Chapter-3

BUSINESS ENVIRONMENT

For more -Visit : https://hsstimes.blogspot.com

Prepared by:Sandeep Kumar N V
HSST Commerce,Katukukke HSS Kasaragod
Mob:9496357371,E
mail:sandeepneelian@gmail.com
Residence :PILICODE
 INTRODUCTION
The word Environment is derived from the
French word “Environ” which means
“surrounding”. Every business organisation
operates in a distinctive environment, as it cannot
exist in isolation. Business environment is the
surroundings in which business exists. Business
environment refers to all forces and conditions
external to a business under which it operates.
 Time line: Coke vs Plachimada
1999: Hindustan Coca-Cola Beverages Private
Limited, a subsidiary of the Atlanta-based Coca-
Cola company, established a plant in Plachimada.
Coca-Cola drew around 5,10,000 litres of water
each day from boreholes and open wells.

2002:Local communities complained that water

pollution and extreme water shortages were
endangering their lives.
 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”.
 Features of Business Environment
1. Totality of external
forces :
Business environment is the
sum total of all individuals,
institutions and other factors
and forces external to
business firms which are out of
control.
2. Specific and general
Forces:
Business Environment consists of
both specific and general forces.
Specific forces have direct impact on
individual enterprises. Eg: investors,
suppliers, competitors etc.

Whereas general forces have

indirect impact on all the business
enterprises. For eg: social, political,
legal, technological condition
3. Interrelatedness :
Various elements of business environment are
closely related or interdependent, for e.g.,
Technological development may result in lose of
employment opportunities.
4. Dynamic nature:
The business environment is flexible as it keeps
on changing in terms of technological
improvement, changes in consumers taste, and
fashion.
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
6. Complexity :
Business environment
is a complex
phenomenon as
nobody can predict the
impact of a change in
the environment on a
product or service.
7.Relativity:
Business
environment is a
relative concept since
it differs from country
to country and even
region to region.
Political conditions in
the USA,for instance,
differ from those in
China or Pakistan.
 IMPORTANCE OF
BUSINESS ENVIRONMENT
(Importance of Business
Environment Scanning)
IMPORTANCE OF BUSINESS ENVIRONMENT(Importance
of Business Environment Scanning)
Environment scanning:
Environment scanning means monitoring the environment
of each organization and identifying the opportunities &
threats before them. or adjusting the operations of an
organization according to the environment, environment
scanning is essential.
The importance of the
environment is discussed under
the following heads-
1) It helps the firm to identify opportunities
and get the first mover advantage:
Opportunities refer to the positive external trends or
changes. Identification of opportunities at an early stage
helps the firm to be able to exploit them without losing them to
competitors. Eg: Maruti Udyog became the leader in the small
car market because it was the first to recognise the need for
small cars for middle class.
2) It helps a firm to identify threats and
early warning signals:
Environmental awareness helps mangers identify
various threats. It provides the business early
warning signals to plan its future course of action.
For example, if an Indian firm finds that a foreign
multinational is entering the Indian market with new
substitutes, it should act as a warning signal.
3)It helps in tapping
useful resources:
Environment is a source of
various resources to business
enterprises. Environment
scanning provides information
about different sources of
resources. Therefore enterprise
should design their policies
making a provision for getting
resources they need and giving
what the environment need.
4)It helps in coping with
rapid changes:
Business environment is highly
dynamic such as change in
market condition, technology,
competition etc. To cope with
these changes managers must
be dynamic. This is possible
through proper environment
scanning.
5)It helps in assisting in planning and
policy formulation:
Environment scanning gives vital information
which can be taken as the basis for deciding
future course of action (planning) or framing
guidelines for decision making (policy
formulation.)
6)Helps in improving performance:
The future of environment is very much linked
with what is happening the environment.
Those enterprises which continuously monitor
their environment and adopt suitable policies
will improve their performance.
 DIMENSIONS / FACTORS / ELEMENTS OF
BUSINESS ENVIRONMENT
Dimensions of business environment means all the factors,
forces and institutions which have direct or indirect influence
over the business activities.
The various factors constituting the general environment of
business is given below-
1. Economic Environment
2. Social environment
3. Technological Environment
4. Political Environment
5. Legal Environment
1. Economic Environment:
Economic condition, economic system,
economic policy, inflation rates, interest rates,
tax rates,foreign Investments, Corporate
profits, Inflation rates, employment rates,
foreign trade balances, etc. are the main
components of economic environment.
Economic environment refers to all factors
which have an economic impact on business .
2.Social Environment:
Social environment include attitude of
people cultural heritage, life style, customs
and belief of people, literacy rate, birth and
death rate, education system demographic
distribution,society’s expectations from
business,Composition of family etc .Social
environment means social and cultural factors
that affect business directly or indirectly.
3.Technological Environment:
It includes forces relating to scientific
improvements and innovations, which provide new
products, new production method and new methods
of operating a business etc. New instruments and
new procedures are developing rapidly.Eg:CDs and
DVDs adversely affected video cassettes and tape
recorders
4.Political Environment:
Political and government environment
includes political parties & their
ideology, attitude of government towards
business,type of government(single or
union of different parties),relation of
state and central government,The level
of political morality etc .All these factors
have far reaching impact on the growth
and profitability of business.
5. Legal Environment:
It includes the Acts passed by the Central and the
State Governments,administrative orders, court
judgement etc. All members of business community
must follow these laws. Eg Advertisements for
packets of cigarettes-Cigarette smoking is injurious
to health,Act Like Consumer Protection Act-
1986,Trade Mark Act –1969,Essential Commodities
Act – 1955
ECONOMIC ENVIRONMENT IN INDIA
 The year 1991 marks a turning point in India‘s
economic history. Till 1991 India followed an
economic policy with a socialist bias.From 1991
onwards the Government started implementing
sweeping economic reforms. As part of economic
reforms, the government of India announced a
New Industrial Policy in 1991.
 The broad features of this policy were as follows:

a)The Government reduced the number of industries under compulsory

licensing to six.

b)De-reserved many industries which were earlier reserved for the public
sector.

c)Carried out disinvestment process in case of many public sector companies.

d)Liberalized foreign capital policy – 100% Foreign Direct Investment (FDI) in

many segments.

e)Set up Foreign Investment Promotion Board (FIPB) to promote foreign

investment in India.
 Liberalization, Privatization and Globalization
(LPG) are the major programs of this New
Economic Policy 1991.
 1. Liberalization :
Liberalization means liberating the economy from
unnecessary controls and regulations through
delicencing and decontrol. The old policy of licenses,
permits and controls discouraged private enterprises.
Import licensing, foreign exchange regulations,
progressive taxes, price controls, etc. discouraged
investments. Liberalisation removed all unnecessary
controls & restrictions through delicencing and
decontrol.
Features of Liberalization:
>Abolishing licensing in most of the industries.
>Freedom in fixing the price of products
>Reduction in tax.
>Export & Import simplified.
>No restriction on expansion.
2.Privatization:
Privatisation means transfer of ownership and
management of enterprise from public sector to
private sector. Privatization is a trend all over the
world now,in India the priority given to the public
sector is gradually being reduced and the role of
private sector is being encouraged. To achieve this
Govt. adopted the policy of planned disinvestment &
de-reservation.
Disinvestment:
Passing of ownership, control and management of Public
Sector Undertakings to the private sector.
De-reservation
This allows the private sector to enter into new areas.
 SOME EXAMPLES:
1.Maruti Udyog Limited was founded by the government of
India in 24 February 1981.On 14th May 2002, the
Government approved disinvestment in Maruti Udyog Ltd.
3.Globalisation:
Globalisation means integrating the economy of a
country with the world economy. In globalization entire
world is considered as a single market. Globalization
means free movement of goods, capital and labour
across the world. Globalization is a not a policy, it is a
phenomenon. Globalisation has four parameters

>Free flow of goods and services across nations

>Free flow of capital among nations
>Free flow of technology between nations
>Free flow of Labour among different nations
IMPACT OF GOVERNMENT POLICY CHANGES
ON BUSINESS AND INDUSTRY:

The policy of Liberalization,

Privatization and Globalization (LPG)
made a significant change on the
working of Indian business firms.
The following are the main impacts-
1. Increasing competition:
As a result of change in the rules of industrial
licensing and entry of foreign firms, competition for Indian
firm has increased especially in service industries like
banking, Insurance.
2. More demanding customers:
Increased competition in the market gives
the customers wide choice in purchasing
better quality of goods and services.
Customers demanding more as they are
well informed.
3.Rapidly changing technological environment:-
Increased competition forces the firms to
develop new ways to survive and growth the
market. Rapidly changing technological
environment creates tough challenges before
smaller firms.
4. Need for developing human resources:
The new market conditions require people
with higher competence and greater
commitment. Hence the need for developing
human resources is very essential.
5. Market Orientation:
Earlier companies followed production
oriented marketing operations. but now, there
is a shift to market orientation., where the
firms have to study and analyses the market
first and produce goods accordingly.
6.Loss of budgetary support to the public
Sector:
Fund allotment from government revenue
has declined over the years.
 DEMONETIZATION

November 8, 2016
A look into the past will make you realise that India is no new to demonetisation.
Demonetisation has been implemented twice -1946 and 1978
 DEMONETIZATION
Demonetisation is an act of cancelling the legal tender
status of a currency unit in circulation .

The Government of India, made an announcement on

November 8, 2016 with profound implications for the
Indian economy. The two largest denomination
notes,'500' & '1000', were ‘demonetised’ .In simple
words, demonetized notes are no longer valid as legal
currency. Usually, a new currency replaces the old
currency.
Aim & Features of demonetisation
1)A tax administration tool(To control
accumulation of ‘black money):
The people who have black money had to
declare their unaccounted wealth and pay taxes
at a penalty rate.
2)Cash less economy :
Govt. announced demonetization with an
aim of creating a digital economy with the
support of formal financial system / banks.
(Internet banking, e- wallets, etc.)
3)It is a method to check tax evasion:
Through this action, government
indicating that tax evasion will no
longer be tolerated or accepted.
TAX EVASION:
The illegal non-payment or underpayment of tax.
4)To control corruption:
Another aim of demonetisation was to
control corruption
5)To control illegal activities:
To control use of high denomination notes for
illegal activities.
Impact of Demonetization:
1)Decline in cash transaction.
2)Bank deposits increased.
3)Digital transactions RuPay/AEPS among new
users increased(AEPS- Aadhaar Enabled
Payment System).
4)Real estate prices declined.
5)Rise in income tax collection because of
increased disclosure.
 For more Visit(CLICK BELOW):

https://hsstimes.blogspot.com

Prepared by:Sandeep Kumar N V

HSST Commerce,Katukukke HSS Kasaragod
Mob:9496357371,E
mail:sandeepneelian@gmail.com
Residence :PILICODE
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