National Institute of Business Management

Chennai - 020

THIRD SEMESTER MBA

Subject : Business Environment

Attend any 4 questions. Each question carries 25 marks

(Each answer should be of minimum 2 pages / of 300 words)

1. What are the characteristics of a Business? Explain.

Answer:-
Business is characterized as a sorted out monetary movement, wherein the
trading of merchandise and enterprises happens, for sufficient thought. It is
only a strategy for bringing in cash, from business exchanges. It
incorporates each one of those exercises whose sole point is to make
accessible the ideal merchandise and ventures to the general public, in a
compelling way.
Characteristics are the features which are necessary to classify the business.
Financial Action
Business fundamentally must be a financial action. In any case, what
precisely is a monetary movement? Any action that gives a financial return
is a monetary action. For instance, if your companion's dad gets you and
drops you at school each day, he is doing this carry on of benevolence. Be
that as it may, on the off chance that he begins a transportation
administration of getting and dropping by charging cash at that point it's a
monetary action.
Creation or Exchanging of Good or Administrations available to be
purchased
In the event that a strategies on selling an item, it needs to either make that
item or buy it and add a net revenue to it and sell it further. Business is keen
on each action that is worried about the creation or acquisition of
merchandise for selling, this makes it one of the most significant qualities of
a business. Administrations available to be purchased incorporate
transportation, housekeeping, and security. Though, merchandise are for the
most part consumable things.
Deal or Trade of Products and Enterprises
The third and pivotal one of the qualities of business after creation or
acquisition is to sell that item for the cash. The best approach to sell an item
or administration is by propelling it in the market or to offer it available to
be purchased. A deal or trade must happen between the merchant and the
purchaser.
Consistency in Dealings
Business is a repeatable monetary movement that produces cash. For
instance, on the off chance that you sell your old bicycle and it produces
cash. Likewise, it's a monetary action yet would you say you is doing this
all the time? No. As it has no consistency in it, it can't be acknowledged as a
business action. So also, there is a seller who bargains in the buy and sells
of recycled bicycles. For him, it's a business movement as there is a
normality in his managing. A solitary exchange of procurement or deal can't
be named a business.
Benefit Gaining
The sole motivation behind business is the expansion of benefit. It ventures
into the market with the fundamental goal of procuring a benefit. For the
endurance of business in a market, producing benefit is amazingly
fundamental. In the event that a business can't deliver benefit, it is relied
upon of it to go downhill monetarily. In this manner the representative does
all the potential stunts to boost its benefits by expanding the volume of
offers or diminishing the expenses
Hazard Factor
It is notable "Higher the dangers, higher the arrival". Business pulls in
chance. While starting business it isn't ensured 100% that the business will
be fruitful. There is an expectation that there may be interest for its item or
administration in the market. However, the market is continually
diminishing the subject to hazard. The business may even win benefit
however the measure of benefit earned may shift.
Vulnerability of Profits
Agents put immense capital in their exercises to support and concentrate
benefit from the business. As we examined the hazard above, it is unsure
concerning what sum the benefit will be earned. Regularly there are
circumstances where is no arrival of benefit. There are consistently odds of
misfortunes in the business exercises.
 Legitimate Movement
The business must be lawful and legitimate. Business is a critical action for
a nation yet it isn't exempt from the rules that everyone else follows. Each
financial action must be inside the cutoff points of the law. The nation's
enactment puts provisos on the working of the business to control its
exercises.
It is a methodical endeavor of the businesspersons to create products and
enterprises, and sell them at the market, to receive the benefit, by method
for benefit.
Benefit assumes a critical job, as all the business exercises are coordinated
towards it, since it works a motivation to the business visionaries, for their
endeavors, and therefore, essential for each business

2. Discuss the basic features of  an Economic System.

Answer :
A monetary framework is a methods by which social orders or
governments sort out and disperse accessible assets, administrations, and
merchandise over a geographic district or nation. Monetary frameworks
manage elements of creation, including capital, work, physical assets, and
business people. A financial framework includes numerous establishments,
organizations, and different elements.
A number of major economic systems have developed with the passage of
time through capitalism, socialism, fascism, communism, and mixed
economy. Each of these systems has devised different means for making
products and services available to the consumer.
Capitalist Economic System
A capitalist economic system is one characterised by free markets and the
absence of government intervention in the economy.
In practice a capitalist economy will need some government intervention,
primarily to protect private property. (This is important to distinguish
capitalism from anarchism, where there is absolutely no government
present)
Features of a capitalist economic system
Economic freedom. Individuals free to set up business and provide the
goods and services they want.
Consumer sovereignty. Consumers free to decide which goods and
services to purchase.
Limited government. Government intervention limited to the protection of
private property and provision of public goods.
Finance sector. Capitalism requires a developed banking and financial
system which can provide loans to companies and banking services to
households.
Profit motive is seen as important for enabling an efficient distribution of
resources and encouraging innovation and responsive markets.
Market forces. Goods and services are distributed according to ‘the
invisible hand of the market’ – in other words, the allocation of goods is
determined by market forces. For example, if demand rises, firms have an
incentive to increase supply.
Flexible labour markets – easy to hire and fire workers.
Free trade. Low tariff barriers to encourage international trade.
Socialism Economic System
A socialist economy is an economic organisation in which the means of
production are owned and regulated by the state. The production and
distribution of goods and factors of production are done by the state under
the direction of the planning commission.
The decisions as to how much to produce, which methods of production to
employ and for whom to produce are taken by the planning authority. That
is why a socialist economy is also called a planned economy. Such
economies are China, Cuba, Vietnam, and North Korea. They possess the
following common features.
The main features of this system are detailed below.
(1) Public Ownership:
A socialist economy is characterized by public ownership of the means of
production and distribution. There is collective ownership whereby all
mines, farms, factories, financial institutions, distributing agencies
(internal and external trade, shops, stores, etc.), means of transport and
communications, etc. are owned, controlled, and regulated by government
departments and state corporations. A small private sector also exists in the
form of small business units which are carried on in the villages by local
artisans for local consumption.
(2) Central Planning:
A socialist economy is centrally planned which functions under the
direction of a central planning authority. It lays down the various
objectives and targets to be achieved during the plan period. Central
economic planning means “the making of major economic decisions—
what and how much is to be produced, how, when and where it is to be
produced, and to whom it is to be allocated—by the conscious decision of
a determinate authority, on the basis of a comprehensive survey of the
economic system as a whole.”
And the central planning authority organises and utilises the economic
resources by deliberate direction and control of the economy for the
purpose of achieving definite objectives and targets laid down in the plan
during a specified period of time.
(3) Definite Objectives:
A socialist economy operates within definite socio-economic objectives.
These objectives “may concern aggregate demand, full employment,
satisfaction of communal demand, allocation of factors of production,
distribution of the national income, the amount of capital accumulation,
economic development…and so forth.” For achieving the various
objectives laid down in the plan, priorities and bold targets are fixed
covering all aspects of the economy.
(4) Freedom of Consumption:
Under socialism, consumers’ sovereignty implies that production in state-
owned industries is generally governed by the preferences of consumers,
and the available commodities are distributed to the consumers at fixed
prices through the state-run department stores. Consumers’ sovereignty
under socialism is confined to the choice of socially useful commodities.
(5) Equality of Income Distribution:
In a socialist economy, there is great equality of income distribution as
compared with a free market economy. The elimination of private
ownership in the means of production, private capital accumulation, and
profit motive under socialism prevent the amassing of large wealth in the
hands of a few rich persons. The unearned incomes in the form of rent,
interest and profit go to the state which utilises them in providing free
education, public health facilities, and social security to the masses. “As
far as wages and salaries are concerned, most modern socialists do not aim
at complete and rigid equality. It is now generally understood that the
maintenance offered choice of occupation implies wage differentials.”
(6) Planning and the Pricing Process:
The pricing process under socialism does not operate freely but works
under the control and regulation of the central planning authority. There
are administered prices which are fixed by the central planning authority.
There are also the market prices at which consumer goods are sold. There
are also the accounting s prices on the basis of which the managers decide
about the production of consumer goods and investment goods, and also
about the choice of production methods.
Fascism Economic System
Fascism Economic is a system wherein government philosophy is imposed
by the party in power (such as under the leadership of Adolf Hitler) as in
Germany, and later on in Italy, Japan, and Argentina.
The main features of Fascism are:
a). It involves the take-over both of the government and of the major
industries of the country -
without making payment of any compensation of the taken-over enterprise.
b). The government determines what goods shall be produced and in what
quantities, how and for whom.
c). The government assumes that the individuals lack ability in public
affairs. Therefore, the dictator and his group completely dominate the
management of the economy and the exchange of goods and services.
This type of economy has now nearly been extinct.
Communism Economic System
It has been defined as “A system of economy under which the central
authority disposes of all the means of production (labour, natural
resources, capital), autocratically determines the aims of the economy,
directs production in a single inclusive plan, and regulates distribution”.
This system is also known as authoritarian” or “totalitarian socialism.”
The fundamental highlights of Communism are:
a). There is no private responsibility for methods for creation. They are
claimed by the state or society, i.e., control of property rests with the social
bodies.
b). Class differentiation don't happen yet there are basic "strata" or "social
layers, for example, "untalented", "gifted" laborers, supervisors, instructors
and so forth.
c). "Social need" and not "private benefit" is the directing intention of
creation.
d). All are relied upon to contribute as much as they can to the benefit of
the entire nation.
e). People are not given any close to home prizes, rather they are given just
what they have to live.
f). Every individual is willing and works for the general public all in all,
while a focal government allocates merchandise and ventures.
g). The administration decides the amounts of merchandise that will be
created and how a lot of will be created. Circulation of merchandise and
enterprises is additionally managed by the focal government.
h). The state is the main business, the job of the individual is subordinate
to that of the aggregate populace. People work where their administrations
are required. Opportunity is limited.

Mixed Economic System

A mixed economy is defined by the co-existence of a public and private
sector. The specific mix between public and private can vary significantly
from one mixed economy to another, however. Based on their respective
natures, the private sector is subservient to the public sector. Private
exchange can only take place where the government has not forbidden it or
already assumed that role.
Mixed economies fall in between free markets and command economies.
The free market is most closely associated with pure capitalism. A
command economy is most closely associated with socialism. Mixed
economies, with state-supervised markets, are most related to fascism (in
the economic sense) and have several common features
(a) Co-existence of Private and Public Sector:
Under this system there is co-existence of public and private sectors. In
public sector, industries like defence, power, energy, basic industries etc.,
are set up. On the other hand, in private sector all the consumer goods
industries, agriculture, small-scale industries are developed. The
government encourages both the sectors to develop simultaneously.
(b) Personal Freedom:
Under mixed economy, there is full freedom of choice of occupation,
although consumer does not get complete liberty but at the same time
government can regulate prices in public interest through public
distribution system.
(c) Private Property is allowed:
In mixed economy, private property is allowed. However, here it must be
remembered that there must be equal distribution of wealth and income. It
must be ensured that the profit and property may not concentrate in a few
pockets.
(d) Economic Planning:
In a mixed economy, government always tries to promote economic
development of the country. For this purpose, economic planning is
adopted. Thus, economic planning is very essential under this system.
(e) Price Mechanism and Controlled Price:
Under this system, price mechanism and regulated price operate
simultaneously. In consumer goods industries price mechanism is
generally followed. However, at the time of big shortages or during
national emergencies prices are controlled and public distribution system
has to be made effective.
(f) Profit Motive and Social Welfare:
In mixed economy system, there are both profit motive like capitalism and
social welfare as in socialist economy.
(g) Check on Economic Inequalities:
In this system, government takes several measures to reduce the gap
between rich and poor through progressive taxation on income and wealth.
The subsidies are given to the poor people and also job opportunities are
provided to them. Other steps like concessions, old age pension, free
medical facilities and free education are also taken to improve the standard
of poor people. Hence, all these help to reduce economic inequalities.

(h) Control of Monopoly Power:

Under this system, government takes huge initiatives to control monopoly
practices among the private entrepreneurs through effective legislative
measures. Besides, government can also fake over these services in the
public interest.
3. Describe Mixed Economy or Democratic Socialism.
Answer:
Mixed economy is the combination of capitalism and socialism. Under the
mixed economy, the advantages of both capitalism and socialism are
incorporated and at the same time their evils are avoided.
Under mixed economy, both the private and the public sectors function
side by side. The Government directs economic activity towards certain
socially important areas of the economy and the balance is subject to the
operation of the price mechanism.
The public and private sectors work in a co-operative manner to attain the
social objectives under a common economic plan.
The private sector constitutes an important part of the mixed economy and
considered as an important instrument of economic growth. India is
regarded as the best example of a mixed economy in the world.
Characteristics of Mixed Economy
The following are the main characteristics of mixed economy:
a). Co-existence of the Private and Public Sectors
Co-existence of the private and public sectors is the outstanding feature of
mixed economy. In mixed economy, both public sector as well as private
sector industries will be functioning. Certain industries will be in the
public sector and certain industries in the private sector. Private individuals
and firms own private sector industries. Profit will be the primary motive
of private sector industries. In public sector, industries are owned and
managed by the Government. Public industries will also have profit motive
but that too for the promotion of social welfare.
b). Existence of Joint Sector
Joint sector is one where both Government and private individuals
establish an organization jointly by contributing the necessary capital.
c). Regulation of Private Sector
Under mixed economy, Government exercises strict control and regulation
over private sector industries.
d). Planned Economy
The entire economic structure is subject to the planning of the
Government. Mixed economy is a planned economy. The planning
commission decides the objectives, targets and allocation of resources etc.
e). Private Property
Under mixed economy, private firms and individuals have right to own and
use property.
f). Provision of Social Security
Under mixed economy, Government takes steps to provide social security.
g). Motive of Business Concerns
The motive of the business concerns is profit but coupled with the
objective of social welfare.
h). Reduction of Inequalities of Income and Wealth
The Government takes steps to reduce inequalities of income and wealth.
i). Complete Economic Freedom
There is complete economic freedom in mixed economy. Hence, the
consumer is free to buy any commodity they like.
The important advantages of mixed economy are as follows:
a). Efficiency
There will be competition between public and private industries, which
will result in greater efficiency and production in a mixed economy.
b). Reduced inequality
The profit of public sector industries goes to the Government and as a
result inequalities of income will be reduced in mixed economy.
c). Systematic plan
In a mixed economy, economic activities are carried out as per plan. The
entire economic system is subject to systematic planning of the
Government.
d). Economic Stability
The economic activities take place in a planned manner. So there will be
economic stability in mixed economy.
e). Consumer sovereignty
 Goods are produced as per the wishes of the consumers, which results in
consumer’s sovereignty in a mixed economy.
f). Freedom
In mixed economy, freedom of enterprise and profit motive are the
important features. Further there is competition between public and private
sectors. These factors increase efficiency, initiative, innovation and
productivity.
g). Promotion of social welfare
Mixed economic system gives importance to the promotion of social
welfare. Under this system, both private and public sectors work for the
welfare of people.
h). Rights of a Individual
Under mixed economy, individual rights are protected. People have
freedom to buy any commodity.
4. Discuss the characteristics of the organization objectives understanding of
the criteria for effective objectives.
5. Why is environmental scanning a concept from business management?
Explain.
Answer
Environmental scanning is a concept from business management by which
businesses gather information from the environment, to better achieve a
sustainable competitive advantage. To sustain competitive advantage the
company must also respond to the information gathered from
environmental scanning by altering its strategies and plans when the need
arises. As a part of the environmental scanning process, the organization
collects information regarding its environment and analyses it to forecast
the impact of changes in the environment. This eventually helps the
management team to make informed decisions.
The environmental Scanning has to be implemented at an internal level, as well as
an external level, to identify all opportunities and threats of the external and
internal environment. Moreover this analysis is helpful to find the strengths and
weaknesses of the any organization. External analysis of the environment is
generally emphases on the customers. External environmental also refers to the
aspects of the technological, commercial, economic, financial, political,
regulatory, socio-cultural and physical environments of an organization. Whereas,
the internal analysis focuses at the current situation of resources, strengths or
weakness of an organization. Internal environment refers to the capabilities and
limitations of the organisation and it has no limitations.
Environmental scanning is necessary because there are rapid changes taking place
in the environment that has a great impact on the working of the business firm.
Analysis of business environment helps to identify strength weakness,
opportunities and threats. SWOT analysis is necessary for the survival and growth
of every business enterprise.
The following is the need and importance of environmental scanning:
1. Identification of strength:
Strength of the business firm means capacity of the firm to gain advantage over its
competitors. Analysis of internal business environment helps to identify strength
of the firm. After identifying the strength, the firm must try to consolidate or
maximise its strength by further improvement in its existing plans, policies and
resources.
2. Identification of weakness:
Weakness of the firm means limitations of the firm. Monitoring internal
environment helps to identify not only the strength but also the weakness of the
firm. A firm may be strong in certain areas but may be weak in some other areas.
For further growth and expansion, the weakness should be identified so as to
correct them as soon as possible.
3. Identification of opportunities:
Environmental analyses helps to identify the opportunities in the market. The firm
should make every possible effort to grab the opportunities as and when they
come.
4. Identification of threat:
Business is subject to threat from competitors and various factors. Environmental
analyses help them to identify threat from the external environment. Early
identification of threat is always beneficial as it helps to diffuse off some threat.

5. Optimum use of resources:

Proper environmental assessment helps to make optimum utilisation of scare
human, natural and capital resources. Systematic analyses of business environment
helps the firm to reduce wastage and make optimum use of available resources,
without understanding the internal and external environment resources cannot be
used in an effective manner.
6. Survival and growth:
Systematic analyses of business environment help the firm to maximise their
strength, minimise the weakness, grab the opportunities and diffuse threats. This
enables the firm to survive and grow in the competitive business world.
7. To plan long-term business strategy:
A business organisation has short term and long-term objectives. Proper analyses
of environmental factors help the business firm to frame plans and policies that
could help in easy accomplishment of those organisational objectives. Without
undertaking environmental scanning, the firm cannot develop a strategy for
business success.
8. Environmental scanning aids decision-making:
Decision-making is a process of selecting the best alternative from among
various available alternatives. An environmental analysis is an extremely
important tool in understanding and decision making in all situation of the
business. Success of the firm depends upon the precise decision making ability.
Study of environmental analyses enables the firm to select the best option for
the success and growth of the firm.
6. Explain how Environmental factors interact with each other to accomplish its
objectives?

25 x 4=100 marks