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Business Environment NCERT Textbook With Solutions PDF Free Download
Chapter 3: Business Environment
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.
As one writer has put it– “Just take the universe, subtract from it the subset that represents the organization, and the remainder is environment”.
Thus, the economic, social, political, technological, and other forces which operate outside a business enterprise are part of its environment.
So also, the individual consumers or competing enterprises as well as the governments, consumer groups, competitors, courts, media, and other institutions working outside an enterprise constitute its environment.
The important point is that these individuals, institutions, and forces are likely to influence the
performance of a business enterprise although they happen to exist outside its boundaries.
For example, changes in the government’s economy.
policies, rapid technological developments, political uncertainty, changes in fashions and tastes
of consumers, and increased competition in the market — all influence the working of a business
enterprise in important ways.
An increase in taxes by the government can make things expensive to buy. Technological improvements may render existing products obsolete.
Political uncertainty may create fear in the minds of investors. Changes in fashions and tastes of consumers may shift demand in the market from existing products to new ones.
Increased competition in the market may reduce the profit margins of firms.
Just like human beings, business enterprises do not exist in isolation.
Each business firm is not an island unto itself; it exists, survives, and grows within the context of the element and forces of its environment.
While an individual firm is able to do little to change or control these forces, it has no alternative to responding or adapting according to them.
A good understanding of the environment by business managers enables them not only to identify and evaluate but also to react to the forces external to their firms.
Dimensions of, or the factors constituting the business environment include economic, social, technological, political, and legal conditions which are considered relevant for decision-making and improving the performance of an enterprise.
In contrast to the specific environment, these factors explain the general environment which mostly influences many enterprises at the same time.
However, the management of every enterprise can benefit from being aware of these dimensions instead of being disinterested in them.
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NCERT Solutions Class 12 Business Studies Chapter 3 Business Environment
1. What is meant by business environment?
The sum of all the forces (external, institutions, and individuals) that are outside the control of a business organization is referred to as the business environment.
The forces mentioned here can be of varied nature such as social, economic, political, legal or technological.
The organization is unable to control such types of forces, but it can definitely have a positive or negative impact on their performance.
For e.g. altering the design of a product delivering efficiency leads to its demand in the market whereas below-par performance and decline in design will result in making the product inferior.
2. How does understanding of business environment help in improving the performance of a business?
Understanding the business environment properly by the organization results in developing plans and policies according to the environment which results in great improvement in performance.
It also helps to counter any negativity that may exist in the market with a well-defined strategy. This will help an organization perform at its best every time.
3. Give an example to show that a business firm operates within numerous interrelated factors constituting the business environment. (Hint: example highlighting the inter-relatedness of dimensions of the business environment).
The various elements of a Business organisation are interrelated to each other and the outcome depends on all these elements. Business environment consists of following elements economic, social, technological, legal.
Let us understand by one example
An automobile company will have the combined impact of all these factors in the context of a business environment.
1. If there is a global recession or economic slowdown, it will result in fewer sales of cars. Economic factor comes into play for purchasing a car and they will impact the business.
2. Due to the introduction of new technology car manufacturers need to follow that industry standard which will be beneficial for the organization. This is the impact of a technological factor on the business environment.
3. With the introduction of GST now car manufacturers can charge GST and GST is mandatory for business which is a legal factor impacting the business environment.
4. Krishna Furnishers Mart started its operations in the year 1954 and emerged as the market leader in the industry because of its original designs and efficiency in operations.
They had a steady demand for their products but over the years, they found their market share declining because of new entrants in the field.
The firm decided to review its operations and decided that in order to meet the competition, they need to study and analyze the market trends and then design and develop their products accordingly.
List any two impacts of changes in the business environment on Krishna Furnishers Mart’s operations. (Hint: increase in competition and market orientation).
The following impacts can be seen with changing business environment for Krishna Furnishers Mart’s
1. Rise in competitors leads to more competition.
2. Innovation in design is needed to differentiate products from competitors.
5. Name any two Specific forces of the business environment affecting business.
Specific forces have a direct impact on the way a business is run. It can be due to the following changes:
1. Changing tastes of customer.
2. Competitor strategy
3. Shift in investor loyalty
NCERT Class 12 Business Studies Textbook Chapter 3 With Answer PDF Free Download