ENVIRONMENT

BUSINESS

CHAPTER – 2

BUSINESS ENVIRONMENT
Business Environment which is new today, may become outdated or obsolete
Business environment as such is the total of all external after sometime. For eg. Black and white TV were
forces which affect the organisation and operation of replaced by coloured ones. Therefore business
business. enterprise have to be highly cautious, alert and
Features/Characteristics of Business Environment adaptable to these changes.
(i) Totality of External Forces: Business environment (v) Uncertainty: Business environment is uncertain and
includes all the external forces so it is aggregative in these changes are difficult to predict especially when
nature. environment changes are taking place too frequently
(ii) Specific and General Forces: Business environment as in case of information technology and fashion
includes both specific and general forces. Specific industries.
forces such as investors, customers, competitors and (vi) Complexity: Business environment is difficult to
suppliers which affect the business directly. General understand. It can be understood easily in parts but in
forces such as social, political, legal and technological totality, it is difficult to understand.
conditions which indirectly affect the operations of a (vii) Relativity: Different nations and different regions
business unit. have different kinds of business environment. Thus
(iii) Inter-relatedness: Various elements or parts of business environment is a relative concept.
business environment are closely interrelated. For eg.
Increased awareness for healthcare has raised the Example
demand for diet coke, fat free cooking oil etc.
(iv) Dynamic Nature: Business environment is dynamic (a) Indian technology is quite different from the
in nature i.e. it keeps on changing. Change in consumer technology of Japan
taste and preference of the consumer, entry of new (b) Demand for sarees may be high in India,
competitors in the market, change in technology are
whereas it is almost nil in France
examples of environmental changes. Business
environment is dynamic in sense that something
Importance of Business Environment of its products, reduce cost of production, engage in
(i) It Enables the Firm to Identify Opportunities and aggressive advertisements and so on.
Getting the First Mover Advantage: 'Opportunities' (iii) It helps in tapping Useful Resources- A business
means the positive external trends or changes that firm obtains various resources or inputs such as
will help a company to improve its performance. machines, tools ,capital, machine etc. from the
Business environment provides lots of opportunities environment and converts them into desired goals
for business enterprises. The business firms which are and services to the customers and then supplies its
able to scan these opportunities at an early stage get output to the environment. If the business enterprise
maximum benefit and can leave their competitors has a complete awareness and knowledge of the
behind external environment, it can tap technology, raw
For example, Maruti Udyog became the leader in the materials, financial resources from the market at the
small car market because it was the first to recognise reasonable price and at the right time.
the need for small car in an environment of rising (iv) It helps in coping with rapid changes: Today’s
petroleum prices and a large middle class population business environment is very dynamic. Changes are
in India. Similarly, if there is a change in the syllabus taking place very fast and these changes have
of Business Studies paper for a particular class then a tremendous impact on functioning of business. So it is
publishing company may bring out the revised edition essential to understand these changes as early as
at the earliest to get the first mover advantage. possible. Through environment scanning managers
(ii) It Helps the Firm to Identify Threats and Early can understand and examine these changes and
Warning Signals: ‘Threats' means the external develop appropriate course of action to effectively
environment trends and changes that will hinder a cope up with changes.
firm's performance. Business environment along with (v) It helps in Assisting in Planning and Policy
opportunities provides threats also. The proper formation: Environment analysis helps identifying
knowledge and understanding about the environment threats and opportunities in the market. These can
helps the business enterprise to identify the possible serve as the basis for planning and policy formation.
threats in future and acts as early warning signals.
Timely understanding of environment helps to make (vi) It helps in improving performance: Analysis and
suitable changes in the enterprise. For eg. If an Indian understanding of business environment helps thew
firm finds that a MNC is entering the Indian market business to improve its performance. The enterprises
with new substitutes, this should work as a warning which continuously monitor and adjust themselves
signal for the Indian firm. On the basis of this according to the changing business environment, not
information, the Indian firm can improve the quality only improve their present performance, but also
continue to succeed in the market.

Dimensions of Business Environment

Economic Environment The economic environment exercise strong influence on
Economic environment consists of factors like productivity, business because business is an economic institution. So
interest rates, tax rates, Gross Domestic Product, per capita business environment must scan the economic environment
income, saving rate, investment rate, corporate profits, and take timely actions in accordance with the change taking
balance of payments, disposable income, inflation rate etc. place in the economic environment.

Example

(a) Decline in tax rates raises the disposable income of people which leads to increase in demand for products
(b) If the governments will rises to reduce the excise duty on ACs [Air Conditioners), the sales of business
enterprises manufacturing ACs will rise.
(c) in case of construction companies and automobile manufacturers, low interest rates are beneficial because
they result in increased spending by consumers for buying homes and cars
(d) Rise in inflation rates generally result in constraints on business firms because they increase the costs of
raw materials or machinery and payment of wages and salaries to employees
(e) To tackle the problem of recession. RBI has allowed the commercial banks to reduce the interest rates on
the loans.
(f) Banking sector reform has led to many attractive schemes of deposits and lending money. The banks are
offering loans at very reasonable rate of interest and with minimum formalities to be completed

Social Environment
Social environment describes characteristics of the society in which the enterprise exists. Social environment consists of
traditions, customs, rituals, life style, literacy rates, family structure, values, education system, demographic trends (e.g.
size and distribution of population, age compositions, male-female ratio, rural urban mobility, income distribution, etc.),
consumers' consciousness, consumers' organisations, status of women and minorities, non-government organisations,
etc. The business organisations has to analyse and understand the social environment as it determines the products,
services and standards of conduct that are acceptable to society. The nature of goods and services in demand depends
upon the buying habits, income level, education level, customs, tastes, preferences etc With the changes in demand of the
consumers, businessmen are required to change their production and marketing plans.
 Example

(a) The celebration of festivals like Diwali, id, Christmas, Lohri Guru Parv etc provides significant financial
opportunities to many businesses like greetings card companies, confectionery or sweets manufacturers, gift
producing companies, etc
(b) Equal pay to male and female for equal work.
(c) Demand for reservation in jobs for minority and women.
(d) Increase in the demand of nutritious food, bottled (mineral) water, gyms etc due to health and fitness.
Consciousness
(e) Import of animal fat for manufacturing Vanaspati Ghee was banned by the government due to strong public protest.

Technological Environment
It includes forces relating to-
• Scientific improvements and innovations which new ways of producing goods and services, and
• New methods and techniques of operating a business.

Example

(a) Digital Watches resulted in death of traditional watches.

(b) Xerox machines damaged carbon paper business.
(c) Smartphones have taken over the market from keypad phones.
(d) Shopping malls have greatly influenced the retails business in large cities.

Political Environment
Example
Political Environment includes political conditions such as
political stability, type of government (single party
environment or muti-party environment), constitution of (a) Terrorism in Jammu and Kashmir has badly
the country, ideology of government, foreign policy of the affected tourism in the state.
government, relations of the country with other countries,
profile of political leader and son on. The political (b) In 1999, when Vajpayee Government at the
environment has tremendous impact on the functioning of Centre lost the majority support, the share prices
business to business firms must scan this environment very at the stock market crashed immediately.
carefully and adjust themselves according to the changes. (c) Due to change in political scenario government
Whenever there is political instability, it increases the
allowed Coca-Cola, Pepsi and IBM and other
confidence of businessmen to invest in long term projects for
the growth and development of the economy. While political MNCs to enter the Indian Market to give boost to
instability will hamper any new investments in the economy. the food processing industry.
 Impact of Government Changes on Business (With
Reference to Liberalisation, Privatisation,
Globalisation)
In India Since 1991 India has been going on economic
reforms. We have now adopted the policy of liberalisation,
privatisation and globalisation. We have started
modernising the country’s industrial system.
Unproductive control are being removed private investment,
including foreign investment, is being encouraged.
(i) Liberalisation: It means removing unnecessary trade
restrictions and making the economy more
competitive like as freedom of production, expansion
of industries.
The Indian companies has been liberalised in the
Legal Environment
following way:
• Legislations Passed by the Government eg. Trademark (a) Removal of Industrial Licensing except in few.
Act, 1999, Essential Commodities Act, 1955 etc. (b) Freedom intaking decisions regarding expansion
• Administrative orders issued issue by government and contradiction of business activities.
authorities. (c) Freedom to fix the price of goods and services.
(d) Reduction on tax rates and removal of
• Court Judgements
unnecessary controls and regulations in the
• Decisions rendered by various agencies at every level economy.
of government centre, state or local. (e) Removal of restrictions on the movement of
The businessman must follow the rules and regulations goods and services.
framed by the government for smooth running of the (f) Simplifying import-export procedure
business. Non obedience to laws may lead to imposition (g) Simplifying the process of attracting foreign
to heavy penalties and sometimes even shut down of capital and technology.
business. (ii) Privatisation: It means removing strict control over
private sector and making them free to take necessary
Example decisions. To achieve this, the government adopted
the policy of planned ‘disinvestments’, which means
(a) The Government of India has banned the transferring public sector enterprises to the private
advertisement of alcoholic products. sector. If there is dilution of government ownership
(b) In 1992, several tanneries in Kanpur were beyond 51% it would result in transfer of ownership
ordered to be closed down by the Supreme Court and management of enterprise to the private sector.
as they were polluting river Ganga. (iii) Globalisation: Free interaction among economies of
(c) Mandatory to give Statutory warning on the the world in the field of trade, finance, production,
packets of cigarettes – “Cigarette Smoking is technologies and investment is termed as
Injurious to Health”. globalisation.
(d) Baby food advertisements must inform the An economy is truly global, where there is:
potential buyer that mother’s milk is the best (a) Free flow of goods and services across nations.
(b) Free flow of capital among countries.
(c) Free flow of information and technology.
(d) Free movement of people across borders.
(e) A common acceptable mechanism for the
settlement of disputes.
(f) A global governance perspective.
Impact of Government Policy Changes on Business and
Industry
(i) Increasing Competition: As a result of economic
reforms, business houses now face competition not
only from existing players and new local entrants but
also from Multinational Companies. Competition has
now become global in character. It is not confined to
country’s boundaries.
(ii) More Demanding Customers: Increased competition making changes in their products, so that their
in the market has widened the choice of customers in product can face global competition.
purchasing better quality goods and services. Today’s (v) Need for Developing Human Resource- The new
customers are more demanding because they are well market conditions requires people with higher
informed. To attract customers many schemes were competence and greater commitment. In India, there
made by companies. has been a huge shortage of trained personnel with
(iii) Rapidly Changing Technological Environment: higher competence, skill and training. So, there is need
Technology is changing at a very fast rate. The basic for developing human resources. As a result,
reason is increase in competition. The rapidly compensation levels for managerial and technical
changing technological environment requires services have been raised sharply.
improvement in machines, equipments, processes, (vi) Market Orientation: Earlier firms were following
products and services. Business firms have to produce selling concept, i.e produce first and then go to market
world class products to survive and grow in market. for sale but today firms are market oriented they
For eg. Through heavy investment in Research and research the market, need and wants of consumers
Development Samsung has been able to come out with and then they produce good accordingly.
many new products in the market. But rapidly (vii) Loss of Budgetary Support to Public Sectors:
changing technology creates tough challenges for Before 1991, each and every loss of public sector were
small companies due to lack of financial resources. to bear government granting funds from budgets.
(iv) Necessity for Change: After 1991, the market forces Public sector enterprises realised in order to survive
have become turbulent as a result of which the and grow they will have to improve their performance
enterprises have to continuously modify their and generate their own resources otherwise these
operations. For eg. Nokia, Samsung, LG keep on enterprises have to face disinvestment.

Conclusion: (iii) Brand Building: Expenditures were enhanced by

On the whole, impact of government policy changes is building brands. Many MNCs have invested huge
respect to liberalisation, privatisation and globalisation has amounts on building brands such as Samsung, LG,
been positive on Indian firms have developed strategies and Hyundai.
developed business processes and procedures to meet the (iv) Use of Latest Technology- Use of latest technology
challenge of competition. They have become more customer- has become the slogan of successful companies.
focussed and adopted measures to improve customer
relationships and satisfaction. (v) Sharply Improved Compensation Levels: Sharply
improved compensation levels for special managerial
Managerial responses to Changes in Business technical services. The starting salaries for
Environment engineering and management graduates have risen
(i) Diversification Spree: The corporate scene now significantly.
witnessed a spate of diversification. For eg. B and D
served initially a wide range of telecom. Now, it has (vi) Customer focus: Increasing attention to customer
entered into manufacturing of transmission, needs and their satisfaction. There is tremendous
equipment, switching equipment and wireless difference between in the nature and quality of
products. Similarly, Reliance has diversified into products offered to consumers today.
textiles, petrochemicals, IT, communication etc. Demonetisation
(ii) Joint Venture: Many multi-nationals enter India November 8, 2016 was the day when '500' and '1000'
through new joint ventures. denomination notes were withdrawn from circulation. It
resulted in withdrawal of 86% currency in circulation.
People were advised to go to the bank to replace old notes
Example
with new upto a limit. There was a restriction on cash
(a) Honda enters with SEIL withdrawal. The main aim of demonetisation was to curb
(b) Ford enters with Mahindra and Mahindra. corruption, check on use of notes for illegal activities and
(c) General Motors enters with Hindustan Motors. specially the accumulation of black money generated by not
declining in income to income tax authorities.
 financial system. As much of the cash deposited by
Features of Demonetisation people for exchange will be offered to people for loan
(i) Demonetisation as a tax administration measures- under new schemes.
Due to demonetisation people had to declare their (iv) Creating less cash or Digital Cash lite economy-
cash holding to get it exchange from bank. So, those Another feature of demonetisation is to create a less
having black money had to declare their unaccounted cash or cash-lite economy i.e., channelising more
wealth and pay taxes at penalty saving through the formal financial system and
(ii) Non tolerance of tax evasion- Demonetisation also improving tax compliance. Although there are
indicated that government will no longer accept tax arguments against these digital transactions.
evasion. (a) They require use of cell phones for customers
(iii) Tax administrating and channelising saving into and POS machines for Businessmen.
formal financial system-Demonetisation led to tax (b) Requirement of Internal connectivity.
administration, channelising savings into the formal
 QUESTIONS FOR PRACTICE
Q1. Hon’ble Prime Minister Shri Narendra Modi initiated cassettes replaced them. So, managers had to adopt in
and coined the slogan “Make in India.” Which their organisation accordingly. Identify the
dimension of business environment does this pertain environment change highlighted here.
to? (a) Social environment change
(a) Economic environment (b) Technological environment change
(b) Political environment (c) Economic environment change
(c) Legal environment (d) Both (a) and (b)
(d) Social environment
Q8. Liberalisation, globalisation and privatisation are the
Q2. Seeing the need of connecting restaurants/food aims of
outlets to people, Zomato established its app as a food (a) economic planning
delivery platform. Which importance of business (b) land reforms
environment is highlighted here? (c) socialistic pattern of society
(a) It enables the firm to identify opportunities and (d) economic reforms
getting the first mover advantage
(b) It helps in tapping useful resources Q9. What is included in legal environment of business?
(c) It helps in coping with rapid changes (a) Several acts passed by government
(d) It helps in improving performance (b) Court judgements
(c) Statutory warning prescribed under law
Q3. “Spirit of invention and innovation among people” is (d) All of the above
the component of which environment?
(a) Legal environment Q10. Decline in tax rates raises the disposable income of the
(b) Technological environment people, which leads to increase in demand for the
(c) Social environment products is example of which type of business
(d) Economic environment environment?
(a) Social (b) Political
Q4. The ……… means the sum total of all individuals,
(c) Economic (d) Legal
institutions and other forces that are outside the
control of a business enterprise but that may affect its Q11. Just after declaration of Lok Sabha elections 2019
performance. results, the Bombay Stock Exchange price index rose
(a) management principles by 2800 points in a day. This statement signifies the
(b) business environment effect of which environment?
(c) economic environment (a) Technological environment
(d) social environment (b) Political environment
Q5. Many multinational food joints such as Mc Donalds, (c) Legal environment
Domino’s etc have altered their menu according to (d) Economic environment
Indian taste and culture. Name the dimension of Q12. “Nothing can be said with certainty about the factors
business environment which is responsible for this of business environment”. Why?
step. (a) Because business environment is simple
(a) Social (b) Legal (b) Because business environment is dynamic
(c) Political (d) Economic (c) Because business environment is certain
Q6. Fiscon Electricals Ltd was operating its business in (d) Because business environment is inter-related
London. The company started exporting its products Q13. ‘‘Trends refer to changes and inclination towards new
to India when the Prime Minister announced products and services’’. This statement describes
relaxation in import duties on electrial products. The significant effect of which environment on business?
company also appointed retailers in India who had a (a) Economic environment
direct on-line links with the suppliers to replenish (b) Social environment
stocks when needed. Identify the dimensions of (c) Political environment
business environment highlighted in the given case. (d) None of these
(a) Economic environment
(b) Political environment Q14. Which dimension of business environment is
(c) Both (a) and (b) concerned with improvement and innovations, which
(d) None of the above provides new ways of producing goods and services?
(a) Technological environment
Q7. Managers needs to be dynamically competent for all
(b) Economic environment
the changes happening in the environment. In the
(c) Legal environment
music industry, CDs were major source of
(d) None of the above
entertainment in the past but gradually video
Q15. Which dimension of business environment requires
Q20. Which of the following does not explain the impact of
putting a statutory warning on the packets of tobacco
government policy changes on business and industry?
products?
(a) More demanding customers
(a) Technological environment
(b) Increasing competition
(b) Economic environment
(c) Change in agricultural prices
(c) Legal environment
(d) Market orientation
(d) All of the above
Q16. Demand for LED TVs are increasing day by day. Thus, SUBJECTIVE QUESTIONS
TV manufacturers have started making LED TVs
instead of LCD. Identify the significance of business Q1. “It may be difficult to know the extent of the relative
environment being portrayed in the given case. impact of the social economic, political, technological
(a) Helpful in tapping useful resources or legal factors on change in demand of a product in
(b) Helps the firm to identify threats and early the market.”
warning signals Which feature of business environment is highlighted
(c) Helps in coping with rapid changes by this point?
(d) All of the above
Q2. Two big banner movies were scheduled to be released
Q17. Which of the following option correctly describes the on the same date. On the last moment release of one of
difference between specific and general forces of the movies had to be postponed due to opposition of a
business environment? group of people due to some unethical contents
(a) Specific forces affect the individual enterprise related to their religion was shown in the that movie.
directly, whereas general forces have indirect The other movie released on time and made huge
impact on all business enterprises profit as there was no competition and movie which
(b) General forces have direct impact on individual was postponed suffered loss.
enterprise, whereas specific forces have indirect (i) Which feature of business environment is
impact on business enterprise. highlighted here?
(c) Specific forces does not affect an enterprise at all, (ii) Identify the dimension of business environment,
whereas general forces affects directly on all which delayed the release of movie.
business enterprises Q3. Ram and Lakhan after finishing their graduation under
(d) None of the above vocational stream decided to start their own travel
agency which will book Rail Tickets and Air Tickets on
Questions 18–19 contain two statements–– Assertion (A)
commission basis. They also thought of providing
and Reason (R). Each question has FOUR choices (a), (b),
tickets within ten minutes through the use of internet.
(c), (d), only one of which is correct.
They discussed the idea with their Professor Mr.
In the light of these statements, choose the most appropriate
Mehta who liked the idea and suggested them to first
option:
analyse the business environment which consists of
(a) (A) is incorrect but (R) is correct.
investors, competitors and other forces like social,
(b) (A) is correct but (R) is incorrect.
political, etc., that may affect their business directly or
(c) Both (A) and (R) are correct and (R) is the correct
indirectly. He further told them about the
explanation of (A)
technological improvements and shifts in consumer
(d) Both (A) and (R) are correct but (R) is not the correct
preferences that were taking place and hence they
explanation of (A).
should be aware of the environmental trends and
Q18. Assertion (A): A business must closely monitor the changes which may hinder their business
technological changes taking place in the industry. performance. He emphasized on making plans
Reason (R): Technological environment provides keeping in mind the threat posed by the competitors,
new and advance ways/techniques of production and so that they can deal with the situation effectively. This
monitoring it helps in facing competition and quality alignment of business operations with the business
of product. environment will result in better performance.
(i) State any two features of business environment as
Q19. Assertion (A): It is difficult to predict the future
discussed by Professor Mehta with Ram and
happenings when environment changes are taking
Lakhan.
place frequently.
(ii) State any two importance of business
Reason (R): This makes business environment
environment referred in above para.
uncertain.
Q4. “Mamta Rice Food Ltd.’ is a well-known rice producing her piggy bank to shopkeeper with her father. She
company. The sales have been falling down from the selected a purse for her mother and when she took out
beginning of the year. The managing director Mr. one note of ₹1000 from the piggy bank the shopkeeper
Bhuvan is worried about this situation. With a view to refused to take that note––saying that it is no longer a
find out the solution of this problem he made a team valid currency. Her father explained her that
shopkeeper is saying right.
to find out the reasons for downfall of sales. The team
(i) Identify the concept discussed in above para.
conducted the survey and gave following four reasons (ii) State three features of that concept.
for the downfall of company’s sale.
(i) On account of increase in export duty made by Q6. How would you argue that the success of a business
the government, the foreign demand has gone enterprise is significantly influenced by its
environment?
down.
(ii) Due to availability of other eatable substitute the Q7. Name the term/process which means integrating the
taste of people is diverted from rice. economy with the rest of the world.
(iii) the competitor’s imported new technology Q8. If new products are introduced in market by new
machine and are producing better quality rice. technique, which type of environment is indicated by
(iv) Due to strain with neighbouring country’s it?
government and our country’s government Q9. The project of Nano car re-established in Gujarat is
export is effected. indicated by which factor of environment?
Identify the dimension of Business Environment
discussed in the above case. Q10. The Finance Minister reduced the repo rate to
overcome recession. This is related to which
Q5. Nikita is a seven year old girl. She planned with her dimension of business environment?
father to give a gift on her mother’s birthday. She took

HOMEWORK
feature of business environment being described in
MCQ the above lines is —
(a) Totality of external forces
Q1. Wages and Salaries to be paid by the business (b) Dynamic nature
organisations must not be less than as prescribed (c) Interrelatedness
under ‘The Minimum Wages Act, 1948’. Which (d) Relativity
component of business environment is highlighted in Q5. ‘Star Limited’ is a well-known resort for organising
the given statement? parties, especially for children. However, in past 6
(a) Social Environment months its popularity has reduced considerably as a
(b) Legal Environment
new resort with better ambience and facilities has
(c) Political Environment
opened within its vicinity. Name the related feature of
(d) Economic Environment
business environment which has influenced the
Q2. Which of the following is not a component of specific business of ‘Star Limited’ adversely.
forces of business environment? (a) Totality of external forces
(a) Technological conditions (b) Dynamic nature
(b) Customers
(c) Interrelatedness
(c) Employees
(d) Uncertainty
(d) Investors
Q6. Any kind of external devices, like compact discs (CD’s)
Q3. The growing awareness about healthcare has led to an
increase in the demand for healthcare products and for computer, have become obsolete. Google, with its
services in the country. Identify the feature of business Google Drive service, Apple with its iCloud offering,
environment being described in the above case. enables the users store documents, photos, music and
(a) Dynamic nature (b) Uncertainty movies on web-based servers. Identify the feature of
(c) Relativity (d) Interrelatedness business environment being described in the above
lines.
Q4. Since more number of people have become more
(a) Relativity
beauty and health conscious, our economy has
(b) Dynamic nature
witnessed an unprecedented surge in the number of
(c) Uncertainty
health and beauty spas and wellness clinics. Related
(d) Interrelatedness
Q7. Even after opening up of the Indian Economy in 1991, (d) Economic Environment
foreign companies found it extremely difficult to cut Q13. “APC Publishing company” is a book publishing
through the bureaucratic red tape to get permits for company, identifies ‘CBSE New design of question
doing business in India, which discouraged them from paper’ as an opportunity early and publishes its book
investing in our country. Identify the component of as per changed pattern much before its competitors.
business environment in the above para? The above case highlights one of the points related to
(a) Economic dimension the importance of business environment and its
(b) Social dimension understanding by managers. Identify it.
(c) Technological dimension (a) It helps in coping with rapid changes.
(d) Political dimension (b) It helps in improving performance.
(c) It helps the firm to identify threats and early
Q8. Safe Locker is the country’s first secured cloud-based
warning signals.
platform for the storage, issuance and verification of
(d) It enables the firm to identify opportunities and
documents with the Driving Licence & Vehicle
getting the first mover advantage.
Registration System of the Road Transport Ministry.
The integration of a government department with Safe Q14. As a result of major government initiatives, more and
more people are going ‘green’. In order to keep in line
Locker since its launch last year is one of the biggest
with the trend, ‘Clapaway’ a carpet cleaning company
of its kind. It will spare 1 people the trouble of carrying
has advertised that they only use natural cleaners that
licences & vehicle papers, which can be accessed on
come from renewable resources and that all their
phones using the Safe Locker app. Identify the related
service vehicles are hybrid vehicles that use both gas
dimension of business environment. and electricity. Identify one of the points related to the
(a) Economic dimension importance of business environment and its
(b) Technological dimension understanding by managers which is being
(c) Social dimension highlighted in the above case.
(d) Political dimension (a) It helps in assisting in planning and policy
Q9. “Due to the worldwide recession of 2009, many of the formulation.
American banks closed down”. This is related to which (b) It helps in coping with rapid changes.
dimension of business environment? (c) It helps in improving performance.
(a) Social Environment (d) It enables the firm to identify opportunities and
(b) Technological Environment getting the first mover advantage.
(c) Economic Environment Q15. According to the World Health Organization, 39% of
(d) Political Environment adults are overweight. Over the last 40 years, the
Q10. The government has directed the automobile industry prevalence of obesity has tripled around the world.
to design and produce fuel efficient vehicles in view of With over half of consumers drinking at least one
rising level of pollution and ever increasing prices of sugary drink on a given day, regulations towards the
oil and petroleum products. Name the component of beverage sector are likely to become increasingly
business environment which is relevant in the above onerous. In the U.K., for example, a sugar tax was
case. introduced in 2018 on beverages containing more
(a) Social Environment than 5% sugar. Identify the related dimensions of
(b) Technological Environment business environment.
(c) Political Environment (a) Legal dimension and Social dimension
(d) Economic Environment (b) Social dimension and Technological dimension
(c) Technological dimension and Legal dimension
Q11. ‘Demand for reservation in jobs for minorities’. (d) Political dimension and Technological dimension
Identify the business dimension highlighted above.
Q16. India’s population is expected to grow under 0.5 per
(a) Economic Environment
cent during 2031-41 due to decline in fertility rate and
(b) Legal Environment increase in life expectancy. These changes in India’s
(c) Political Environment demography will also have implications such as the
(d) Social Environment proportion of elementary school-going children will
Q12. Advertisements of a protein supplement must inform witness significant declines, lack of hospital beds and
the potential buyer that the product if taken beyond a increase in retirement age. The related feature of
certain limit can be harmful for diabetics. Identify the business environment being described in the above
dimension of business environment highlighted lines is
above. (a) Totality of external forces
(a) Social Environment (b) Dynamic nature
(b) Legal Environment (c) Interrelatedness
(c) Political Environment (d) Relativity
Q17. India continues to be a lower-middle-income country (c) Business Environment helps in tapping useful
along with 46 others, while Sri Lanka has climbed to resources.
the upper-middle-income group for the fiscal year (d) Business Environment helps in coping with rapid
(FY) 2020, according to the World Bank’s changes.
classification of countries by income levels, released Q23. “After 1991 , the market forces have become very
on July 1, 2019. dynamic as a result of which the business enterprises
Identify the related dimensions of business have to modify their existing policies and operations
environment. from time to time”. State the impact of government
(a) Social dimension policy changes on business highlighted in the
(b) Technological dimension statement.
(c) Economic dimension (a) Necessity for change
(d) Political dimension (b) More demanding customers
Q18. ‘The government restricted the use of LPG cylinders to (c) Marker orientation
only nine per family per year”. Identify the business (d) Increasing Competition
environment being discussed above. Q24. A business has to offer wider choice in purchasing
(a) Social Environment enhanced quality of goods and services in order to
(b) Legal Environment maintain an edge over its competitors. The
(c) Political Environment implementation of the new economic policy with
(d) Economic Environment liberalisation, privatisation and globalisation has
Q19. Deepak Industries is facing a lot of opposition as it posed various challenges for the corporate sector. One
pays less salary to women workers as compared to of the important challenges is explained in the above
men workers for equal work. Which dimension of lines. Identify it.
business environment is highlighted in the above (a) Increasing competition
para? (b) More demanding customers
(a) Social (c) Necessity for change
(b) Economic (d) Market orientation
(c) Legal Q25. Why Business environment is considered as
(d) Political uncertain?
Q20. “One of the feature of business environment states (a) Different element or parts of business
that something which is new today, may become environment are closely interrelated.
outdated or obsolete after sometime”. Identify the (b) It differs from country to country
feature of business environment. (c) It is difficult to predict future happenings
(a) Uncertainty especially when environment changes are taking
(b) Dynamic nature place too frequently.
(c) Inter-relatedness (d) It consists of numerous interrelated forces which
(d) Specific and General forces arise from different sources.
Q21. In today’s world, the flow of goods and services is not Q26. Several initiatives have been undertaken the
only cheap and fast, but reliable and secure. You can Government of India to encourage domestic
order anything you wish from any part of the world. manufacturing and export of defence equipment’s.
Internet has been connecting people without any Make in India in Defence, was one such scheme
limitations or boundaries in the way of doing business. launched by the Government to encourage companies
Identify the concept being described in the above across the world to manufacture defence products in
lines. India.
(a) Liberalisation (b) Globalisation To which dimension of business environment does the
(c) Demonetisation (d) Privatisation above case relates to?
Q22. "Maruti Udyog became the leader in the small car (a) Economic Environment
market because it was the first to recognise the need (b) Legal Environment
for small cars in an environment of rising petroleum (c) Political Environment
prices and a large middle-class population in India." (d) Social Environment
Identify the significance of business environment Q27. Which dimension of the business environment is
mentioned in the above text. highlighted in the given lines,"To ensure the same,
(a) Business Environment helps the firm to identify numerous national governments recently overturned
threats and early warning signals. an order prohibiting the use of plastic luggage, which
(b) Business Environment enables the firm to identify is non-biodegradable."?
opportunities and getting the first mover (a) Political (b) Legal
advantage. (c) Economical (d) Technological
Q28. Which of the following is not a component of Social Identify and quote the lines from above para which
environment ? highlight the significance of understanding business
(a) Population shift environment.
(b) Composition of family Q5. Identify the type of dimension of environment to the
(c) Life expectancy following are related:
(d) None of these (i) Banks reduces the interest rate on house loans.
Q29. 'Airline companies have Internet and World Wide Web (ii) No. of working women is increasing.
pages where customers can look for flight times, (iii) Reservation of Tickets by Internet.
destinations and fares and book their tickets online.' (iv) Prohibition of alcohol beverages to be
This is an example of which business environment? advertised.
(a) Political (v) Winning of Aam Admi Party has built up
(b) Legal confidence in economically weaker section
(c) Social people.
(d) Technological Q6. Government of India is seriously thinking to allow oil
Q30. Change in Interest rates, inflation rates, changes in marketing public section, undertaking to fix their own
disposable income of people are examples of price for petrol an diesel.
(a) Economic Environment (i) Name the economic reform related to this
(b) Social Environment decision of government.
(c) Legal Environment (ii) Name other two reforms recommended in new
(d) Political Environment economic policy.
Q7. After wining the election, Prime minister Mr.
SUBJECTIVE QUESTIONS Narender Modi launched a Campaign of ‘Swachh
Bharat’ and invited various celebrities to be a part of
Q1. ABC Ltd., a book publishing house published books on
this Abhiyaan. This spread awareness among the
various subjects based on CCE pattern before any
people in society and in general, people started
other publishing house could print it. What
becoming more careful and aware about the
advantages will this publishing house get?
cleanliness around their area. To continue its impact,
Q2. The sale of greeting cards, sweets, chocolate, etc. a new service tax for Swachh Bharat was also started.
increase in India during Diwali, Id, Guruparv and The government is planning to import new and better
Christmas. Name the dimension of environment technology to adopt new methods of treating the
related to this. garbage and waste.
Q3. ‘Understanding of environment by business managers State the various dimensions of business environment
enables them no only to identify and evaluate, but also mentioned in the above para quoting the lines from
to react to the forces external by their firms.’ In the the above para.
light of this statement, ‘explain by giving any five point
Q8. Even after opening up of Indian Economy, foreign
why in the present day competitive market; it is
companies found it extremely difficult to cut through
essential for a business enterprise to remain alert and
the bureaucratic and red tapism in government
aware of its environment.
offices. This discourages them from investing in India.
Q4. Mr. Ajay after completing MBA from USA comes to Identify the dimension of environment mention in
India to start a new business under the banner Ecom above para.
Creations Ltd. He launches a new product in e-learning
Q9. Just after the declaration of Lok Sabha Electrons in
for Senior Secondary School students in Commerce
2014, the Bombay Stock Exchange Index rose by 1000
stream, which already has an established market in UK
points. Identify the dimension of business
and USA but not in India. His business starts
environment.
flourishing in India. Now more Indian companies
entered into the market with other subjects also. Q10. Which component of business environment requires
that in every packet of cigarette there must be a
horrified picture and a statutory warning.
 SOLUTION FOR PRACTICE QUESTIONS

SOLUTION FOR MCQ QUESTIONS

S1. (b) S8. (d) S15. (c)

S2. (a) S9. (d) S16. (c)
S3. (b) S10. (c) S17. (a)
S4. (b) S11. (b)
S18. (c)
S5. (a) S12. (b)
S19. (c)
S6. (c) S13. (b)
S7. (b) S14. (a) S20. (c)

SOLUTIONS FOR SUBJECTIVE QUESTIONS

S1. Complex Nature S6. It is correct to say that the success of business
enterprises is greatly influenced by the force and
S2. (i) Relativity
factors prevailing in environment by analysing
(ii) Social Environment
and scanning the business environment.
S3. (i) (a) Specific and General forces Businessmen get the following benefits:
(b) Dynamic Nature (i) First mover advantage.
(ii) (a) It helps in planning and policy formulation. (ii) Warning signal.
(b) It helps the firm to identify threats and early (iii) Helps in tapping business resources.
warning signals. (iv) Assisting in planning and policy formation.
(v) Improvement in performance.
S4. (i) Economic Environment
(vi) Helps to adopt rapid changes.
(ii) Social Environment
(iii) Technological Environment S7. Globalisation.
(iv) Political Environment
S8. Technological environment.
S5. (i) Demonetisation S9. Political factor.
(ii) For features refer Page no. 41 S10. Economic environment.
 SOLUTIONS

SOLUTION FOR MCQ QUESTIONS

S1. (b) S11. (d) S21. (b)

S2. (a) S12. (b) S22. (b)
S3. (d) S13. (d) S23. (a)
S4. (c) S14. (b) S24. (a)
S5. (b) S15. (a) S25. (c)
S6. (b) S16. (c) S26. (c)
S7. (d) S17. (c) S27. (b)
S8. (b) S18. (c) S28. (d)
S9. (c) S19. (a) S29. (d)
S10. (b) S20. (b) S30. (a)

SOLUTIONS FOR SUBJECTIVE QUESTIONS

S1. ABC Ltd. will get the benefits of “First mover S5. (i) Economic environment
advantage.” (ii) Social environment
S2. Social environment. (iii) Technological environment
S3. Give Importance of Business Environment (iv) Legal environment
S4. 1. “Comes to India to start a new business……. (v) Political environment.
launches a new product in e-learning for S6. (i) Liberalisation
senior secondary school students in (ii) Other two reforms: Privatisation and
Commerce stream it helps in”. Globalisation.
(a) Assisting in planning and policy S7. (i) Political Environment “After winning
formulization. election………….campaign of Swachh Bharat.”
(b) It enables the firm to identify (ii) Social Environment “People in
opportunities and getting the first mover society………..around their area.”
advantage. (iii) Economic Environment “A new service
tax……………..started.”
2. “His business starts flourishing in India”
(iv) Technological Environment “Import new
(c) It helps in improving performance.
technology………garbage.”
3. Now more Indian companies entered into
S8. Political Environment.
the market with different subjects also. S9. Political Environment.
(d) It helps the firm to identify threats and S10. Legal Environment.
early warning signals.