an organisation. It is of prime importance for any organisation to have an understanding of the business environment. A continuous study of the business environment enables an organisation to identify the forces that affects it functioning and thereby, helps it in reacting and coping with these forces in an appropriate manner. The following points highlight the importance of environment for the success of a business organisation.

i. Identification of Opportunities: Changing business environment offers many positive opportunities for business. A careful analysis of the environment enables an enterprise to identify these positive opportunities and take first hand advantage in competition. That is, it enables the organisation to gain maximum benefit and move ahead of its competitors. For example, Tata recognised the demand for a small and economical car in India and thereby, launched the popular Tata Nano at a price of just one lakh. Thus, it became the leader in low cost car in India.

ii. Identification of Threats: Besides positive opportunities, certain changes in the environment may also affect the functioning of an environment adversely. A study of business environment helps an enterprise in the identification of these threats or negative signals. Thereby, it enables it to take appropriate preventive measures. For example, if a mobile manufacturing company finds that another company is coming up with new and improved features in its product, then it acts a competition for it. An identification of the threats can enable the organisation to take appropriate measures such as improving the quality and features of its mobile, advertising, etc.

iii. Accumulating Useful Resources: Environment acts a source of inputs or resources such as raw material, machinery, labour, etc. required for the functioning of an organisation. On the other hand, environment also acts a source of demand for goods and services produced by the organisation. Thus, it is rational for the organisations to take up those resources from the environment that can be converted into the desired output. This is possible only if the enterprises have an understanding of what the environment desires and what it can offer. For example, with a rise in demand for the touch screen technology in mobile phones, manufacturers are accumulating resources required for manufacturing touch screen phones.

iv. Adjusting to Changes: Business environment is dynamic in nature. Technology, consumers taste and preference, government policies, political conditions change continuously. A careful analysis and understanding of the environment helps an enterprise in dealing with these changes in a better manner and take appropriate actions. For

example, by a study of business environment many bakery enterprises have realised the growing demand for sugar-free products and are increasing the production of such bakery products.

v. Formulating Plans and Policies: With a continuous study of the environment an organisation can identify various threats and opportunities for its business. Accordingly, it can frame suitable plans and policies in view of the current scenario. For example, if on analysing the market for clothes in India, it is found that there is an increasing demand for western wear, then a cloth manufacturing company can frame policies and strategies to incorporate western wear in its production.

vi. Improving Performance: An analysis of the business environment helps the enterprises in identifying various threats and opportunities that affect its performance. It helps the organisation in dealing with these changes in an appropriate manner. Thereby, it helps it in improving its performance.