NCERT Class 12 Business Studies Business Environment

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The soft-drinks giants, Pepsico and Coca-Cola,suffered a decline in sales of colas in India in the beginning of the year 2006 after an environmental group, Centre for Science and Environment (CSE) claimed to have found pesticides in their drinks upto 50 times the permissible health limits. Thesecompanies issued a number of press statements and conducted many publicity compaigns in India claiming that their beverages were perfectly safe. The Union Health Ministry’s expert committee also observes that Coke and Pepsi were safe.

CSE, in turn, criticised the expert committees findings and said that 11 of Cokeand Pepsi drinks contained average pesticide levels that were 24 times higher than the limits agreed by the Indian government. Despite health ministry’s clean chit to colas, several States continue to ban or restrict Coke and Pepsi. However, the pesticide controversy adversely affected the sales of both Coke and Pespi as consumers started watching their diet more closely. Organic food products suddenly became popular as the healthier option. By definition, organic means fruits, vegetables, foodgrains and processed products that have been produced with no pesticide or inorganic fertilisers. Meanwhile the soft drinksgiants have been continuously advertising and trying to convince the consumers about the safety of their products.

The Pepsi Cola controversy raises an interesting question: Why are soft drinks giants, Coca-Cola and Pepsico putting in so much effort on publicity campaigns in India after the decline in their sales? The answer lies in the fact that their successis dependent not merely on their internal management, but also on many external forces as, for example, decisions and actions of governments, consumers, other business firms and  even non-government organisations(NGOs) like CSE. In this chapter, we shall identify certain important external forces (or environmental conditions) and their impact onthe operations of business enterprises.

Meaning of Business Environment

The term ‘business environment’ means the sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance. As one writer has put it– “Just take the universe, subtract from it the subset that represents the organisation, and the remainderis environment”. Thus, the economic, social, political, technological and other forces which operate outside a business enterprise are part of it environment. So also, the individualconsumers or competing enterprises as well as the governments, consumer groups, competitors, courts, media and other institutions working  outside an enterprise constitute itsenvironment.

The important point is that these individuals, institutions and forces are likely to influence the performance of a business enterprisealthough they happen to exist outside its boundaries. For example, changes in government’s economic policies, rapid technological developments, political uncertainty. fashions and tastes of consumers and increased competition in themarket — all influence the working of a business enterprise in important ways. Increase in taxes by government can make things expensive to buy. Technological improvements may render existing products obsolete. Political uncertainty may create fear in the minds of investors. Changesin fashions and tastes of consumers may shift demand in the market from existing products to new ones. Increased competition in the market may reduce profit margins of firms. 

On the basis of the foregoing discussion, it can be said business environment, has the followingfeatures:

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

(ii) 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 andimmediately 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 indirvectly. 

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