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BUSINESS ENVIRONMENT
Meaning of Business Environment:- Business Environment means the sum total of all
individuals or institutions & other forces that are outside the control of a business
enterprise but that may affect its performance
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Change in Business Environment
Increase in Tax
Increase in Competition
Change in Fashion, Taste of Consumers
Technological Improvements & innovations
Political Uncertainty

Effect on Performance of the Business
Increased in Cost of production , things
becomes expensive
Reduction in Profit
Market Demands shifts from Existing to new
ones
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DIMENSIONS/COMPONENTS/ELEMENTS OF BUSINESS
ENVIRONMENT
The various dimensions of Business Environment in terms of general Environment are:1
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Example of Economic Environment: High Inflation rate generally results in constraints on business enterprises as
they increase the various cost of business such as purchase of raw materials,
or machinery & payment of wages & salaries to employees
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Components of Economic Environment
 Tax Rates
 Rates of Saving & Investments
 Rates of Economic Growth in terms of increase in gross national product & per capita
income
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 Money Supply in the Economy
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2
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Example of Social Environment: Social trends present various opportunities & threats to a business
enterprises
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of dwellers
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In business
terms, these values translate into freedom of choice in the market, business
responsibility towards the society & non-discriminatory Employment practices
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Concern with quality of life
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Educational system & literacy rates
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Political Environment: It includes political conditions such as: General stability of
the government, peace in the country & specific attitudes that selected government
representatives hold towards business
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Political Instability can
shake that confidence
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Political parties & their ideologies
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Nature & Extent of Government Intervention in business
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Legal Environment: Legal Environment consists of various legal rules & regulations
relevant to business which are to be observed by business organizations
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For Example: As per the Weight & Measurement Act 2000, packed eatables should
clearly bear a green dot for vegetarian contents & a brown dot for non- vegetarian
contents on their packaging
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 Court orders related to business
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Technological Environment: Technological Environment refers to the state of
technology used in different businesses, including support technology
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Components of Technological Environment
 Pace of technological changes
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 Extent of use of particular technological advances like internet, electronic
banking etc
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Totality of External Forces:- Business Environment is the sum total of all the things
external to business firms
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2
...

3
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For example: Increased life expectancy of people & increased awareness for
health care have increased the demand for many health products like diet coke, fat-free
cooking oil etc
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Dynamic Nature: Business Environment is dynamic as it keeps on changing
whether in terms of technological improvement, shifts in consumer preferences or entry
of new competition in the market
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Uncertainty: Business environment is largely uncertain as it is very difficult to
predict future happenings, especially when environment changes are taking place too
frequently as in the case of information technology or fashion industries
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Complexity: Business Environment is complex since it consists of numerous
interrelated & dynamic conditions or forces which arise from different sources
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Relativity: Business Environment is a relative concept since it differs from country to
country & even region to region
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Similarly, Demand for sarees may be fairly high in India
whereas it may be almost non-existence in France
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2)

3)

4)

5)

6)

Early identification of opportunities helps the firms to be the first to exploit them
instead of losing them to competitors
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It helps the firm to identity threats & early warning signals: ‘Threats’ refers to
the negative external trends & changes that will hinder a firm’s performance
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It helps in assisting in planning & policy formulation: Planning process is
undertaken in the context of business environment properly, an organization may
undertake its planning & policy formulation realistically
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It helps in tapping useful resources: A business firm assembles various
resources called inputs like finance, machines, raw materials etc from its
Environment including financiers, government & suppliers
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The enterprise
designs policies that allow it to get the resources that it needs so that it can convert
those resources into outputs that the environment desires
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Understanding of
business environment helps an organization to cope with such changes by doing
things through Innovations
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Therefore it switched to non-edible oils &
subsequently to synthetic ( a non-oil material)
It helps in improving Performance: The firms which continuously monitor their
environment & develop suitable course of action not only improve their present
performance, but also continue to succeed in the market for a longer period
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The government of India has taken a no
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Therefore Explanation as given below:I
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FEATURES OF LIBERALIZATION
i
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iii
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Freedom in deciding the scale of business activity i
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no restrictions on
expansion on business activities
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iv
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II
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Reduction in tax rates & lifting of unnecessary controls over the economy
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In the New Industrial Policy 1991, the government adopted the policy of
planned disinvestment of the public sector to the private sector
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It results in dilution of stake of the government in the public sector enterprise
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III
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FEATURES OF GLOBALISATION
i
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iii
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v
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Free Flow of technology among countries
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Global mechanism for setting economic disputes
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FACTORS RESPONSIBLE FOR NEW ECONOMIC





Economic development of the country
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Economic Indices like national income, distribution of Income, Per capita Income,
Value Exports & Imports, Balance of payments & so on
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MAINS OBJECTIVES (AIM) OF LPG





Rapid economic growth & higher standard of living
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Reduces unemployment & poverty
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The government reduced to the no
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B
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C
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D
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DEMONETIZATION
Demonetization is the act of the government to cancel the legal tender status of a currency
unit in circulation
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FEATURE OF DEMONETIZATION
1) Demonetisation is viewed as a tax administration measure:- Cash holding
arising from declared income was readily deposited in banks & exchanged for new
notes
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2) Demonetization is also interpreted as a measure to improve tax compliance:
It indicated that tax evasion will no longer be tolerated or accepted
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3) Channelising Savings: Demonetization also led to channelizing savings into the
formal financial system Bank deposits increased
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4) Demonetization is aimed to create Cash less Economy: Cash transactions
declined, Digital transactions increased involving the use of RuPay Cards & Debit
Cards, Aadhar Enable Payment System (AEPS) etc
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2) Rise in Income Tax Collection because of increased disclosure
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IMPACTS OF GOVERNMENT POLICY CHANGES ON BUSINESS & INDUSTRY
a) Increasing Competition: As a result of changes in the rules of Industrial licensing
& entry of foreign firms, competition for Indian firms has increased especially in
service Industries like telecommunications, airlines, banking, Insurance etc
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b) More Demanding Customers: Customers today have become more demanding
because they are well-informed
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c) Market Orientation: Earlier approach was to manufacture goods & sell them as
there was seller’s market
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As a
result, companies have adopted a market oriented approach which emphasizes on
studying & Analysing the market requirements first & then producing products
approach
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New technologies make
is possible to improve machines, processes, products & services
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e) Necessity for change: Changed government policies have necessitated changes in
business policies & practices which were followed during pre-liberalization era from
stable policies & practices of the regulated market era to flexible policies & practices
suitable for the New Era
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The new market conditions require people
with higher competence & greater commitment
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g) Loss of Budgetary Support to be Public Sector: In the present situation, there is
a considerable reduction in budgetary support to public sector
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MANAGERIAL RESPONSES TO CHANGES IN BUSINESS ENVIRONMENT
1) Diversification Spree: The corporate scene now witnessed a spate of
diversification
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Now, it has entered into manufacturing of transmission equipment, switching
equipment & wireless products
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2) Joint-Venture: Many multi-nationals enter India afresh through new joint ventures
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3) Brand Building: Expenditures were enhanced by companies in Building Brands
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4) Use of Latest Technology: use of latest technology has become the slogan of the
successful companies
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5) Sharply Improved Compensation Levels: Compensation levels of managerial &
technical services have sharply improved
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Incentive schemes of various kinds
related to performance are becoming common
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