BUSINESS ENVIRONMENT

Business Environment: Definition

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.

Importance of Business Environment

1. It enables the firm to identify opportunities and getting the first mover
advantage instead of losing them to its competitors.
2. It helps the firm to identify threats and early warning signals which are likely to
hinder a firm’s performance and take timely actions.
3. It helps in tapping useful resources as 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.
4. It helps in coping with rapid changes as the managers are able to understand and
examine the environment and develop appropriate courses of action.
5. It helps in assisting in planning and policy formulation as its understanding and
analysis can be the basis for deciding the future course of action or decision making.
It helps in improving performance of an enterprise through continuous monitoring of
the environment and adopting suitable business practices which help to improve both
their present and future performance
6. It helps in improving performance of an enterprise through continuous monitoring
of the environment and adopting suitable business practices which help to improve
both their present and future performance

Features of Business Environment

1. It is a sum total of all the forces external to business firms.

2. It consists of both specific forces such as investors, customers, competitors and
suppliers which affect individual enterprises directly and immediately in their day-
to¬day working and general forces such as social, political, legal and technological
conditions which have impact on all business enterprises and thus may affect an
individual firm only indirectly.
3. All the elements of business environment are closely interrelated.
4. It is dynamic in nature and keeps on changing due to technological upgradations,
shifts in consumer preferences or increase in competition in the market.
5. It is highly uncertain as it is not always possible to predict future happenings,
especially when environment changes are taking place too frequently as in the case of
information technology or fashion industries.
6. It is complex in nature as it is relatively easier to understand in parts but difficult to
comprehend in its totality because it consists of numerous interrelated and dynamic
conditions or forces which arise from different sources.
7. It is a relative concept since it differs from country to country and even region to
region

DIMENSIONS OF BUSINESS ENVIRONMENT

Dimensions of the business environment include economic, social, technological, political
and legal conditions which are considered relevant for decision-making and improving the
performance of an enterprise.
Various Factors Constituting the General Environment of Business

1. Economic Environment comprises of factors that can affect management practices

ina business enterprise. It includes interest rates, inflation rates, changes in disposable
income of people, stock market indices and the value of rupee etc.
2. Social Environment includes the social forces like customs and traditions, values,
social trends, society’s expectations from business, etc.
3. Technological Environment includes forces relating to scientific improvements and
innovations which provide new ways of producing goods and services and new
methods and techniques of operating business.
4. Political Environment includes political conditions such as general stability and
peace in the country and specific attitudes that elected government representatives
hold towards business.
5. 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— center, state or local.

ECONOMIC ENVIRONMENT IN INDIA

Various Macro-level Factors of Economic Environment in India

1. Stage of economic development of the country.

2. The economic structure in the form of mixed economy which recognises the role of
both public and private sectors.
3. Economic policies of the Government, including industrial, monetary and fiscal
policies.
4. Economic planning, including five year plans, annual budgets, and so on.
5. Economic indices, like national income, distribution of income, rate and growth of
GNP, per capita income, disposal personal income, rate of savings and investments,
value of exports and imports, balance of payments, etc.
6. Infrastructural factors, such as, financial institutions, banks, modes of transportation
communication facilities etc.

The Constituents of Economic Environment of Business in India at the time of

Independence

1. The Indian economy was mainly agricultural and rural in character.

2. About 70% of the working population was employed in agriculture.
3. About 85% of the population was living in the villages.
4. Production was carried out using irrational, low productivity technology
5. Communicable diseases were widespread, mortality rates were high and there was no
good public health system.

Key Aspects of the Economic Planning in India After Independence

1. Initiate rapid economic growth to raise the standard of living, reduce unemployment
and poverty.
2. Become self-reliant and set upa strong industrial base with emphasis on heavy and
basic industries.
3. Reduce inequalities of income and wealth.
 4. Adopt a socialist pattern of development— based on equality and prevent exploitation
of man by man.

NEW INDUSTRIAL POLICY OF 1991

Three Major Componenets of New Industrial Policy of 1991

1. Liberalisation
2. Privatisation
3. Globalisation

Disinvestment definition
Disinvestments refers to transfer from public sector enterprises to the private sector through
dilution of state of the Government in the public enterprise

The Broad Feature of New Industrial Policy, 1991

1. The Government reduced the number of industries under compulsory licensing to six.
2. 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.
3. Disinvestment was carried out in case of many public sector industrial enterprises.
4. The share of foreign equity participation was increased and in many activities 100 per
cent Foreign Direct Investment (FDI) was permitted.
5. Automatic permission was now granted for technology agreements with foreign
companies.
6. Foreign Investment Promotion Board (FIPB) was set up to promote and channelise
foreign investment in India.

Liberalisation
These economic reforms signalled the The new set of economic Globalisation means the end
of the licence-permit-quota raj reforms aimed at giving integration of the various and were
aimed at liberalising the greater role to the private economies of the world Indian business
and industry from all sector in the nation building leading towards the unnecessary controls
and restrictions.
Simplifying procedures for imports and exports.
Key initiatives of the government:

1. Abolishing licensing requirement in most of the industries except a short list .

2. Freedom in deciding the scale of business activities
3. Removal of restrictions on the movement of goods and services.
4. Freedom in fixing the prices of goods and services.
5. Reduction in tax rates and lifting of unnecessary controls over the economy.
6. Making it easier to attract foreign capital and technology to India.

Privatisation
The new set of economic Globalisation means the end of the licence-permit-quota raj reforms
aimed at giving integration of the various and were aimed at liberalising the greater role to
the private economies of the world Indian business and industry from all sector in the nation
building leading towards the
unnecessary controls and restrictions. process and a reduced role emergence of a cohesive to
the public sector.
Key initiatives of the government:

1. Adopted the policy of planned disinvestments of the public sector.

2. Decided to refer the loss making and sick enterprises to the Board of Industrial and
Financial Reconstruction.

Globalisation
These economic reforms signalled the The new set of economic Globalisation means the end
of the licence-permit-quota raj reforms aimed at giving integration of the various and were
aimed at liberalising the greater role to the private economies of the world Indian business
and industry from all sector in the nation building leading towards the unnecessary controls
and restrictions. process and a reduced role emergence of a cohesive to the public sector.
global economy.
Key initiatives of the government:

1. Import liberalisation and export promotion through rationalisation of the tariff

structure and reforms with respect to foreign exchange.
2. Increased level of interaction and interdependence among the various nations of the
global economy.

MIND MAP
Impact of Government Policy Changes on Business and Industry/ Challenges faced by
the
Indian Corporate Sector

1. Increasing competition for Indian firms due to changes in the rules of industrial
licensing and entry of foreign firms.
2. More demanding customers as they are more aware and are offered wider choice in
purchasing better quality of goods and services due to high competition.
3. Repidly changing technological environment creates tough challenges before smaller
firms.
4. Necessity for change in the way of their operations.
 5. Need for developing human resource as the new market conditions require people
with higher competence and greater commitment. Hence the need for developing
human resources.
6. Market orientation as the firms have to study and analyse the market first and produce
goods accordingly.
7. Loss of budgetary support to the public sector has declined over the years

Managerial Response to Changes in Business Environment

1. Acquisitions and mergers

2. Diversification
3. Brand building
4. Innovative distribution and selling techniques.
5. Changes in capital structure
6. Customer-oriented approach
7. Technological developments
8. Better labour relations

Case study Questions

Question 1:
Metlapp Networks and Technologies Ltd. is a leader in technology innovation in the United
States, creating products and solutions for connecting the world. It has,, a large research and
development team which invented the first smart watch, named as W-7. The watch besides
showing the time, also monitors few health parameters like heart beat, blood pressure etc.
While in search of markets abroad, the company found that in India, the reform process was
underway with the aim of accelerating the pace of economic growth. The company decided to
take advantage of simplified export procedure and removal of quantitative as well as tariff
restrictions in India.
It set up its office in Jamnagar with a view to capture the Indian market. In a short span of
time, the company emerged as a market leader. Success of the company attracted many other
players to enter the market. Competition resulted in reduction in prices, thereby benefiting the
customers.

1. In the above paragraph, two major concepts related to government policy have been
discussed. Identify and explain these concepts.
2. Also, explain briefly any three impacts of these concepts on Indian business and
industry.

Answer:

1. Liberalisation and globalisation are the two major concepts related to government
policy that have been discussed.
o Liberalisation: These economic reforms signalled the end of the licence-pemit-
quota raj and were aimed at liberalising the Indian business and industry from
all unnecessary controls and restrictions.
o Globalisation: Globalisation means the integration of the various economies of
the world leading towards the emergence of a cohesive global economy.
2. The three impacts of reforms on Indian business and industry are outlined below:
 o Increasing competition: The Indian firms are facing lot of competition due to
changes in the rules of industrial licensing and entry of foreign firms. This
change is more apparent in the sectors which were earlier reserved for private
sector only like banking, insurance, telecommunications, etc.
o More demanding customers: With the easy availability of wider choice in
purchasing better quality of goods and services due to high competition
consumers have become more aware and demanding. The growing expections
of the consumers has increased the pressure on the business firms.
o Rapidly changing technological environment: With the entry of new firms
which are far more superior in terms of technology the small firms are facing a
lot of challenges. Moreover, the firms are constantly involved in innovating
new products and upgrading present products with the help of better
technologies in order to satisfy the customers demands.

Question 2:
Naman and Govind after finishing their graduation under vocational stream decided to start
their own travel agency which will book Rail Tickets and Air Tickets on commission basis.
They also thought of providing tickets within ten minutes through the use of internet. They
discussed the idea with their Professor Mr. Mehta who liked the idea and suggested them to
first analyse the business environment which consists of investors’, competitors and other
forces like social, political etc. that may affect their business directly or indirectly. He further
told them about the technological improvements and shifts in consumer preferences that were
taking place and hence they should be aware of the environmental trends and changes which
may hinder their business performance. He emphasised on making plans keeping in mind the
threat posed by the competitors, so that they can deal with the situation effectively. This
alignment of business operations with the business environment will result in better
performance.

1. Identify and state the component of business environment highlighted in the above
Para.
2. State any two features of business environment as discussed by Professor Mehta with
Naman and Govind.
3. Also state two points of importance of business environment as stated by Professor
Mehta in the above situation.

Answer:

1. Technological Environment is the component of business environment highlighted in

the above Para. Technological Environment 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.
2. The two features of business environment as discussed by Professor Mehta with
Naman and Govind are as follows:
o Dynamic nature: It is dynamic in nature and keeps on changing due to
technological upgradations, shifts in consumer preferences or increase in
competition in the market.
o Inter-relatedness: All the elements of business environment are closely
interrelated. Therefore, any change is one element may necessitate
corresponding changes in the other elements as well.
 3. The two points of importance of business environment as stated by Professor Mehta
in the above situation are described below:
o It enables the firm to identify opportunities and getting the first mover
advantage: The dynamic business environment provides numerous
opportunities for a business to evolve as per the changing needs. Therefore,
early identification of the forthcoming opportunities helps an enterprise to be
the first to exploit them instead of losing them to the competitors.
o It helps the firm to identify threats and early warning signals: Sometimes the
changes in the external environment may pose as a threat and hinder a firm’s
performance. An awareness about the business environment helps the
managers to identify such threats on time and take necessary decisions and
action.

Question 3:
With changes in the consumption habits of people, Neelesh, who was running a sweet shop,
shifted to the chocolate business. On the eve of Diwali, he offered chocolates in attractive
packages at reasonable prices. He anticipated huge demand and created a website chocolove.
com for taking orders online. He got a lot of orders online and earned huge profits by selling
the chocolate.
Identify and explain the dimensions of business environment discussed in the above case.
Answer:
The various dimensions of business environment being referred to in the above case are as
follows:

1. Social environment: Social Environment includes the social forces like customs and
traditions, values, social trends, society’s expectations from business, etc.
2. Technological environment: Technological Environment 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.

Question 4:
A recent rate cut in the interest on loans announced by the banks encouraged Amit, a science
student of Progressive School, to take a loan from State Bank of India to experiment and
develop cars to be powered by fuel produced from garbage. He developed such a car and
exhibited it in the Science Fair organised by the Directorate of Education. He was awarded
the first prize for his invention.
Identify and explain the dimensions of business environment discussed in the above case.
Answer:
The various dimensions of business environment being referred to in the above case are as
follows:

1. Economic Environment: It comprises of factors that can affect management practices

in a business enterprise includes interest rates, inflation rates, changes in disposable
income of people, stock market indices and the value of rupee etc.
2. 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.

Question 5:
‘Accent Electronics Ltd.’ was operating its business in Malaysia. The company started
exporting its products to India when the Prime Minister announced relaxation in import
duties on electronic items. The company appointed retailers in India who had direct online
links with the suppliers to replenish stocks when needed.
Identify and explain the dimensions of business environment discussed in the above case.
Answer:
The various dimensions of business environment being referred to in the above case are as
follows:

1. 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.
2. Technological Environment: Technological Environment 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.

Question 6:
After completing her MBA, Beni took up a job with a multinational company named Fortio.
The company paid good salaries and perks to its employees. The wages were within the
paying capacity of the company that provided the employees with a reasonable standard of
living. The company also had a good work-culture and the behaviour of superiors was very
good towards their subordinates. Beni was very happy in this organisation but due to long
working hours, she did not have time to cook her meals. She had to depend upon outside food
which was deteriorating her health.
She observed that this problem was faced by many of her colleagues, not only in her
company but also in many other companies. This was because of increase in the number of
working women and non-availability of hygienic home-cooked food. She identified this as a
great opportunity and decided to give up her job to supply packaged home-cooked food to
office-goers at a reasonable price. At the end of the day, she also distributed the leftover food
to the nearby night-shelters.

1. State the dimension of business environment being discussed above.

2. State the principle of management being followed by Fortio.
3. Identify any two values being communicated by the company to society in above
case.

Answer:

1. The dimension of business environment being discussed above is Social.

Social Environment includes the social forces like customs and traditions, values,
social trends, society’s expectations from business, etc.
2. The principle of management being followed by Fortio is ‘Remuneration of
employees’. Remuneration of employees: The overall pay and compensation should
be fair to both employees and the organization. The employees should be paid fair
wages, which should give them at least a reasonable standard of living. At the same
time it should be within the paying capacity of the company i.e. remuneration should
be just and equitable.
3. The values being communicated by the company to the society are:
o Justice
o Ethical Behaviour
Question 7:
After completing his MBA from the USA, Mr. Ajay came to India to start a new business
under the banner Ecom Creations Ltd. He launched a new product in e-learning for senior
secondary school students in the commerce stream which already had an established market
in the UK and the USA but not in India. His business started flourishing in India. As a result,
more Indian companies entered into the market with other subjects also.
Identify and quote the lines from the above paragraph which highlight the significance of
understanding business environment.
Answer:

1. The understanding of business environment helps in assisting in planning and policy

formulation as its understanding and analysis can be the basis for deciding the future
course of action or decision making.
It enables the firm to identify opportunities and getting the first mover advantage
instead of losing them to its competitors.
” After completing his MBA from USA, Mr. Ajay came to India .to start a new
business under the banner Ecom Creations Ltd. He launched a new product in e-
learning for senior secondary school students in the commerce stream which already
had an established market in UK and the USA but not in India.”
2. It helps in improving performance of an enterprise through continuous monitoring of
the environment and adopting suitable business practices which help to improve both
their present and future performance.
“His business started flourishing in India.”
3. It helps the firm to identify threats and early warning signals that is likely to hinder a
firm’s performance and take timely actions.
“As a result, more Indian companies entered into the market with other subjects.”

Question 8:
As per the directions issued by the Supreme Court, the government passed an order to ban the
sale of tobacco products within the area of 200 meters of all educational institutions as:

1. Its consumption is injurious to health.

2. People are becoming more conscious about health and fitness. This indicates the
government’s attitude towards this business.
Identify the business environment under three different dimensions by quoting from
above paragraph.

Answer:
The various dimensions of business environment being referred to the in the above case are
as follows:

1. Legal Environment: “As per the directions issued by the Supreme Court.’
2. Political Environment: “The government passed an order to ban the sale of tobacco
products within the area of 200 meters of all educational institutions.”
3. Social Environment: “Its consumption is injurious to health and people are becoming
more conscious about health and fitness.”

Question 9:
The court passed an order to ban polythene bags as:
 1. These bags create many environmental problems which affect the life of people.
2. Society at large is more concerned about the quality of life.
The government decided to give a subsidy to the jute industry in order to promote this
business. As a result,—
o Innovative techniques are being developed to manufacture jute bags at low
rates.
o Incomes are rising and people can afford to buy these bags.
Identify the different dimensions of business environment by quoting lines
from the above particulars.

Answer:
The various dimensions of business environment being referred to in the above case are as
follows:

1. Legal Environment: “The court passed an order to ban polythene bags.”

2. Social Environment: “The bags create many environmental problems which affect the
life of people and society at large is more concerned about the,,quality of life.”
3. Political Environment: “The government decided to give a subsidy to the jute industry
in order to promote this business.”
4. Technological environment: “Innovative techniques are being developed to
manufacture jute bags at low rate.”
5. Economic Environment: “Incomes are rising and people can afford to buy these
bags.”

Question 10:
The court passed an order that all schools must have water purifiers for the school children
as:

1. Society in general is more concerned about the quality of life. .

2. Innovative techniques are being developed to manufacture water purifiers at
competitive rates.
3. Incomes are rising and children are drinking purified water at their homes as well.
4. The Government is also showing a positive attitude towards the business of water
purification.
Identify the different dimensions of business environment by quoting from the above
details.

Answer:
The various dimensions of business environment being referred to the in the above case are
as follows:

1. Legal Environment: “The court passed an order that all schools must have water
purifiers for the school children.”
2. Social Environment: “Society in general is more concerned about the quality of life.”
3. Political Environment: “The government is also showing a positive attitude towards
the business of water purifiers.”
4. Technological environment: “Innovative techniques are being developed to
manufacture water purifiers at competitive rate.”
5. Economic Environment: “Incomes are rising and children are drinking purified water
at their homes as well.”
Question 11:
Just after the declaration of the results of the Lok Sabha Elections, 2009, the Bombay Stock
Exchange’s price index (Sensex) rose by 2100 points in a day. Identify the environmental
factor which led to this rise.
Answer:
Political environment has led to the rise in the sensex.

Question 12:
The Government of India is seriously thinking of allowing the oil-marketing public sector
undertaking to fix their own prices for petrol and diesel. Which economic reform is the
reason for this change in the government’s policy?
Answer:
Privatisation as a reform is the reason for this change in the government policy.

ADDITIONAL QUESTIONS

Question 1:
On 8 November 2016, the Government of India announced the demonetisation making
all Rs.500 and Rs. 1,000 banknotes of the Mahatma Gandhi Series invalid past midnight. The
government claimed that the action would curtail the use of illicit and counterfeit cash to fund
illegal activity and terrorism. The BSE SENSEX and NIFTY 50 stock indices fell over 6
percent on the day after the announcement. The decision was heavily criticised by members
of the opposition parties, leading to debates in both houses of parliament and triggering
organised protests against the government in several places across India. People seeking to
exchange their bank notes had to stand in lengthy queues, and several deaths were linked to
the inconveniences caused due to the rush to exchange cash. After demonetisation the
demand for point of sales (POS) or card swipe machines has increased. E-payment options
like PayTM has also seen a rise.
In context of the above case:

1. Identify and explain the various dimensions of business environment which relate to
the above-mentioned case.
2. List any through two values that the government seeks to promote through
demonetisation.

Answer:

1. The various dimensions of business environment which relate to the above mentioned
case are outlined below:
o 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.
o Technological environment: Technological Environment 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.
o 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 .
 oSocial environment: Social Environment includes the social forces like
customs and traditions, values, social trends, society’s expectations from
business, etc.
o Economic Environment: Economic Environment comprises of factors that can
affect management practices in a business enterprise includes interest rates,
inflation rates, changes in disposable income of people, stock market indices
and the value of rupee etc.
2. The two values that the government seeks to promote through demonitisation are:
o Transparency in dealings
o Promote well being of people

Question 2:
Post demonitisation in a further push to cashless economy, the Central cabinet has recently
approved the ordinance for paying wages via electronic means. Accordingly, the government
approved to Amend Section 6 of the Payment Of Wages Act 1936, to allow employers of
certain industries to make payment through the electronic mode and cheques . The new
ordinance will be applicable to the public sector. Identify the various dimensions of business
environment which relate to the above mentioned case.
Answer:
The various dimensions of business environment which relate to the above mentioned case
stated below:

1. Political environment
2. Legal environment
3. Technology environment

Question 3:
Make in India is an initiative launched by the Government of India to encourage national and
multinational companies to manufacture their products in India. It focuses on job creation and
skill enhancement and is in twenty five sectors of the economy. Under the initiative,
brochures on these sectors and a web portal were released. The initiative aims at high quality
standards and minimising the impact on the environment. It also seeks to attract foreign
capital investment in India.
In context of the above case:

1. Identify the various dimensions of business environment being referred to by quoting

lines from the paragraph.
2. List any two values which the Government of India wants to convey through this
initiative.

Answer:

1. The various dimensions of business environment being referred to in the above case
are as follows:
o Political Environment: “Make in India is an initiative launched by the
Government of India to encourage national and multinational companies to
manufacture their products in India.”
o Technological Environment: “Under the initiative, brochures on the twenty
five sectors and a web portal were released.”
 o Economic Environment: “It also seeks to attract foreign capital investment in
India.”
2. The two values which the Government of India wants to convey through this initiative
are:
o High quality standards
o Concern for environment

Question 4:
India’s retail sector has been undergoing structural changes for the last two decades. On one
hand, the ‘mall culture’ has gradually become a way of life, especially in the metros and
mini¬metros. On the other hand, there is accelerated growth in e-business as customers also
prefer to buy products and services via the Internet, telephone and television. However,
operating in either of the segments is marked by the presence of strong competitors.
Identify the components of specific forces and general forces being discussed in the above
paragraph.
Answer:
The components of specific forces discussed in the above paragraph are the customers and
competitors.
The components of general forces discussed in the above paragraph is the social and
technological conditions.

Question 5:
Kapil Sharma is working as the Country Head of a company which owns a chain of malls
under the name of ‘Virtuoso’ in the various parts of India. Through an analysis report of the
business environment, it has been brought to his notice that in the coming years, shopping at
a mall will not be a necessity for the buyers as purchases can be made online from anywhere
and at any time with ease and at the consumer’s convenience. Hence, malls will have to
provide much more than shopping to be able to attract customers. So, he recommends that
‘Virtuoso’ malls should to be restructured into recreation centres, offering more spaces to
socialise, host events and concerts, and provide ample Food and Beverages options.
Consequently the share of entertainment segment and Food and Beverages segment in the
overall mall space is increased by 20%. As a result, the company gains enormously by getting
the first mover advantage.
In context of the above case :

1. Define the term ‘Business Environment’.

2. Explain the terms ‘Threats’ and ‘Opportunities’ by quoting lines from the paragraph.

Answer:

1. 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.
2. The term ‘Threats’ refers to the external environment, trends and changes that will
hinder a firm’s performance.
“Through an analysis report of the business environment, it has been brought to his
notice that in the coming years, shopping at a mall will not be a necessity for the
buyers as purchases can be made online from anywhere and at any time with ease and
at the consumer’s convenience. Hence, malls will have to provide much more than
shopping to be able to attract customers.”
 The term ‘opportunities’ refers to the positive external trends or changes that will help
a firm to improve its performance.
“As a result, the company gains enormously by getting the first mover advantage.”

Question 6:
“Zero Defect Zero Effect” (ZED) is a slogan coined by the Prime Minister of India, Narendra
Modi with reference to the Make in India initiative launched by the government. The slogan
reflects the efficiency of production processes, i.e. the products have no defects and the
process through which the product is made has zero adverse environmental and ecological
effects. The ZED model aims to make India the manufacturing hub of the world and prevent
the products developed in India from being rejected by the global market. Moreover, before
the initiative was launched, the limits of foreign direct investment in various sectors had been
relaxed. The application for licences was made available online and the validity of licences
was increased to three years. Various other norms and procedures were also relaxed by the
government. In the light of the above paragraph, identify and explain the major component of
New Economic Policy of 1991 that are being referred to by quoting lines from the paragraph.
Answer:
The major components of New Economic Policy of 1991 that are being referred to are as
follows:

1. Liberalisation: These economic reforms signalled the end of the licence-pemit-quota

raj and were aimed at liberalising the Indian business and industry from all
unnecessary controls and restrictions.
“Moreover, before the initiative was launched, the limits of foreign direct investment
in various sectors had been relaxed. The application for licences was made available
online and the validity of licences was increased to three years. Various other norms
and procedures were also relaxed by the government.”
2. Globalisation: Globalisation means the integration of the various economies of the
world leading towards the emergence of a cohesive global economy.
“The ZED model aims to make India the manufacturing hub of the world and prevent
the products developed in India from being rejected by the global market.”

Question 7:
It is interesting to know that the menu items of the multinational food chains are customised
to suit the general palates of the local people in the region. When McDonald’s started its
business in India in the year 1996, the company went through a complete localisation
strategy. McDonald’s changed its product menu to accommodate the vegetable burger given
the large vegetarian population. It also altered its store design and even reduced the product
price by close to fifteen per cent. Also , the “McAloo Tikki burger” is not available anywhere
but in the Indian outlets of McDonalds.
Identify the relevant feature of business environment being discussed above.
Answer:
Relativity is the relevant feature of business environment which is being discussed above.

Question 8:
Eco-friendly products are gaining power as the consumers’ awareness about environmental
issues has increased over the years and they are conscious about choosing products that do
not have adverse effects on the environment. They are now more conscious about the carbon
emission and climate change effects, and want themselves to be ‘seen’ as a green advocate
among their peers. In such a scenario, it has become a challenge for the companies as they
have to not only meet the needs of the consumers but also ensure that their products are safe
and environment friendly. As a result, there is growing need for better and advanced
technologies to works as a catalyst in this regard.

1. Identify the relevant feature of business environment being discussed above.

2. Describe briefly any three points which highlight the importance of business
environment and its understanding by managers.

Answer:

1. Inter-relatedness is the relevant feature of business environment which is being

discussed above.
2. The three points which highlight the importance of business environment and its
understanding by managers are described below:
o It enables the firm to identify opportunities and getting the first mover
advantage: The dynamic business environment provides numerous
opportunities for a business to evolve as per the changing needs. Therefore,
early identification of the forthcoming opportunities helps an enterprise to be
the first to exploit them instead of losing them to the competitors.
o It helps the firm to identify threats and early warning signals: Sometimes the
changes in the external environment may pose as a threat and hinder a firm’s
performance. An awareness about the business environment helps the
managers to identify such threats on time and take necessary decisions and
action.
o It helps in tapping useful resources: As 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.

Question 9:
In the year 2016, the State Government of Kerala had made it mandatory for anganwadis
hostels and canteens in educational institutions to secure the Food Safety and Standards
Authority of India (FSSAI) licence to ensure food safety. As the educational institutions also
get categorised as food business operators in the event of the annual turnover of the hostels,
they run exceeding Rs. 12 lakh per annum.
In context of the above case:

1. Identify and explain the various dimensions of business environment being referred to
here.
2. List any two values which the State Government of Kerala wants to convey through
this initiative.

Answer:

1. The various dimensions of business environment being referred to in the above case
are as follows:
o 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.
o 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 -Center, State or Local .
2. The two values which the State Government of Kerala wants to convey through this
initiative are:
o High quality standards
o Good health

Question 10:
Postage stamps have been unveiled to commemorate 140 years of existence of the country’s
first stock exchange the Bombay Stock Exchange (BSE). The setting up of BSE is considered
to be the greatest revolution that took place in the financial markets in India as it acts as a key
driver for economic growth of a country. This is due to the fact that there exists a strong
corelation between economic growth and capital accumulation.
In the context of the above case:

1. Identify the dimension of business environment of India being referred here.

2. State any three factors which broadly affect the dimension of business environment of
India as identified in part (a) of the question.

Answer:

1. Economic environment is the dimension of business environment of India being

referred here.
2. The three factors which broadly affect the economic environment of India are stated
below:
o Stage of economic development of the country.
o The economic structure in the form of mixed economy which recognises the
role of both public and private sectors.
o Economic planning, including five year plans, annual budgets, and so on.

Question 11:
The organic food market in India is growing at 25-30 per cent which reflects a clear shift in
consumer tastes and preferences. The current growth in the organic food market is driven by
multiplicity of factors like rising health consciousness, changing lifestyles, increase in
disposable income and growing availability of organic food products in shopping malls, retail
outlets and online.
In context of the above case:

1. Identify and explain the features of business environment being referred to here.
2. By quoting phrases from the paragraph identify the various components of general
forces which have led to a growth in the organic food market.

Answer:

1. The features of business environment being referred to in the above case are as
follows:
o Dynamic nature: It is dynamic in nature and keeps on changing due to
technological upgradations, shifts in consumer preferences or increase in
competition in the market.
 o Inter-relatedness: All the elements of business environment are closely
interrelated. Therefore, any change is one element may necessitate
corresponding changes in the other elements as well.
2. The various components of general forces which have led to a growth in the organic
food market are as follows:
o Social: “rising health consciousness, changing lifestyles”
o Economic: “increase in disposable income”
o Technological: “growing availability of organic food products in shopping
malls, retail outlets and online.”

Question 12:
Anurag, aspires to work with a socially and environmentally committed company as he does
not want to work just for monetary benefits but also the brand value of the company he works
for in the society matters a lot to him. Therefore, he has joined Cerebra Integrated
Technologies a Bengaluru-based Infotech company. The company has built India’s largest e-
waste recycling plant. The company strives to be one of the leading players in this business
which has huge potential not only in terms of generating huge revenues and profits but also
wants to contribute to the environment issues that have become crucial worldwide. The
company sees big business in the mountains of e-waste in Bengaluru which produces 200,000
tonnes of e-waste a year. The company plans to make its millions by extracting metals such
as gold and platinum from the e-waste piling up in the city. As a mobile phone, for example,
is made up of a combination of rare earth and precious metals: it contains 250 mg of silver,
24 mg of gold and nine mg of palladium while a laptop has 1,000 mg of silver, 220 mg of
gold and 500 grams of copper.
To start the business, the company has obtained a licence from KSPCB ( Karnataka State
Pollution Control Board) .
In context of the above case:

1. Identify the various dimensions of business environment being referred to by quoting

lines from the paragraph.
2. List any two values which the company wants to convey to the society.

Answer:

1. The various dimensions of business environment being referred to the in the above
case are as follows:
o Technological Environment: Technological environment 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.
o 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— center, state or local.
o Social Environment: Social environment includes the social forces like
customs and traditions, values, social trends, society’s expectations from
business, etc.
2. The two values which the Cerebra Integrated Technologies wants to convey through
this initiative are:
o Sustainable development
o Concern for environment.
Question 13:
The government wants to raise Rs.56,500 crore from the sale of stakes in state-owned
enterprises National Thermal Power Corporation (NTPC) in the financial year 2016-17.
Identify and explain the related concept.
Answer:
Disinvestment: Disinvestment refers to transfer in the public sector enterprises to the private
sector through dilution of stake of the Government in the public enterprise.

Question 14:
Bharat is running an ice cream parlour in a local market. Keeping in mind the changing
perceptions about health among the people, one of his employee Abhiraj suggests to him that
they should introduce a range a flavoured yogurt. Bharat accepts his suggestion as a result
both the image and the profitability of his business increases.
In the context of the above case:

1. Identify the feature of management which is being highlighted.

2. State the related dimension of the business environment.
3. Name and explain the related principle of general management.

Answer:

1. The feature of management which is being highlighted is Dynamic.

2. The related dimension of the business environment is Social.
3. The related principle of general management is Initiative.

Initiative means taking the first step with self-motivation. The workers should be encouraged
to develop and carry out their plans for improvement. Suggestion system should be adopted
in the organization.

Question 15:
As a result of the decision by Britian to exit to European Union the new trade agreements will
come into force from the EU as it accounts for 35-40% of auto component exports from
India. Tata Motors owned Britain’s largest carmaker Jaguar Land Rover (JLR) has been in
Britain for three decades and makes 4,75,000 cars a year in the country of which most of
them are exported inside the European Union and beyond. JLR estimates that their annual
profit could be cut by one billion pounds ($1.47 billion) by the year 2020.
In the context of the above case:

1. Explain why are all the elements of business environment considered to be closely
interrelated?
2. Name any two related dimensions of the business environment.

Answer:

1. All the elements of business environment are considered to be closely interrelated as

any change in one of them may necessitate a series of changes in other dimensions as
well.
2. The related dimensions of the business environment are Political and Legal.
Question 16::
After competing his education, Arun joins his father in their family business of
manufacturing cookware. As a businessman, his father is rigid in his approach and has fixed
ideas about various issues. He tends to maintain a distance from the factory workers.
However, Arun is more receptive to the needs of the workers and doesn’t seem to believe in
any class- differences. He believes that the prosperity of their business greatly depends upon
the prosperity of their workers and vice versa. At the same time, he has a good understanding
of the business environment. Therefore, he introduces a new range of green pans that provide
a healthy cooking surface, as they are manufactured with all ceramic or silicon coating and
are considered safer than the traditional petroleum based nonstick surfaces which may
contain toxic substances. Although, the new cookware range is highly priced/, he expects a
ready market for it as both the purchasing power of people and their preference for better
quality products has increased over the years.
In the context of the above case:

1. Identify the nature of management which is being reflected in the different styles of
management in practice adopted by Arun and his father.
2. Name and explain the related principle of scientific management.
3. State the related dimensions of business environment.

Answer:

1. The different styles of management in practice adopted by Arun and his father reflect
that management is an art.
2. ‘Harmony, Not Discord’ is the related principle of scientific management.
Taylor emphasised that there should be complete harmony between the management
and workers instead of a kind of class-conflict, the mangers versus workers. To
achieve this state, Taylor called for complete mental revolution on the part of both
management and workers. The prosperity for the employer cannot exist for a long
time unless it is accompanied by prosperity for the employees and vice versa. He
advocated paternalistic style of management should be in practice.
3. The related dimensions of the business environment are :
o Economic Environment: Economic environment comprises of factors that can
affect management practices in a business enterprise includes interest rates,
inflation rates, changes in disposable income of people, stock market indices
and the value of rupee etc.
o Social Environment: Social environment includes the social forces like
customs and traditions, values, social trends, society’s expectations from
business, etc.
o Technological Environment: Technological environment 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.

Question 17:
‘Gallant’ is a well known FMCG (Fast Moving Consumer Goods) company in India.
However, for the past few years its profitability is diminishing due to the presence of a new
company ‘Prakritik’. ‘Prakritik’ has gradually acquired a reasonable share in a wide variety
segments like soaps, shampoos, detergents, dish wash and oral care. One of the key reason is
that ‘Prakritik’ has positioned itself as a natural/Ayurvedic brand and this approach has
worked well with the Indian consumer. In order to compete with this threat ‘Gallant’ has
acquired a premium Ayurvedic brand ‘Madhumita’ from another group. Moreover its likely
to increase its advertising budget to counter the threat from ‘Prakritik’.
In the context of the above case:

1. Identify the related component of the business environment which has contributed
effectively towards the success of Prakritik.
2. Also, state the two ways in which ‘Gallant’ has responded to the changes in its
business environment.

Answer:

1. Social aspect is the related component of the business environment which has
contributed effectively towards the success of Prakritik.
2. The two ways in which ‘Gallant’ has responded to the changes in its business
environment are as follows:
o Acquisition
o Brand building