NCERT Solutions for class 12 Business studies Chapter 3 Business Environment

NCERT Solutions for class 12 Business studies Chapter 3 Business Environment

Very Short Answer Type:

Q. 1. What is meant by business environment?

Ans.

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.

Q. 2. How does understanding of business environment help in improving performance of a business?

Ans.

Future of an enterprise is closely linked with what is happening in the business environment. Analysis and understanding of trends of the business environment and adjusting itself as per the changing business environment helps the business to improve its performance.

Q. 3. Give an example to show that a business firm operates within
numerous inter related factors constituting the business environment. (Hint: example highlighting the inter relatedness of dimensions of business environment).

Ans.

All the elements of the business environment including its various dimensions, like economic, legal, political, technological and social are closely interrelated to each other. A change in one of these will lead to a corresponding change.

let’s take a look at a practical example:

Imagine a company like Tesla, which manufactures electric vehicles. Tesla’s operations are influenced by numerous interrelated factors within the business environment:

Economic Factors: Tesla’s growth is influenced by the economy’s health. In good times, consumers have more disposable income for electric vehicles, while sales might decline during economic downturns.

Technological Factors: Tesla must constantly innovate in areas like battery technology and autonomous driving to stay competitive.

Political and Legal Factors: Government policies and regulations, such as incentives for electric vehicles and emissions standards, significantly impact Tesla.

Social Factors: Growing awareness and demand for environmentally friendly products favor Tesla’s electric vehicles. Social attitudes towards sustainability play a key role.

Environmental Factors: Tesla must consider the environmental impact of its manufacturing processes and supply chain, as climate change and resource scarcity can affect operations.

Competitive Factors: Tesla operates in a highly competitive market, monitoring both traditional car manufacturers and new electric vehicle startups.

These factors are interconnected and influence Tesla’s strategic decisions, from product development to regulatory compliance.

Q. 4. Krishna Furnishers Mart started its operations in the year 1954
and emerged as the market leader in the industry because of their original designs and efficiency in operations. They had a steady demand for their products but over the years, they found their market share declining because of new entrants in the field. The firm decided to review their operations and decided that in order to meet the competition, they need to study and analyze the market trends and then design and develop their products accordingly. List any two impacts of changes in business environment on Krishna Furnishers Mart’s operations. (Hint: increase in competition and Market orientation).

Ans.

Here are two impacts of changes in the business environment on Krishna Furnishers Mart’s operations:

1. Increase in Competition: New entrants reduced Krishna Furnishers Mart’s market share, forcing them to innovate and improve products.
2. Market Orientation: To stay competitive, they need to study market trends, understand customer preferences, and design relevant products.

These changes require the company to be more agile and responsive to stay relevant.

Q. 5. Name any two Specific forces of business environment affecting business.

Ans.

(i) Customers;

(ii) Owners and investors

Short Answer Type:

Q. 1. Why it is important for business enterprises need to understand their environment? Explain.

Ans.

Understanding the business environment is crucial for enterprises to adapt and thrive. It helps them

• Identifies opportunities and threats.

• Enables staying competitive and making informed decisions.

• Awareness of economic, technological, social, and regulatory factors.

• Anticipates changes and meets customer needs.

• Promotes innovation and long-term sustainability.

• Ensures effective response to dynamic market conditions.

Q. 2. Explain the following terms:

a. Liberalisation
b. Privatization
c. Globalisation

Ans.

(a) Liberalisation:-

Liberalisation refers to the process of reducing government restrictions and regulations in an economy to encourage private enterprise, competition, and investment. It typically involves lowering tariffs, removing trade barriers, and promoting a free-market economy for economic growth.

(b) Privatisation:-

Privatisation is the process of transferring ownership and control of a business, service, or industry from the public sector (government) to private individuals or organizations. It aims to increase efficiency, competition, and profitability through private sector management.

(c) Globalisation:-

Globalisation is the process of increasing interconnectedness and interdependence among countries through the exchange of goods, services, information, and culture. It promotes economic integration, technological advancement, and cultural exchange, fostering a more interconnected and interdependent global economy.

Q. 3. National Digital Library of India (NDL India) is a pilot project
initiated by the HRD ministry. It works towards developing a framework of virtual repository of learning resources with a single-window search facility. It provides support to all academic levels including researchers, life-long learners and differentlyabled learners free of cost. State the dimensions of business environment highlighted above.

Ans.

The dimensions of the business environment highlighted in the description of the National Digital Library of India (NDL India) project are:

1. Technological Environment: The development of a virtual repository and single-window search facility showcases the use of advanced technology to provide digital learning resources.
2. Social Environment: The initiative supports diverse learners, including researchers, life-long learners, and differently-abled individuals, highlighting the social responsibility and inclusivity aspect of the project.

Q. 4. State the impact of demonetization on interest rates, private
wealth and real estate.

Ans.

Interest Rates: Demonetization led to increased bank deposits and financial savings, resulting in a decline in both lending and deposit rates.

Private Wealth: There was a reduction in private wealth as some high-denomination notes were not returned, and the real estate prices fell.

Real Estate: Property prices, especially in the luxury segment, declined significantly due to reduced cash transactions and the elimination of black money from the market.

Long Answer Type:

Q. 1. How would you characterize business environment? Explain with examples, the difference between general and specific environment.

Ans.

The business environment encompasses all external forces that affect an organization’s operations. It includes various factors that can impact a business’s performance and decision-making process. These factors can be broadly categorized into the general environment and the specific environment.

General Environment

The general environment consists of broader societal factors that affect all businesses. These factors are usually beyond the control of the organization but can influence their strategies and operations. Examples include:

1. Economic Factors: Economic conditions like inflation, unemployment rates, and economic growth can affect consumer purchasing power and business profitability. For example, a recession can reduce consumer spending, impacting all industries.
2. Technological Factors: Technological advancements can create new opportunities and threats for businesses. For instance, the rise of the internet and e-commerce has transformed the retail industry.
3. Social Factors: Social trends and cultural changes can influence consumer behavior and preferences. For example, increasing health consciousness has led to higher demand for organic products.
4. Political and Legal Factors: Government policies, regulations, and political stability can affect business operations. For instance, changes in tax laws or environmental regulations can impact business costs and compliance requirements.
5. Environmental Factors: Natural factors like climate change and resource availability can affect business operations. For example, businesses in coastal areas may need to prepare for the impact of rising sea levels.

Specific Environment

The specific environment, also known as the task environment, includes factors that directly affect an organization within its industry. These factors are more immediate and can vary significantly between different organizations. Examples include:

1. Customers: The needs, preferences, and behavior of customers directly impact business strategies and sales. For example, a company that understands its customer base can tailor its products and services to meet their demands.
2. Competitors: The actions and strategies of competitors can influence a business’s market position and performance. For example, a new entrant in the market may force existing businesses to innovate and improve their offerings.
3. Suppliers: The availability and cost of raw materials and other inputs can affect production processes and profitability. For example, a disruption in the supply chain can lead to delays and increased costs.
4. Distributors: The efficiency and effectiveness of distribution channels can impact how products reach customers. For example, a strong distribution network can enhance market reach and customer satisfaction.
5. Regulatory Agencies: Industry-specific regulations and compliance requirements can affect business operations. For example, a pharmaceutical company must adhere to strict regulations for drug development and approval.

Summary

In summary, the general environment includes broad factors like economic, technological, social, political, and environmental conditions that affect all businesses. The specific environment includes immediate factors like customers, competitors, suppliers, distributors, and regulatory agencies that directly impact a particular organization within its industry.

Understanding both the general and specific environment is crucial for businesses to adapt, innovate, and stay competitive in a dynamic market.

Q. 2. How would you argue that the success of a business enterprise is significantly influenced by its environment?

Ans.

The success of a business enterprise is significantly influenced by its environment in several ways:

1. Adapting to Economic Conditions: Economic factors like inflation, interest rates, and economic growth directly impact consumer spending power. For instance, during an economic downturn, businesses must adjust pricing strategies and cost structures to remain profitable.
2. Technological Advancements: Staying updated with technological advancements is crucial for innovation and competitiveness. For example, companies that adopted e-commerce early on gained a significant edge over traditional retailers.
3. Regulatory Compliance: Adhering to legal and regulatory requirements ensures smooth operations and avoids penalties. Changes in regulations, such as environmental laws, can affect production processes and costs.
4. Social Trends: Understanding societal trends helps businesses tailor products and services to meet changing consumer preferences. For example, the rising demand for eco-friendly products has led many companies to adopt sustainable practices.
5. Competitive Landscape: Analyzing competitors’ actions and strategies allows businesses to anticipate market shifts and innovate accordingly. For instance, a company may introduce new features or improve services to differentiate itself from competitors.
6. Globalization Impact: Expanding into global markets provides growth opportunities but also introduces challenges like cultural differences and varying regulatory environments. Successfully navigating these factors can significantly boost a company’s success.

Overall, a deep understanding of the business environment enables enterprises to make informed decisions, adapt to changes, and seize opportunities, thereby enhancing their chances of success.

Q. 3. Explain, with examples, the various dimensions of business environment.

Ans.

Certainly! The business environment consists of various dimensions that collectively influence an organization’s operations and strategies. Here are the key dimensions along with examples:

1. Economic Environment

Description: Economic factors such as inflation rates, interest rates, economic growth, and exchange rates.
Example: During an economic recession, consumer spending decreases, affecting retail businesses as people cut back on discretionary spending.

2. Technological Environment

Description: Advancements in technology that can impact production processes, communication, and market dynamics.
Example: The advent of the internet and e-commerce has revolutionized the retail industry, enabling companies like Amazon to offer a wide range of products online.

3. Political and Legal Environment

Description: Government policies, regulations, and legal requirements that businesses must comply with.
Example: The introduction of GDPR (General Data Protection Regulation) in the European Union requires companies to handle personal data with greater transparency and security, impacting data management practices.

4. Social and Cultural Environment

Description: Societal values, cultural norms, demographics, and consumer behavior.
Example: The increasing awareness of health and wellness has led to a growing demand for organic and natural food products, influencing the strategies of food companies.

5. Environmental and Ecological Environment

Description: Natural environmental factors, climate change, and sustainability concerns.
Example: Companies in the energy sector are investing in renewable energy sources like solar and wind power to address climate change and reduce their carbon footprint.

6. Competitive Environment

Description: The dynamics of competitors, market structure, and competitive strategies.
Example: In the smartphone industry, companies like Apple and Samsung continuously innovate and introduce new features to maintain a competitive edge.

7. Global Environment

Description: International factors, including global markets, trade policies, and cultural differences.
Example: A multinational company like McDonald’s must adapt its menu to cater to local tastes and cultural preferences in different countries.

By understanding these dimensions, businesses can better navigate their environment, anticipate changes, and make informed strategic decisions to achieve success.

Q. 4. The government of India announced Demonetization of ₹ 500
and ₹ 1,000 currency notes with effect from the midnight of November 8, 2016. As a result, the existing ₹ 500 and ₹ 1,000 currency notes ceased to be legal tender from that date. New currency notes of the denomination of ₹ 500 and ₹ 2,000 were issued by Reserve Bank of India after the announcement. This step resulted in a substantial increase in the awareness about and use of Point of Sale machines, e-wallets, digital cash and other modes of cashless transactions. Also, increased transparency in monetary transactions and disclosure led to a rise in government revenue in the form of tax collection.

a. Enumerate the dimensions of business environment highlighted above.

b. State the features of Demonetization

Ans.

a. Dimensions of Business Environment Highlighted

1. Technological Environment: The increased awareness and use of Point of Sale (POS) machines, e-wallets, and digital cash highlight the adoption of technology in monetary transactions.
2. Economic Environment: The move to demonetize high-denomination currency notes and issue new ones impacts the overall economy, influencing cash circulation and financial practices.
3. Regulatory Environment: The government’s decision to demonetize and introduce new currency notes indicates regulatory changes affecting businesses and the public.
4. Social Environment: The push towards cashless transactions reflects changing societal behaviors and preferences towards digital payments.

b. Features of Demonetization

1. Currency Exchange: The existing ₹500 and ₹1,000 notes ceased to be legal tender, and new ₹500 and ₹2,000 notes were issued.
2. Cashless Economy: Promoted the use of digital transactions, increasing the adoption of e-wallets and POS machines.
3. Transparency: Increased transparency in monetary transactions, leading to higher tax collection and reduced black money.
4. Economic Impact: Affected cash circulation, impacting various sectors and businesses.

Does this help clarify the impacts and features for you?

Q. 5. What economic changes were initiated by the Government under the Industrial Policy, 1991? What impact have these changes made on business and industry?

Ans.

The Industrial Policy of 1991 introduced several key economic changes aimed at liberalizing the Indian economy. These changes included:

1. Liberalization: Reduction in government control over the economy, allowing greater freedom for businesses to operate.
2. Privatization: Increased role of the private sector by selling or closing down loss-making public sector enterprises.
3. Globalization: Opening up the Indian economy to foreign trade and investment, promoting economic integration with the global market.

Impact on Business and Industry:

1. Increased Competition: Liberalization led to increased competition as foreign companies entered the Indian market.
2. Enhanced Efficiency: Privatization and deregulation forced businesses to become more efficient and competitive.
3. Growth Opportunities: Globalization provided businesses with access to new markets, technologies, and investment opportunities.
4. Economic Growth: These reforms contributed to higher economic growth rates and improved the overall business environment in India.

These changes transformed the Indian business landscape, fostering innovation, growth, and a more dynamic economy.

Q. 6. What are the essential features of:

a. Liberalisation,
b. Privatization and
c. Globalisation?

Ans.

a. Liberalisation

Liberalisation refers to the process of reducing government interventions and restrictions in the economy to encourage private enterprise and economic freedom. It aims to create a more competitive and efficient market environment.

Essential Features:

1. Deregulation: Removing or reducing government regulations and controls over industries, such as licensing requirements and bureaucratic hurdles.
2. Financial Sector Reforms: Modernizing the financial sector by allowing greater participation of private and foreign banks, deregulating interest rates, and promoting financial markets.
3. Tax Reforms: Simplifying the tax structure, reducing tax rates, and broadening the tax base to encourage investment and economic activity.
4. Trade Liberalization: Reducing tariffs and import restrictions to promote international trade and integration with the global economy.
5. Foreign Investment: Encouraging foreign direct investment (FDI) by relaxing investment norms and providing incentives to attract foreign capital and technology.
6. Public Sector Reforms: Reducing the role of the public sector in the economy by disinvesting or privatizing public sector enterprises and encouraging private sector participation.

Example: India’s economic reforms in 1991, which included deregulation of industries, trade liberalization, and opening up the financial sector, are a notable example of liberalization efforts.

b. Privatization

Privatization involves transferring ownership and control of public sector enterprises to private individuals or organizations. The goal is to improve efficiency, competitiveness, and profitability through private sector management.

Essential Features:

1. Disinvestment: Selling government stakes in public sector enterprises to private investors, either partially or fully.
2. Transfer of Ownership: Shifting ownership from the public to the private sector, which can involve outright sales, public offerings, or strategic partnerships.
3. Improved Efficiency: Enhancing operational efficiency by introducing private sector management practices, reducing bureaucratic inefficiencies, and focusing on profitability.
4. Market Competitiveness: Encouraging competition by reducing government monopolies and allowing private enterprises to operate in previously restricted sectors.
5. Resource Mobilization: Generating revenue for the government through the sale of public assets, which can be used for infrastructure development and social welfare programs.
6. Consumer Benefits: Providing better quality goods and services to consumers through increased competition and improved efficiency.

Example: The privatization of British Telecom in the UK during the 1980s is a prominent example, where the government sold its majority stake to private investors, leading to increased competition and improved services.

c. Globalisation

Globalisation refers to the process of increasing interconnectedness and interdependence among countries through the exchange of goods, services, information, and culture. It promotes economic integration and technological advancement on a global scale.

Essential Features:

1. Trade Expansion: Facilitating international trade by reducing trade barriers, such as tariffs and quotas, and promoting free trade agreements.
2. Foreign Investment: Encouraging cross-border investments and capital flows, enabling businesses to expand globally and access new markets.
3. Technology Transfer: Sharing and adopting technological advancements across borders, leading to innovation and increased productivity.
4. Cultural Exchange: Promoting the exchange of cultural practices, ideas, and values, leading to a more interconnected global society.
5. Labor Mobility: Allowing the movement of labor across countries, leading to a more diverse and skilled workforce.
6. Global Supply Chains: Developing complex and efficient supply chains that span multiple countries, optimizing production and distribution processes.

Example: The rise of multinational corporations like Apple and Toyota, which operate and source components from various countries, exemplifies globalization’s impact on global trade and economic integration.

These three concepts—liberalization, privatization, and globalization—have significantly reshaped the global economic landscape, promoting economic growth, efficiency, and interconnectedness. Understanding their essential features helps in comprehending the dynamic and evolving nature of modern economies.