NCERT Solutions for Class 12th: Ch 3 Business Environement

NCERT Solutions for Class 12th: Ch 2 Business Environement  Business Studies II

Page No: 92

Exercises

Multiple Choice

1. Which of he following does not characterise the business environment?
(a) Uncertainty
(b) Employees
(c) Relativity
(d) Complexity
► (b) Employees

2. Which of the following best indicates the importance of business environment?
(a) Identification
(b) Improvement in performance
(c) Coping with rapid changes
(d) All of them
► (d) All of them

3. Which of the following is an example of social environment?
(a) Money supply in the economy
(b) Consumer Protection Act
(c) The Constitution of the country
(d) Composition of family
► (d) Composition of family

4. Liberalisation means
(a) Integration among economies
(b) Reduced government controls and restrictions
(c) Policy of planned disinvestments
(d) none of them
► (b) Reduced government controls and restrictions

Page No: 93

5. Which of the following does not explain the impact of Government policy changes on business and industry?
(a) More demanding customers
(b) Increasing competition
(c) Change in agricultural prices
(d) Market orientation
► (c) Change in agricultural prices

Short Answer Type

1. What do you understand by business environment?

Answer

The 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. The economic, social, political, technological and other forces which operate outside a business enterprise are part of its environment also the individual consumers or competing enterprises as well as the governments, consumer groups, competitors, courts, media and other institutions working outside an enterprise constitute its environment.

2. Why it is important for business enterprises to understand their environment? Explain briefly.

Answer

It is important for business enterprises to understand their environment because:

→ It enables the firm to identify opportunities  and  getting 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.

→ It helps the firm to identify threats and early warning signals: Besides opportunities, environment happens to be the source of many threats. Environmental awareness can help managers to identify various threats on time and serve as an early warning signal.

→ It helps in tapping useful resources:Environment is a source of various resources for running a business. To engage in any type of activity, a business enterprise assembles various resources called inputs like finance, machines, raw materials, power and water, labour, etc., from its environment including financiers, government and suppliers.

→ It helps in coping with rapid changes: Today’s business environment is getting increasingly dynamic where changes are taking place at a fast pace. In order to effectively cope with these significant changes, managers must understand and examine the environment and develop suit- able courses of action.

→ It helps in assisting in planning and policy formulation: Since environment is a source of both opportunities and threats for a business enterprise, its understanding and analysis can be the basis for deciding the future course of action (planning) or training guidelines for decision making (policy).

→ It helps in improving performance: Many studies reveal that the future of an enterprise is closely bound up with what is happening in the environment. And, the enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period.

3. Mention the various dimensions of business environment.

Answer

The various dimensions of business environment are:

→ Economic Environment: This consists of interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee that can affect management practices in a business enterprise.

→ Social Environment: It include the social forces like customs and traditions, values, social trends, society’s expectations from business, etc.

→ Technological  Environment: It includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.

→ Political Environment: Political environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business.

→ Legal Environment: Legal environment includes various legislations passed by the Government administrative orders issued by government authorities, court judgments as well as the decisions rendered by various commissions and agencies at every level of the government - centre, state or local.

4. Briefly explain the following:
(a) Liberalisation
(b) Privatisation
(c) Globlisation

Answer

(a) Liberalisation: It means liberalising the business andindustry from all unnecessary controls and restrictions of the government in the form of licenses, permits and quotas. In India, liberalisation of industries initiated in 1991.

(b) Privatisation: It is a set of economic reforms aimed at giving greater role to the private sector in the nation building process and reducing the involvement of public sector. To achieve this, the government redefined the role of the public sector in the New Industrial Policy of 1991, adopted
the policy of planned disinvestments of the public sector and decided to refer the loss making and sick enterprises to the Board of Industrial and Financial Reconstruction.

(c) Globalisation: It means the integration of the various economies of the world leading towards the emergence of a cohesive global economy.

5. Briefly discuss the impact of Government policy changes on business and industry.

Answer

The impact of Government policy changes on business and industry are:

→ Increasing competition: The competition has increased due to entry of new players due to liberalisation and globalisation.

→ More demanding customers: Customers today have become more demanding because they are well-informed also increased competition in the market gives the customers wider choice.

→ Rapidly changing technological environment: The rapidly changing technological environment creates tough challenges before smaller firms.

→ Necessity for change: After 1991, the market forces have become unstable as a result of which the enterprises have to continuously modify their operations.

→ Need for developing human resource: The new market conditions require people with higher competence and greater commitment. Hence the need for developing human resources.

→ Market orientation: There is a shift to market orientation in as much as the firms have to study and analyse the market first and produce goods accordingly.

→ Loss of budgetary support to the public sector: The public sector undertakings have realised that in order to survive and grow, they will have to be more efficient and generate their own resources for the purpose.

Long Answer Type

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

Answer

Characteristics of business environment are:

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

→ Inter-relatedness: Different elements or parts of business environment are closely inter-related. For example, increased life expectancy of people and increased awareness for health care have increased the demand for many health products and services like diet Coke, fat-free cooking oil, and health resorts.

→ Dynamic nature: Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market.

→ Uncertainty: Business environment is total of different interrelated and dynamic forces. Thus, 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.

→ Complexity: Business environment consists of numerous interrelated and dynamic conditions or forces which arise from different sources, it becomes difficult to comprehend at once what exactly constitutes a given environment.

→ Relativity: Business environment is a relative concept since it differs from country to country and even region to region. For example: Political conditions in the USA, differ from those in China or Pakistan.

Difference between general and specific environment: The general environment includes the economic, technological, sociocultural, and political trends that indirectly affect all organizations. The specific environment includes the customer, competitor, supplier, industry regulation, and public pressure group trends that are unique to an industry and which directly affect how a company does business. All companies participate in the same general environment, but each company’s specific environment is distinct, based on its business and industry.

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

Answer

Any business enterprise do not exist in isolation. Each business firm is not an island unto itself, it exists, survives and grows within the context of the element and forces of its environment. A good understanding of environment by business managers enables them not only to identify and evaluate, but also to react to the forces external to their firms. A business environment role in success of a business enterprise can be understood by following points:

→ It enables the firm to identify opportunities and getting the first mover advantage: Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors. For example, Maruti Udyog became the leader in the small car market because it was the first to recognise the need for small cars in an environment of rising petroleum prices and a large middle class population in India.

→ It helps the firm to identify threats and early warning signals: Besides opportunities, environment happens to be the source of many threats. Environmental awareness can help managers to identify various threats on time and serve as an early warning signal. For example, if an Indian firm finds that a foreign multinational is entering the Indian market with new substitutes, it should act as a warning signal and they prepare themselves for by adopting measures such as improving the quality of the product, reducing cost of the production, engaging in aggressive advertising, and so on.

→ It helps in tapping useful resources: Environment is a source of various resources for running a business. To engage in any type of activity, a business enterprise  assembles  various resources  called inputs  like finance, machines, raw materials, power and water, labour, etc., from its environment including financiers,  government  and suppliers.

→ It helps in coping with rapid changes: Today’s business environment is getting increasingly dynamic where changes are taking place at a fast pace. All sizes and all types of enterprises are facing increasingly  dynamic environment. In order to effectively cope with these significant changes, managers must understand and examine the environment and develop suit- able courses of action.

→ It helps in assisting in planning and policy formulation: Since environment is a source of both opportunities and threats for a business enterprise, its understanding and analysis can be the basis for formulating the best possible policies to handle the future. For example, entry of new players in the market, which means more competition may make an enterprise think afresh about how to deal with the situation.

→ It helps in improving performance: Many studies reveal that the future of an enterprise is closely bound up with what is happening in the environment. The enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period.

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

Answer

The various dimensions of business environment are:

→ Economic Environment: Interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee are some of the economic factors that can affect management practices in a business enterprise. Short and long term interest rates significantly affect the demand for product and services.

For example, in case of construction companies and automobile manufacturers, low longer-term rates are beneficial because they result in increased spending by consumers for buying homes and cars on borrowed money.

→ Social Environment: This include the social forces like customs and traditions, values, social trends, society’s expectations from business, etc. Traditions define social practices that have lasted for decades or even centuries. 

For example, the celebration of Diwali, Id, Christmas, and Guru Parv in India provides significant financial opportunities for greetings card companies, sweets or confectionery manufacturers, tailoring outlets and many other related business.

→ Technological Environment: This includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business. 

For example, recent technological, advances in computers and electronics have modified the ways in which companies advertise their products. It is common now to see CD-ROM’s, computerised information counter, and Internet/World Wide Web multimedia pages highlighting the virtues of products.

→ Political Environment: Political environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business. Political stability,builds up confidence among business people to invest in the long term projects for the growth of the economy while political instability can shake that confidence. 

For example, even after opening up of our economy in 1991, foreign companies found it extremely difficult to cut through the bureaucratic red tape to get permits for doing business in India.

→ Legal Environment: Legal environment includes various legislations passed by the Government administrative orders issued by government authorities, court judgments as well as the decisions rendered by various commissions and agencies at every level of the government— centre, state or local. It is imperative for the management of every enterprise to obey the law of the land.
For example, the advertisement of alcoholic beverages is prohibited. Advertisements, including packets of cigarettes carry the statutory warning ‘Cigarette smoking is injurious to health’.

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

Answer

The economic changes that were initiated by the Government under the Industrial Police, 1991 are:

→ The Government reduced the number of industries under compulsory licensing to six.
→ Many of the industries reserved for the public sector under the earlier policy, were dereserved. The role of the public sector was limited only to four industries of strategic importance.
→ Disinvestment was carried out in case of many public sector industrial enterprises.

→ Policy towards foreign capital was liberalised. The share of foreign equity participation was increased and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted.

→ Automatic permission was now granted for technology agreements with foreign companies.

→ Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India.
The impact which these changes made on business and industry are:

→ Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign  firms,  competition for Indian firms has increased especially in service industries like telecommunications, airlines, banking, insurance, etc. which were earlier in the public sector.

→ More demanding customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.
→ Rapidly changing technological environment: Increased com- petition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services. The rapidly changing technological environment creates tough challenges before smaller firms.
→ Need for developing human resource: Indian enterprises have suffered for long with inadequately trained personnel. The new market conditions require people with higher competence and greater commitment. Hence the need for developing human resources.

→ Market orientation: Earlier firms used to produce first and go to the market for sale later. In other words, they had production oriented marketing operations. In a fast changing world, there is a shift to market orientation in as much as the firms have to study and analyse the market first and produce goods accordingly.
→ Loss of budgetary support to the public sector: The central government’s budgetary support for financing the public sector outlays has declined over the years. The public sector undertakings have realised that, in order to survive and grow, they will have to be more efficient and generate their own resources for the purpose.

5. What are the essential features of
(a) Liberalisation, (b) Privatisation and (c) Globalisation?

Answer

(a) Liberalisation: It means liberalising the business andindustry from all unnecessary controls and restrictions of the government in the form of licenses, permits and quotas. The essential features are:
→ Abolishing licensing requirement in most of the industries except a short list

→ Freedom in deciding the scale of business activities i.e., no restrictions on expansion or contraction of business activities
→ Removal of restrictions on the movement of goods and services
→ Freedom in fixing the prices of goods services,

→ Reduction in tax rates and lifting of unnecessary controls over the economy,

→ Simplifying procedures for imports and experts

→ Making it easier to attract foreign capital and technology to India.

(b) Privatisation: It is new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector. The features are:
→ The Government adopted the policy of planned disinvestments of the public sector which results in dilution of stake of the Government in the public enterprise.
→ The Board of Industrial and Financial Reconstruction was established for revival of the loss making and sick enterprises

(c) Globalisation: It means the integration of the various economies of the world leading towards the emergence of a cohesive global economy. Its main features are:
→ Licensing of imports,
→ Tariff restrictions and
→ Quantitative  restrictions

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