 Business Environment- concept and

importance
 Dimensions of Business Environment-
Economic, Social, Technological, Political
and Legal
3.1
Business Environment:
Concept and Importance
Meaning of Business Environment
The term ‘business environment’ means the sum
total of all individuals, institutions and other for-
ces that are outside the control of a business ente-
rprise but that may affect its performance.
 The economic, social, political, legal and technolo-
gical forces which operate outside a business enter-
prise are part of its general environment.
 The individual consumers or competing enterprises
as well as the governments, consumer groups, com-
petitors, courts, media and other institutions
working outside an enterprise constitute its specif-
ic environment.
 Top Tips
In contrast to the specific environment, the general environ-
ment which includes economic, social, technological, political
and legal conditions, influences many enterprises at the same
time.

These individuals, institutions and forces are likely to

influence the performance of a business enterprise alt-
hough they happen to exist outside its boundaries.
 Changes in business Influence on performance
environment of business enterprises
1. Increasing taxes by Increased cost of production,
government hence things become expensive
to buy
2. Increased competition in the Reduction in profit margins
market
3. Changes in fashion and tastes Shift in market demand from
of consumers existing products to new ones
4. Technological improvements Render existing products
and innovations obsolete, e.g. LCD TVs become
obsolete with introduction of
LED TVs
5. Political uncertainty Creates fear in the minds of
investors to invest in long-term
projects
Features/Characteristics of Business
Environment
1. Totality of external forces
Business environment is the sum total of all things ex-
ternal to business firms and, as such, is aggregative in
nature.
2. Specific and general forces
Business environment includes both specific and gene-
ral forces.
 Specific forces (such as investors, customers, com-
petitors and suppliers) affect individual enterprises
directly and immediately in their day-to-day worki-
ng.
 General forces (such as social, political, legal and
technological conditions) have impact on all busin-
ess enterprises and thus may affect an individual
firm only indirectly.
3. Inter-relatedness
Different elements or parts of business environment
are closely interrelated.
For example, increased life expectancy of people and i-
ncreased awareness for health care have increased the
demand for many health products and services like soft
drinks, fat-free cooking oil, and health resorts. New h-
ealth products and services have, in turn, changed peo-
ple’s lifestyles.
4. Dynamic nature
Business environment is dynamic as it keeps on chan-
ging in terms of technological improvement, shifts in
consumer preferences, entry of new competition in the
market, etc.
5. Uncertainty
Business environment is largely uncertain as it is very
difficult to predict future happenings, especially when
environment changes are taking place too frequently as
in the case of information technology or fashion indus-
tries.
6. Complexity
Since business environment consists of numerous inte-
rrelated and dynamic conditions or forces which arise
from different sources, it becomes difficult to compre-
hend at once what exactly constitutes a given environ-
ment. In other words, environment is a complex phen-
omenon that is relatively easier to understand in parts
but difficult to grasp in its totality. For example, it may
be difficult to know the extent of the relative impact of
the social, economic, political, technological or legal
factors on change in demand of a product in the mar-
ket.
7. Relativity
Business environment is a relative concept since it dif-
fers from country to country and even region to region.
For example, political conditions in the USA differ from
those in China or Pakistan. Similarly, demand for sar-
ees may be fairly high in India whereas it may be almo-
st non-existent in France.
Importance of Business Environment
A good understanding of environment by business ma-
nagers enables them not only to identify and evaluate,
but also to react to the forces external to their firms.
The importance of business environment and its und-
erstanding by managers can be appreciated if we co-
nsider the following facts:
1. It enables the firm to identify opportunit-
ies and getting the first mover advantage.
Environment provides numerous opportunities for bu-
siness success.
'Opportunities' refer to the positive external trends or
changes that will help a firm to improve its perform-
ance.
Early identification of opportunities helps an enterp-
rise to be the first to exploit them instead of losing the-
m to competitors.
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 petrole-
um prices and a large middle class population in India.
2. It helps the firm to identify threats and
early warning signals.
Besides opportunities, environment happens to be the
source of many threats.
'Threats' refer to the external environment trends and
changes that will hinder a firm’s performance.
Environmental awareness can help managers to iden-
tify various threats on time and serve as an early wa-
rning signal.
Example: If an Indian firm finds that a foreign mu-
ltinational is entering the Indian market with new
substitutes, it should act as a warning signal. On the
basis of this information, the Indian firms can prepare
themselves to meet the threat by adopting such me-
asures as improving the quality of the product, reduc-
ing cost of the production, engaging in aggressive ad-
vertising, and so on.
3. It helps in assisting in planning and
policy formulation.
Since environment is a source of both opportunities
and threats for a business enterprise, its understand-
ding and analysis can be the basis for deciding the
future course of action (planning) or training guide-
lines for decision making (policy).
Example: Entry of new players in the market, which
means more competition may make an enterprise thi-
nk afresh about how to deal with the situation.
4. It helps in coping with rapid changes.
Today’s business environment is getting increasingly
dynamic where changes are taking place at a fast pace.
Turbulent market conditions, less brand loyalty, divis-
ions and sub-divisions (fragmentation) of markets,
more demanding customers, rapid changes in techno-
logy and intense global competition are just a few of
the images used to describe today’s business environ-
ment.
In order to effectively cope with these significant cha-
nges, managers must understand and examine the en-
vironment and develop suitable courses of action.
5. It helps in tapping useful resources.
A business enterprise assembles various resources cal-
led inputs like finance, machines, raw materials, pow-
er and water, labour, etc., from its environment inclu-
ding financiers, government and suppliers. In return,
the business enterprise supplies the environment with
its outputs such as goods and services for customers,
payment of taxes to government, return on financial
investment to investors and so on.
Thus, business environment helps in tapping the res-
ources that it needs so that it can convert those reso-
urces into outputs that the environment desires.
6. It helps in improving performance.
The enterprises that continuously monitor their envi-
ronment and adopt suitable business practices can n-
ot only improve their present performance but also
continue to succeed in the market for a longer period.
RECAP

Meaning of Business Environment

Business environment refers to the sum total of all indi-
viduals, institutions and other forces that are outside the
control of a business enterprise but that may affect its perf-
ormance.
Features/Characteristics of Business
Environment TUSI CDR
1. Business environment is totality of all external forces
affecting a business. Therefore, it is aggressive in nature.
2. It includes both specific and general forces. Specific
forces (e.g. investors, customers, competitors and suppl-
iers) affect individual enterprises directly and immedi-
ately in their day-to-day working. General forces (e.g. ec-
onomic, social, political, legal and technological cond-
 itions) have impact on all business enterprises and thus
may affect an individual firm only indirectly.
3. Its elements are closely inter-related.
4. It is dynamic as it keeps on changing (in terms of tech-
nological improvement, new competition in the market,
etc.).
5. It is uncertain as it is difficult to predict future happ-
enings (especially when environment changes are taking
place frequently as in the case of information techn-
ology or fashion industries).
6. It is complex and difficult to comprehend as it consists
of numerous inter-related and dynamic forces.
7. It is a relative conceptas it differs from region to region.
Importance of Business Environment CPT TOP
1. It helps to identify opportunities and getting the first
mover advantage instead of losing them to the compet-
 itors. 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 India, where petroleum prices
were rising and there was a large middle-class popula-
tion.
2. It helps to identify threats on time which serves as an
early warning signal. For example, if an Indian firm
finds that an MNC is entering the Indian market with
new substitutes, it can improve the quality of its prod-
ucts, reduce cost of production, etc.
3. It helps in assisting inplanningand policy formulation.
4. It helps in tapping useful resources so that the enter-
prise can convert them into output that the environment
desires.
5. It helps in coping with rapid changes in an increasing-
gly dynamic environment.
6. It helps in improving performance by continuously
monitoring the environment and adopting suitable pra-
ctices.
Question 1
Which of the following does not characterise the busin-
ess environment?
(Choose the correct alternative)
(a) Uncertainty
(b) Employees
(c) Relativity
(d) Complexity

Objective Type Questions 3.1

Answer 1
(b) Employees

Objective Type Questions 3.1

Question 2
“It may be difficult to know the extent of the relative im-
pact of the social, economic, political, technological or
legal factors on change in demand of a product in the m-
arket.” Which feature of business environment is highlig-
hted by this point?

Objective Type Questions 3.1

Answer 2
Complexity

Objective Type Questions 3.1

Question 3
“The understanding of business environment enables the
firm to identify opportunities and threats.” What does
‘opportunities’ mean here?

Objective Type Questions 3.1

Answer 3
Opportunities refer to the positive external trends and
changes that will help to improve a firm’s performance.

Objective Type Questions 3.1

Question 4
Match the column I with the features of business envir-
onment in column II:
Column I Column II
(a) Increased life expectancy of people and increased awareness (i) Inter-
for health care have increased the demand for many health relatedness
products and services like diet Coke, fat-free cooking oil, and
health resorts. New health products and services have, in turn,
changed people’s life styles.
(b) It may be difficult to know the extent of the relative impact of (ii) Relativity
the social, economic, political, technological or legal factors on
change in demand of a product in the market.
(c) Political conditions in the USA, for instance, differ from those (iii) Complexity
in China or Pakistan. Similarly, demand for sarees may be fairly
high in India whereas it may be almost non-existent in France.

Objective Type Questions 3.1

Answer 4
(a) – (i), (b)– (iii), (c) – (ii)

Objective Type Questions 3.1

Question 5
Which of the following best indicates the importance of
business environment?
(Choose the correct alternative)
(a) Identification of opportunities and threats
(b) Improvement in performance
(c) Coping with rapid changes
(d) All of these

Objective Type Questions 3.1

Answer 5
(d) All of these

Objective Type Questions 3.1

Question 1
Mr. Ajay after completing MBA from USA comes to India
to start a new business under the banner Ecom Crea-
tions Ltd. He launches a new product in e-learning for
Senior Secondary School students in Commerce stream,
which already has an established market in UK and USA
but not in India. His business starts flourishing in India.
Now more Indian companies entered into the market
with other subjects also.

HOTs 3.1 — Analysing, Evaluating & Creating Type Questions

Identify and quote the lines from above para which hig-
hlight the significance of understanding business environ-
ment.
(CBSE SQP 2015) (4 marks)

HOTs 3.1 — Analysing, Evaluating & Creating Type Questions

Answer 1
(a) “Comes to India to start a new business ... launches a
new product in e-learning for Senior secondary school
students in Commerce stream.”
(i) It helps in assisting in planning and policy
formulation.
(ii) It helps the firm to identify opportunities and
get the first mover advantage.
(b) “His business starts flourishing in India.”
(iii) It helps in improving performance.

HOTs 3.1 — Analysing, Evaluating & Creating Type Questions

(c) “Now more Indian companies entered into the market
with different subjects also.”
(iv) It helps the firm to identify threats and early
warning signals.

HOTs 3.1 — Analysing, Evaluating & Creating Type Questions

Question 2
Identify and state the importance of business environm-
ent from the following: (6 marks)
(i) 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 pet-
roleum prices and a large middle class population
in India.
(ii) An Indian firm finds that a foreign multinational is
entering the Indian market with new substitutes.
On the basis of this information, the Indian firm
can prepare itself to meet the threat by adopting
HOTs 3.1 — Analysing, Evaluating & Creating Type Questions
 such measures as improving the quality of the pr-
oduct, reducing cost of the production, engaging in
aggressive advertising, and so on.
(iii) To engage in any type of activity, a business enter-
prise assembles various inputs like finance, machi-
nes, raw materials, power and water, labour, etc.,
from its environment including financiers, govern-
ment and suppliers. In return, the business enter-
prise supplies the environment with its outputs su-
ch as goods and services for customers, payment
of taxes to government, return on financial invest-
HOTs 3.1 — Analysing, Evaluating & Creating Type Questions
 ent to investors and so on.
(iv) Today’s business environment is getting increasingly
dynamic where changes are taking place at a fast
pace. Information technology and intense global
competition are just a few of the images used to
describe today’s business environment. All sizes an-
d all types of enterprises are facing increasingly dy-
namic environment. Therefore, managers must un-
derstand and examine the environment and deve-
lop suitable courses of action.

HOTs 3.1 — Analysing, Evaluating & Creating Type Questions

 (v) Entry of new players in the market, which means
more competition may make an enterprise think a-
fresh about how to deal with the situation.
(vi) Many studies reveal that the future of an enterpr-
ise is closely bound up with what is happening in
the environment. It really makes a difference in the
performance of an enterprise.

HOTs 3.1 — Analysing, Evaluating & Creating Type Questions

Answer 2
Importance of business environment:
(i) It enables the firm to identify opportunities and ge-
tting the first mover advantage.
“...it was the first to recognise the need for small cars...”
(ii) It helps the firm to identify threats and early war-
ning signals.
“...finds that a foreign multinational is entering the Ind-
ian market with new substitutes.”

HOTs 3.1 — Analysing, Evaluating & Creating Type Questions

(iii) It helps in tapping useful resources.
“...a business enterprise assembles various inputs like
finance, machines, raw materials, ... from its environmen-
t...”
(iv) It helps in coping with rapid changes.
“...changes are taking place at a fast pace.”
“...managers must understand and examine the enviro-
nment and develop suitable courses of action.”

HOTs 3.1 — Analysing, Evaluating & Creating Type Questions

 (v) It helps in assisting in planning and policy formulate-
on.
“... think afresh about how to deal with the situation.”
(vi) It helps in improving performance.
“... future of an enterprise is closely bound up with what
is happening in the environment. It really makes a diffe-
rence in the performance of an enterprise.”

HOTs 3.1 — Analysing, Evaluating & Creating Type Questions

3.2
Dimensions of Business
Environment
Dimensions of, or the factors constituting the business
environment include economic, social, technological,
political and legal conditions which are considered rel-
evant for decision-making and improving the perfor-
mance of an enterprise.
A brief discussion of the various factors constituting t-
he general environment of business is given below:

Dimensions of General
Environment of Business
1. Economic Environment
Some of the economic factors that can affect manage-
ment practices in a business enterprise are:
 Interest rates
 Inflation rates
 Stock market indices
 Value of rupee
 Changes in disposable income of people
Examples of economic environment affecting the
functioning of a business enterprise:
(i) High inflation rates generally result in constraints
on business enterprises as they increase the var-
ious costs of business such as the purchase of raw
materials or machinery and payment of wages a-
nd salaries to employees.
(ii) A rise in the disposable income of people due to
increase in the gross domestic product of a coun-
try creates increasing demand for products.
(iii) 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 sp-
ending by consumers for buying homes and cars
on borrowed money.
Components of Economic Environment
 The rates of growth of GNP and per capita income at current and
constant prices
 Rates of saving and investment
 Volume of imports and exports of different items
 Money supply in the economy
 Balance of payments and changes in foreign exchange reserves
 Public debt (internal and external)
 Agricultural and industrial production trends
 Expansion of transportation and communication facilities
 Existing structure of the economy in terms of relative role of
private and public sectors
 Planned outlay in private and public sectors
2. Social Environment
The social environment of business include the social
forces like:
 Customs and traditions
 Values
 Social trends
 Society’s expectations from business
Examples of social environment affecting the fun-
ctioning of a business enterprise:
(i) Social trends present various opportunities and t-
hreats to business enterprises. For example, the
health-and-fitness trend has become popular am-
ong large number of urban dwellers. This has cre-
ated a demand for products like organic food, gy-
ms, bottled (mineral) water and food supplemen-
ts.
(ii) Customs and traditions define social practices
that have lasted for decades or even centuries. For
example, the celebration of Diwali, Eid, Christ-
mas, and Guru Parv in India provides significant
financial opportunities for greetings card compa-
 nies, sweets or confectionery manufacturers, tail-
oring outlets and many other related business.
(iii) Values refer to concepts that a society holds in
high esteem. In India, individual freedom, social
justice, equality of opportunity and national inte-
gration are examples of major values cherished by
all of us. In business terms, these values translate
into freedom of choice in the market, business’ r-
esponsibility towards the society and non-discr-
iminatory employment practices.
Components of Social Environment
 Concern with quality of life
 Life expectancy
 Consumption habits
 Composition of family
 Birth and death rates
 Population shifts
 Educational system and literacy rates
 Expectations from the workforce
 Shifts in the presence of women in the workforce
 Attitudes towards product innovations, lifestyles, occupational
distribution and consumer preferences
3. Technological Environment
Technological environment includes forces relating to:
 Scientific improvements and innovations which pr-
ovide new ways of producing goods and services and
 New methods and techniques of operating a busin-
ess.
Examples of technological environment affecting
the functioning of a business enterprise:
(i) Airline companies have Internet and World Wide
Web pages where customers can look for flight
times, destinations and fares and book their
tickets online.
 (ii) Recent technological, advances in computers and
electronics have modified the ways in which com-
panies advertise their products. It is common now
to see computerised information kiosks, and Wo-
rld Wide Web multimedia pages highlighting the
virtues of products.
(iii) Retailers have direct links with suppliers who rep-
lenish stocks when needed. Manufacturers have
flexible manufacturing systems.
Continuing innovations in different scientific and engineering fie-
lds such as lasers, robotics, biotechnology, food preservatives, me-
dicine, telecommunication and synthetic fuels have provided num-
erous opportunities and threats for many different enterprises. Sh-
ifts in demand from vaccum tubes to transistors, from steam loco-
motives to diesel and electric engines, from fountain pens to ballp-
oint, from propeller airplanes to jets, and from typewriters to com-
puter based word processors, have all been responsible and creat-
ing new business.
4. Political Environment
Political environment includes political conditions su-
ch as:
 General stability and peace in the country and
 Specific attitudes that elected government represe-
ntatives hold towards business.
Examples of political environment affecting the
functioning of a business enterprise:
(i) Political stability builds up confidence among b-
usiness people to invest in the long term proje-
cts for the growth of the economy. On the other
hand, there may be uncertainty of business act-
ivities due to political unrest and threats to law
and order.
(ii) The attitudes of government officials towards bu-
siness may have either positive or negative impact
upon business. For example, even after opening
up of our economy in 1991, foreign companies
found it extremely difficult to cut through the bu-
reaucratic red tape to get permits for doing bus-
iness in India. Sometimes, it took months to pro-
cess even their application for the purpose. As a
result, these companies were discouraged from
investing in our country.
However, the situation has improved over time.
Components of Political Environment
 Prevailing political system
 Political ideology and practices of the ruling party
 Dominant ideologies and values of major political parties
 The nature of relationship of our country with foreign cou-
ntries
 The extent and nature of government intervention in business
 The level of political morality
 Political institutions like the government and allied agencies
 The nature and profile of political leadership and thinking of
political personalities
 The degree of politicisation of business and economic issues
5. Legal Environment
Legal environment includes various:
 Legislations passed by the Government
 Administrative orders issued by government autho-
rities
 Court judgments
 Decisions rendered by various commissions and ag-
encies at every level of the government — centre,
state or local.
It is imperative for the management of every enterp-
rise to obey the law of the land. Therefore, an adequa-
te knowledge of rules and regulations framed by the
Government is a pre-requisite for better business per-
formance. Non-compliance of laws can land the bus-
iness enterprise into legal problems.
In India, a working knowledge of the following is
important for doing business:
(i) The Companies Act, 2013
(ii) The Consumer Protection Act, 2019
(iii) Factories Act, 1948
(iv) Trade Union Act, 1926
(v) Workmen’s Compensation Act, 1923
(vi) Industrial Disputes Act, 1947
(vii) Competition Act, 2002
(viii) Industries (Development and Regulations)
Act, 1951
(ix) Foreign Exchange Management Act and the I-
mports and Exports (Control) Act, 1947
Impact of legal environment can be illustrated w-
ith the help of the following government regulat-
ions to protect consumer’s interests:
(i) The advertisement of alcoholic beverages is pr-
ohibited.
(ii) Advertisements, including packets of cigarettes
carry the statutory warning ‘Cigarette smoking
is injurious to health’.
(iii) Advertisements of baby food must necessarily
inform the potential buyer that mothers milk is
the best.
All these regulations are required to be followed by
advertisers.
Management of every enterprise can benefit from being aware of
these dimensions instead of being disinterested in them. For ins-
tance, scientific research has discovered a technology that makes it
possible to produce an energy efficient light bulb that lasts at least
twenty times as long as a standard bulb. Senior managers in the
lighting divisions at General Electric and Phillips recognised that
this discovery had the potential to significantly affect their unit gr-
owth and profitability, So they have carefully followed the progress
on this research and profitably used its findings.
RECAP

Dimensions/Elements of Business
Environment
1. Economic Environment: It refers to factors like intere-
st rates, inflation rates and changes in disposable inco-
me of people etc. which have an impact on business ent-
erprise. Example: High inflation rates generally result in
constraints on business enterprises as they increase c-
osts of raw materials or machinery and payment of wa-
ges and salaries.
Components of Economic Environment: • Rates of sav-
ing and investment • Volume of imports and exports •
Balance of payments and changes in foreign exchange
reserves • Agricultural and industrial production trends
• Expansion of transportation and communication facili-
ties • Money supply in the economy • Public debt (inter-
 nal and external) • Planned outlay in private and public
sectors • Existing structure of the economy in terms of
relative role of private and public sectors.
2. Social Environment: It includes social forces like cus-
tom and traditions, values, social trends and society’s
expectation from business. Social trends present various
opportunities and threats to business enterprises. For
example, the health-and-fitness trend has created a
demand for diet soft drinks, bottled (mineral) water and
food supplements but harmed tobacco and liquor busi-
nesses. Components of Social Environment: • Attitudes
towards product innovations, lifestyles and consumer
preferences • Concern with quality of life • Life expec-
tancy • Expectations from the workforce • Shifts in the
presence of women in the workforce • Birth and death
rates • Population shifts • Educational system and litera-
 cy rates • Consumption habits • Composition of family
3. Political environment: It includes political conditions
such as general stability and peace in the country and
specific attitudes that elected government representat-
ives hold towards business. Example: Political stability
builds up confidence among business people to invest in
the long term projects. Political instability can shake
that confidence. Components of Political Environment:
• The Constitution of the country • Dominant ideologies
and values of major political parties • The extent and na-
ture of government intervention in business. • The nat-
ure of relationship of our country with foreign countries
4. Legal environment: It includes various legislations p-
assed by the Government, administrative orders issued
by government authorities, court judgments and the de-
cisions 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. Non-Compliance of laws can
land the business enterprises into legal problems. For
example, knowledge of Companies Act 2013; Consumer
Protection Act, 2019 etc. is important for doing business.
Examples of government regulations to protect consum-
er’s interests: (i) Advertisements for packets of cigarettes
must carry the statutory warning– ‘Cigarette smoking is
injurious to health’ (ii) Advertisement of alcoholic bev-
erages is prohibited on Doordarshan
5. Technological Environment: It includes forces rela-
ting to scientific improvements and innovations which
provide new ways of producing goods and services and
new methods and techniques of operating a business.
Example: Airline companies have internet and www pag-
es where customers can look for flight times, destinatio-
ns and fares and book their tickets online.
Question 1
Which component of general environment of business
prohibits the advertisement of alcoholic beverages?

Objective Type Questions 3.2

Answer 1
Legal environment

Objective Type Questions 3.2

Question 2
‘It is common now to see CD-ROM’s, computerised inf-
ormation kiosks, and Internet/World Wide Web multi-
media pages highlighting the virtues of products.’ Name
the dimension of the business environment highlighted by
this statement.

Objective Type Questions 3.2

Answer 2
Technological environment

Objective Type Questions 3.2

Question 3
Which component of business environment requires th-
at advertisements of baby food must necessarily inform
the potential buyers that mother’s milk is the best?

Objective Type Questions 3.2

Answer 3
Legal environment

Objective Type Questions 3.2

Question 4
Just after declaration of Lok Sabha Elections 2014 resu-
lts, the Bombay Stock Exchange’s price index (Sensex)
rose by 1000 points in a day. Identify the environmental
factor which led to this rise.

Objective Type Questions 3.2

Answer 4
Political environment

Objective Type Questions 3.2

Question 5
Which of the following is an example of social environ-
ment?
(Choose the correct alternative)
(a) Money supply in the economy
(b) Consumer Protection Act
(c) The Constitution of the country
(d) Composition of family

Objective Type Questions 3.2

Answer 5
(d) Composition of family

Objective Type Questions 3.2

Question 6
Match the following:
Column I Column II
(i) Banks reducing interest rates on (a) Economic
housing loans environment
(ii) An increasing number of working (b) Political
women environment
(iii) Alcoholic beverages are prohibited (c) Legal
to be advertised on ‘Doordarshan’ environment
(iv) A stable government has built up (d) Social
confidence among the firms to environment
invest in big projects
Objective Type Questions 3.2
Answer 6
(i) – (a), (ii) – (d), (iii) – (c), (iv) - (b)

Objective Type Questions 3.2

Question 7
Many businesses are using social media like facebook a-
nd twitter to promote themselves. This is an example of
which dimension of Business environment:
(Choose the correct alternative)
(a) Social
(b) Economic
(c) Legal
(d) Technological

Objective Type Questions 3.2

Answer 7
(d) Technological

Objective Type Questions 3.2

Question 8
Even after opening up of the Indian Economy in 1991, f-
oreign companies found it extremely difficult to cut thr-
ough the bureaucratic red tape to get permits for doing
business in India, which discouraged them from investing
in our country. Identify the dimension of business envir-
onment.

Objective Type Questions 3.2

Answer 8
Political environment

Objective Type Questions 3.2

Question 9
‘The celebration of Diwali, Eid, Christmas and Guru Pa-
rv in India provides significant financial opportunities for
greeting cards companies, sweets or confectionery man-
ufacturers, tailoring outlets and many other related bus-
iness.’ Name the dimension of the business environment
highlighted by this statement.

Objective Type Questions 3.2

Answer 9
Social environment

Objective Type Questions 3.2

Question 10
The Reserve Bank of India (RBI) increased the Cash Re-
serve Ratio (CRR) by 0.25 Basis Points to overcome the
inflationary trends in the economy. Identify the dimen-
sion of business environment highlighted in the given st-
atement.

Objective Type Questions 3.2

Answer 10
Economic Environment

Objective Type Questions 3.2

Question 11
According to Consumer Protection Act, 1986, manufac-
turers are under an obligation to provide all the releva-
nt information (MRP, ingredients, date of manufacturing,
expiry date, etc.) about the product.
Which dimension of business environment is highlighted
in the given sta-tement?

Objective Type Questions 3.2

Answer 11
Legal Environment

Objective Type Questions 3.2

Question 1
The Court passed an order to ban polythene bags as
(i) The bags are creating many environmental proble-
ms which affect the life of people in general.
(ii) Society in general is more concerned about quality
of life.
The Government decided to give subsidy to jute indust-
ry to promote this business.
Innovative techniques are being developed to manufactu-
re jute bags at low rates.
HOTs 3.2 — Analysing, Evaluating & Creating Type Questions
Incomes are rising and people can afford to buy these
bags.
Identify the different dimensions of Business Environm-
ent by quoting the lines from the above particulars.
(CBSE 2013) (5 marks)

HOTs 3.2 — Analysing, Evaluating & Creating Type Questions

Answer 1
(i) Legal environment: ‘The Court passed an order to
ban polythene bags.’
(ii) Social environment: ‘The bags are creating many
environmental problems which affect the life of people
in general. Society in general is more concerned about
quality of life.’
(iii) Political environment: ‘The Government decided to
give subsidy to jute industry to promote this business.’
(iv) Technological environment: ‘Innovative techniques
are being developed to manufacture jute bags at low
rates.’
HOTs 3.2 — Analysing, Evaluating & Creating Type Questions
(v) Economic environment: ‘Incomes are rising and peo-
ple can afford to buy these bags.’

HOTs 3.2 — Analysing, Evaluating & Creating Type Questions

Question 2
Beni, after completing her MBA, took up a job with a
multinational company named ‘Fortio’. The company was
paying good salary and perks to its employees. The w-
ages were within the paying capacity of the company
that provided the employees 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 organization,
but due to long working hours she did not have time to
cook her meals. She had to depend on outside food, w-
hich was deteriorating her health.
HOTs 3.2 — Analysing, Evaluating & Creating Type Questions
She observed that this problem was faced by many of
her colleagues, not only in her company but also in m-
any 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 was also
distributing the left-over food in the nearby night-
shelters. State the dimension of business environment
being discussed above. (1 mark)
HOTs 3.2 — Analysing, Evaluating & Creating Type Questions
Answer 2
Social environment which includes social forces like
customs and traditions, values, social trends etc.

HOTs 3.2 — Analysing, Evaluating & Creating Type Questions

Question 3
The Government of India has recently come up with an
amendment to Section 6 of the Payment of Wages Act
1936, to allow employers of certain industries to make
payment through various electronics modes of payments.
The amendment will be applicable to all the public sec-
tor undertakings for wages disbursement using repaym-
ent options. This is another milestone in the direction to
further push to cashless economy.
Identify and explain any two dimensions of business envi-
ronment which relate to the above mentioned case.
(CBSE SQP 2018-19) (4 marks)
HOTs 3.2 — Analysing, Evaluating & Creating Type Questions
Answer 3
The various dimensions of business environment which
r-elate to the above mentioned case are stated below:
(a) Political Environment
(b) Legal Environment
(c) Technological Environment (any two with explanation)

HOTs 3.2 — Analysing, Evaluating & Creating Type Questions

Question 4
With rapid advancements in the field of replacing manual
work with machines, a Robot named ‘Sujan’ has been inv-
ented and developed and is likely to get the citizenship
of the country of its origin.
It has led to a stage where machines are being used in
place of human beings. ‘Sujan’ is doing all types of work
whether routine or hazardous and even answering the
queries of people. However, this issue has to be carefully
looked into keeping in mind the consumer attitude
towards product innovations, problem of unemployment
and its impact on the quality of life. Through the orders
HOTs 3.2 — Analysing, Evaluating & Creating Type Questions
and decisions of various commissions and agencies at
Centre, State or Local level the Indian Government is
playing a very significant role in balancing the use of hu-
man and machine power. Various dimensions of business
environment are being discussed in the above para.
By quoting the lines from the above identify and explain
any three dimensions.
(CBSE 2019) (4 marks)

HOTs 3.2 — Analysing, Evaluating & Creating Type Questions

Answer 4
(i) Technological Environment: 'With rapid advancements
in the field of replacing manual work with machines, a
robot named ‘Sujan’ has been invented and developed’.
(ii) Social Environment: ‘However, this issue has to be ca-
refully looked into keeping in mind the consumer attit-
ude towards product innovations, problem of unempl-
oyment and its impact on the quality of life’.
(iii) Legal environment: ‘Through the orders and decisions
of various commissions and agencies at Centre, State or
local level the Indian Government is playing a very sign-

HOTs 3.2 — Analysing, Evaluating & Creating Type Questions

ificant role in balancing the use of human and machine
power.’
(Give explanation of these dimensions)

HOTs 3.2 — Analysing, Evaluating & Creating Type Questions

Question 5
Reserve Bank of India (RBI) has set the deadline for rep-
lacing all magnetic strip based ATM cards into EMV cards
by December 31, 2018. EMV stands for Europay, Maste-
rcard and Visa from which the standards for a chip ena-
bled card emerged. The EMV card provides a higher level
of security as compared to magnetic strip cards which
can be easily cloned. This switching to secure system may
push up the costs of the banking sector. Identify the two
dimensions of business environment in the above para.
(1 mark)

HOTs 3.2 — Analysing, Evaluating & Creating Type Questions

Answer 5
Legal Environment and Technological Environment

HOTs 3.2 — Analysing, Evaluating & Creating Type Questions

Question 6
It is heartening that the implementation of compliance
requirements of the Companies Act, 2013 has progressed
substantially with NIFTY 500 companies. Data shows a
significant increase in women’s participation in the top
management of Indian Companies from 5% few years ago
to 13% now. Even companies which are not in NIFTY 500
have undertaken drives to increase women’s participation
across different areas of work. The government had also
announced that it would support such companies.
Identify and explain the dimensions of business environ-
ment discussed above which brought about the change.
HOTs 3.2 — Analysing, Evaluating & Creating Type Questions
Answer 6
The dimensions of Business environment discussed abo-
ve which brought about the above change are:
(a) Legal environment
(b) Political environment (Explain)

HOTs 3.2 — Analysing, Evaluating & Creating Type Questions

Question 7
The court passed an order that all schools must have
water purifier for the school children as
(i) Society in general is more concerned about quali-
ty of life.
(ii) Innovative techniques are being developed to ma-
nufacture water purifier at competitive rates.
(iii) Incomes are rising and children at home are also
drinking purified water.
The government is also showing positive attitude tow-
ards the water purifier business.

HOTs 3.2 — Analysing, Evaluating & Creating Type Questions

Identify the different dimensions of business environm-
ent by quoting from the above details.
(5 marks)

HOTs 3.2 — Analysing, Evaluating & Creating Type Questions

Answer 7
(i) Legal environment: ‘The court passed an order that all
schools must have water purifier for the school children.’
(ii) Social environment: ‘Society in general is more concer-
ned about quality of life.’
(iii) Technological environment: ‘Innovative techniques are
being developed to manufacture water purifier at comp-
etitive rates.’
(iv) Economic environment: ‘Incomes are rising and child-
ren at home are also drinking purified water.’
(v) Political environment: ‘The government is also showing
positive attitude towards the water purifier.’
HOTs 3.2 — Analysing, Evaluating & Creating Type Questions
Question 8
The Prime minister Mr. Narender Modi launched a Ca-
mpaign of ‘Swachh Bharat’ and invited various celebri-
ties to be a part of this Abhiyaan. This spread awareness
among the people in society and in general, people
started becoming more careful and aware about the
cleanliness around their area. To continue its impact, a
new service tax for Swachh Bharat was also started. The
government is planning to import new and better
technology to adopt new methods of treating the
garbage and waste.

HOTs 3.2 — Analysing, Evaluating & Creating Type Questions

Explain the various dimensions of business environment
mentioned in the above para quoting the lines from the
above para.
(4 marks)

HOTs 3.2 — Analysing, Evaluating & Creating Type Questions

Answer 8
(i) Political Environment: ‘The Prime minister Mr. Nare-
nder Modi launched a Campaign of ‘Swachh Bharat’
(ii) Social Environment: ‘people started becoming more
careful and aware about the cleanliness around their
area.’
(iii) Economic Environment: ‘a new service tax for Swachh
Bharat was also started.’
(iv) Technological Environment: ‘import new and better
technology to adopt new methods of treating the garba-
ge and waste.’
(Explain)
HOTs 3.2 — Analysing, Evaluating & Creating Type Questions