CBSE Class 12 Business Studies Business Environment Notes Set B

IMPORTANCE OF BUSINESS ENVIRONMENT

1. Identification of opportunities to get first mover advantage: Understanding of business environment help an organisation in identifying advantageous opportunities and getting their benefits prior to competitors.

2. Identification of threats: Correct knowledge of business environment help an organisation to identify those threats which may adversely affect its operations.

3. Tapping useful resources: Business environment made available various resources such as capital, labour, machines, raw material etc to a business firm. In order to know the availability of resources and making them available on time knowledge of business environment is necessary.

4. Coping with Rapid changes: Continuous study/scanning of business environment help in knowing the changes which are taking place and thus they can be faced effectively.

5. Assistance in planning and policy formulation: Understanding and analysis of business environment help an organisation in planning & policy formulation.

6. helps in Improving Performance: Correct and continuous monitoring of business environment help an organisation in improving its performance.

DIMENSIONS / COMPONENTS OF BUSINESS ENVIRONMENT

1. Economic Environment: It has immediate and direct impact on a business. Rate of interest, inflation rate, change in the income of people etc. are some economic factors which could affect business firms. Economic environment offers opportunities to a firm or it may put constraints.

2. Social Environment: It includes various social forces such as customs, beliefs, literacy rate, educational levels, lifestyle, values etc. Changes in social environment affect an organisation in the long run. Example: now a days people are paying more attention towards their health as a result of which demand for mineral water, diet coke etc has increased while demand of tobacco, fatty food products has decreased.

3. Technological Environment: It provides new and advance ways/ techniques of production. A businessman must closely monitor the technological changes taking place in the industry as it helps in facing competition and improving quality of the product.

4. Political Environment: Changes in political situation also affect business organisations. Political stability builds confidence among business community white political instability and bad law & order situation, may bring uncertainly in business activities. Political environment has immediate and great impact on the business transactions, so the businessman must scan the environment carefully so that necessary changes can be made in the organisation as per requirements.

5. Legal Environment: It constitutes the laws and legislation passed by the Government, administrative orders, court judgements & decisions of various commissions and agencies. Businessman had to act according to various legislations and so their knowledge is very necessary.

Economic Reforms:

As a part of Economic reforms, the Government of India announces new Industrial Policy in 1991, whose main features are as follows:

1. Only six industries were kept under licencing scheme.

2. The role of public sector was limited only to four industries.

3. Disinvestment was carried out in many public sector enterprises.

4. Foreign capital/investment policy was liberalised and in many sectors 100% direct foreign investment was allowed.

5. Automatic permission was given for signing technology agreements with foreign companies.

6. Foreign investment promotion board (FIPB) was setup to promote & bring foreign investment in India.