NCERT Solutions for Class 12 Business Studies Chapter 3 Business Environment

Q. Krishna Furnishers Mart started its operations in the year 1954 and emerged as the market leader in the industry because of their 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 their operations and decided that in order to meet the competition, they need to study and analyse the market trends and then design and develop their products accordingly. List any two impacts of changes in business environment on Krishna Furnishers Mart’s operations. (Hint: increase in competition and market orientation).

Ans. The following impacts can be seen with changing of business environment for Krishna Furnishers Mart’s:

  • 1. Rise in competitors leads to more competition.
  • 2. Innovation in design needed to differentiate product from competitors.

Q. Name any two specific forces of business environment affecting business.

Ans. Specific forces refers to those external forces that affect an organisation directly. These are specific to a particular organisation. It can be due to the following changes:

  • 1. Changing tastes of customer.
  • 2. Competitor strategy
  • 3. Shift in investor loyalty

Q. What is meant by business environment?

Ans. The sum of all the forces (external, institutions and individuals) that are outside the control of a business organisation 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 organisation is unable to control such type 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 market whereas below par performance and decline in design will result in making the product inferior.

Q. How does understanding of business environment help in improving performance of a business?

Ans. Understanding the business environment properly by the organisation 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 organisation perform at best every time.

Q. Why it is important for business enterprises to understand their environment? Explain.

Ans. It is very essential to understand business environment as it helps in determining success or failure of an organisation. The functioning and performance of an organisation is dependent on various factors which can be external. When we understand business environment it becomes easier to drive factors that help in growth. Following points highlight the importance of understanding the business environment for business enterprises: 

  • (i) Business enterprises can identify the positive opportunities for a business. It will help in making the first move and stay ahead of competition.
  • (ii) Businesses can identify the potential threats by studying the business environment which can impact the growth of the organisation. Therefore, a study of business environment proves beneficial for identifying threats and determining the best solution to neutralise the threat.
  • (iii) Various resources are required for a business to run and the appropriate resources are determined by studying the local business environment. These inputs are used to create various products.
  • (iv) Business environment is of dynamic nature, the factors such as technology, consumer preferences and government policies are subjected to change based on demand. Knowing the business environment will make things easier to adapt easily with the change.
  • (v) Study of business environment helps in formulating new plans and policies as per the market trends which makes it more relevant for the current scenario.
  • (vi) Analysing of business environment will result in a better performance for the organisation.

Q. How would you characterise business environment? Explain, with examples, the difference between general and specific environment.

Ans. The sum of all the forces (external, institutions and individuals) that are outside the control of a business organisation 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 organisation is unable to control such type of forces, but it can definitely have a positive or negative impact on their performance.

The following are the characteristics of business environment:

  • (i) Business environment is the sum total of all external forces which includes individuals, government, consumers. These have an impact on the business performance that is either positive or negative.
  • (ii) The different forces that have an impact on the business environment are inter-related. This inter-relation has an effect on the business environment. For e.g., if there is an increase in the annual income of the consumers, they are more likely to purchase goods that fulfil all their demands and this leads to increase in demand for electric appliances, mobile phones, gadgets, etc.
  • (iii) Business environment is constantly evolving and therefore is dynamic in nature. This can be explained as we see changing trends in consumer behaviour, technology and policies of the government.
  • (iv) The business environment is an uncertain territory. The changes in the market dynamics cannot be predicted easily. Due to which there exists an uncertainty.
  • (v) Business environment is the sum total of all interrelated dynamic forces. Hence, it is somewhat complex and difficult to understand. All the factors like social, political, technological etc have an effect on the performance of the organisation. It can be easy to ascertain the individual impact of all the forces; it can be difficult to determine their cumulative effect.
  • (vi) Business environment varies with each region and hence is relative. The reason behind the variation in business environment is that the forces that determine the nature of business environment are dynamic in nature and therefore change as per the region.

Specific environment is said to be the external forces that play a vital role in functioning of an organisation directly. These forces are specific to a particular organisation or an enterprise. Specific environment is unique to a industry and has an impact on day to day business activities. For example, change in price of a raw material required for production will result in less demand and abundant supply of raw materials has a direct impact on the production of the company. General environment comprises of all the forces that has an impact on all organisations irrespective of the type of industry. These forces do not differentiate between the industries or types of business. They have a cumulative effect on the organisation’s performance. For example, a new technology for communication will have a impact on the quality and quantity of production or if there is a change in technology then it will have an effect on all organisations.

Q. How would you argue that success of a business is significantly influenced by its environment?

Ans. Any organisation is unable to function on its own. It is influenced by the various forces such as political, legal, social, technological. These forces form the business environment of an organisation. It is essential that an organisation has a good understanding of its business environment. It enables an organisation to identify that help or those that obstruct the growth of an organisation, knowing them well will help in reacting better to these forces.

Success of a business is influenced by its environment in the following ways:

  • (i) Whenever there is a change in the business environment, it provides the opportunity to start fresh. Careful observation of the business environment is helpful in identifying these opportunities. It also gives the first movers advantage to the business. Organisations can reap maximum benefit in comparison to its competitors.
  • (ii) Studying of business environment helps in identifying threats for the business. It helps to take preventive measures in order to counter those negative forces.
  • (iii) Environment provides source or inputs such as machinery, raw materials, labour , etc., which are essential for an organisation. Therefore, it makes sense for the organisations to choose those resources from the environment and convert into desired products.
  • (iv) Business environment is dynamic in nature. There is a constant change in the factors that make up the business environment. Having a good understanding of the business environment helps cope up with the factors better and help organisations derive benefit from them.
  • (v) As various threats and opportunities are discovered during analysis of the business environment. The business can thus formulate plans and policies that will be appropriate for the market in the existing scenario.
  • (vi) Knowing about the threats and opportunities helps one improve their performance by adapting to these changes in a more informed manner. Being prepared for the situation helps in providing the best performance.

Q. Explain with examples, the various dimensions of business environment.

Ans. Business environment has the following

  • (i) Economic: The economic dimension consists of economic variables such as income, stock markets, interest rates that are directly related to the functioning of business enterprises. For example, if there is high purchasing power of a consumer it automatically leads to increase in demand of goods and services whereas if purchasing power is low there is a decrease in demand.
  • (ii) Social: The social dimension comprises of various traditions, trends, social values, cultures. For example, companies can use religious festivals to produce items that cater to the occasion.
  • (iii) Technological: This dimension comprises of all the technological changes and improvements that are happening in the business. There can be many examples like introduction of computers which changed the way information was gathered to the more recent developments in mobile and internet. Business not updating themselves in the technology field can find themselves in spot of bother with competitors.
  • (iv) Legal: This dimension consists of the various legal rules and legislations that are passed by the government. Non-compliance can lead to legal trouble for the business. For example, setting up of a company is governed by the Companies Act, not acting according to the law will result in company facing legal hassles.
  • (v) Political: Political dimension consists of peace, law and order, stability. If there is a change in the government there will be a change in the rules and policies. Frequent changes in administration can result in losing of interest of investors. Also relaxing of rules can encourage investment. An example is that, forming of new policy in 1991 that opened the Indian economy to the world.