NCERT Solutions Class 12 Business Studies Chapter 3

Q.1 What is meant by business environment?

Ans. The total of external economic, social, political, technological and political forces affecting the business and its operations is known as business environment.

Q.2 How does understanding of business environment help in improving performance of a business?

Ans. Business environment helps in improving performance of a business like:

• It enables the firm to identity opportunities and getting the first mover advantage.
• It helps the firm to identity threats and early warning signals.
• It helps in tapping useful resources.

Q.3 Give an example to show that a business firm operates within numerous inter related factors constituting the business environment. (Hint: example highlighting the inter relatedness of dimensions of business environment).

Ans. All the elements of the business environment including its various dimensions of economic, legal, political, technological and social are closely interrelated to each other.

For example, People are now focusing on using organic food products for health concerns. This is a part of the social dimensions of the business environment.

However, it presupposes an economic dimension that the people now have more disposable income than before.

Q.4 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 analyze 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 impact of changes in business environment on Krishna Furnitures Mart’s operations are:

• Increased competition: As a result of changes in the rules of industrial licensing and entry of foreign firms.
• Market Orientation: earlier firms used to produce first and firms used to produce first and go to the market for sale later. In other words, they had production oriented marketing operations. In a first changing world, there is a shift to market orientation in as much as the firms have to study and analyse the market first and produce goods accordingly.

Q.5 Name any two Specific forces of business environment affecting business.

Ans. Specific environment refers to those external forces that affect an organisation directly. These are specific to a particular organisation.

Specific forces such as investors, customers, competitors and suppliers affect business directly and immediately in their day-to-day working.

Q.6 Why it is important for business enterprises to understand their environment?

Ans. Ans. Understanding the business environment is important for an organisation as it gives the following benefits:

1. Identifying opportunities
2. Tapping useful resources
3. Identifying warning signals
4. Assisting in planning and policy making
5. Coping with rapid changes Improving performance

Q.7 National Digital Library of India (NDL India) is a pilot project initiated by the HRD ministry. It works towards developing a framework of virtual repository of learning resources with a single

­window search facility. It provides support to all academic levels including researchers, life

­long learners and differently abled learners free of cost. State the dimensions of business environment highlighted above.

Ans. The dimensions of business environment is technological environment.It includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business. Technological environment provides new learning framework to NDL India. For example, recent technological advances in computers and electronics have modified the ways in which companies advertise their products.

Q.8 State the impact of demonetization on interest rates, private wealth and real estate.

Ans. Demonetisation is an act of cancelling the legal tender status of a currency unit in circulation. Countries across the globe have used Demonetisation at some or the other point to control situations such as inflation and to boost economy. In November, 2016, Indian Government banned the high denomination notes of 1,000 and 500 and these currency notes are ceased to be legal tender from the date.

Impacts:

Interest Rate: As a result of increased liquidity, RBI cut down the rates of interests applicable on fixed deposits, recurring deposits. Since banks accumulate huge deposits, borrowing cost for bank reduced. Customers get lower interest rates on loan products.

Private wealth: Declined due to demonetisation. Some of the high demonetisation notes were not returned to the depositors leading to fall in the prices of real estate.

Real Estate: The unorganised sector affected by the invalidation of the higher denomination currency notes. The prices of real estate fell in the secondary market where most of the property dealings happen through cash. However, there won’t be much change in the primary real estate market as property buyers deal either in the form of Cheques or through loans.

Q.9 How would you characteriSe business environment? Explain with examples, the difference between general and specific environment.

Ans. A business environment means the sum total of all individuals, institutions and other forces that are outside the control of an enterprise but may affect its performance.

It can be characterised as follows:

i. Totality of external forces- Business environment includes all forces, institutions and factors which directly or indirectly affect an organisation operating in it.

ii. Specific and general forces- Specific forces in a business environment include customers, investors, competitors, suppliers etc. General forces which influence the environment are social, political, legal, technological conditions etc.

iii. Dynamic Nature- Business environment is highly flexible and keeps changing continuously. Changes could be in customer preferences, technological advancements etc.

iv. Complexity- The business environment consists of numerous and inter- related forces, hence it becomes difficult to comprehend the impact of the environmental forces on business. It becomes difficult to know the indirect impact of social, political, technological or legal factors on aspects of business.

v. Uncertainty- It is difficult to predict the changes in business environment, especially in case of rapidly changing aspects of environment, such as technological environment.

Q.10 How would you argue that the success of a business enterprise is significantly influenced by its environment?

Ans. The significance of understanding the business environment is as follows –
i. Identifying opportunities – Scanning of business environment during initial stages helps the business in identifying the opportunities and gaining the first mover advantages.
ii. Tapping useful resources – Business environment helps firms to obtain inputs & in selling their output. The environment provides various resources for running the business like finance, machines, raw materials, power and water, labour, etc and also helps firms to sell their outputs such as goods and services to customers, to give taxes to government, give return on investment to investors etc.
iii. Identifying warning signals – Threats from the environment refer to the trends & changes that may hinder business’s performance. Analysis of business environment helps businessmen in dealing with the constraints or hurdles and act as warning signals.
iv. Assisting in planning and policy making –The plans and policies in the organisation are formed keeping in mind the business environment as it helps in finding out the opportunities of business and policies can be made to grab these opportunities.
v. Coping with rapid changes – Business environment scanning helps companies to scan and understand the changes such as turbulent market conditions, less brand loyalty, changes in technology etc. Businessmen make changes in their internal environment to match the external environment.
vi. Improving performance – Continuous analysis of business environment can help companies to improve their performance. By changing the internal environment in relation to the external environment, organisations can prosper and improve their market.

Q.11 Explain, with examples, the various dimensions of business environment.

Ans. The dimensions of business environment are:

i. Economic environment: Economic environment consist of gross national product, inflation rate, productivity, balance of payments etc. Economic environment has a significant influence over organisational policies and actions. For example, rise in the disposable income of people due to increase in the gross domestic product of the country results in increase in the demand for products.

ii. Social environment: The social environment of the business includes the social forces like customs and traditions, values, social trends, society’s expectations from business etc. The main components of social environment are as follows:

Demographic trends, social attitudes, customs, rituals, cultures, etc., family structure and values.

iii. Technological environment: The technological environment includes new approaches to production and distribution of goods and services, new processes and equipments etc. Technological environment has a significant influence on business. For example: DTH facility provided by many companies like Tata Sky, Dish TV has adversely affected the cable TV operators.

iv. Political environment: It consists of those elements that are related to governmental affairs i.e. the type of government, government attitude towards various industries etc. For example, IT companies have found Hyderabad to be the most hospitable location primarily due to the supportive political climate.

v. Legal environment: Every business has to function within the framework of laws and regulations of the country. Legal environment therefore has a very significant influence on business activities. Non-compliance of laws can land the business into legal problems. For example, a publishing company has to follow the law governing copyright.

Q.12 The government of India announced Demonetization of ₹500 and ₹1,000 currency notes with effect from the midnight of November 8, 2016. As a result, the existing ₹500 and ₹1,000 currency notes ceased to be legal tender from that date. New currency notes of the denomination of ₹500 and ₹2,000 were issued by Reserve Bank of India after the announcement. His step resulted in a substantial increase in the awareness about and use of Point of Sale machines, ewallets, digital cash and other modes of cashless transactions. Also, increased transparency in monetary transactions and disclosure led to a rise in government revenue in the form of tax collection.

a. Enumerate the dimensions of business environment highlighted above.

b.State the features of Demonetization.

Ans. a)

The dimension is Economic environment.

Interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee are some of the economic factors that can affect management practices in a business enterprise.

Demonetisation affect the working of business.

Demonetisation is also a part of the legal environment as a rule was passed by the government.

b) Features of Demonetisation:

• Tax administrative measure: People having cash falling under declared income deposited their cash in banks immediately to be exchanged for new currency notes but those with unaccounted wealth had to pay taxes at a penalty rate.
• Demonetisation is being considered as a strict measure by the government against tax evasion which will not be tolerated.
• Demonetisation help in channeling more savings through the formal financial system and improving tax compliance.
• Channelising savings into formal financial system: New deposit schemes introduced by the banks will be used as loans, at lower interest rates.

Q.13 What economic changes were initiated by the Government under the Industrial Policy, 1991? What impact have these changes made on business and industry?

Ans. The economic reforms announced by Government of India in 1991 were:

i. Reduction in the number of industries under compulsory licensing to six.

ii. Many of the industries reserved for the public sector under the earlier policy, were dereserved.

iii. Disinvestment of public sector industrial enterprises.

iv. Increasing the foreign equity participation.

v. Establishment of Foreign Investment Promotion Board (FIPB) to promote and channelize foreign investment in India.

Appropriate measures were taken to remove obstacles in the way of growth and expansion of commerce and trade.

The economic reforms were brought about through- Liberalisation, Privatisation and Globalisation.

Liberalisation refers to removal of licencing raj to liberate the Indian businesses from unnecessary restrictions and controls, through abolishing licensing requirements of various industries, reduction of taxes and removal of restriction of movement of goods and services.

Privatisation is aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector. This was to be brought about through disinvestment, which is the process of dilution of stake of Government in public sector undertakings beyond 51%.

Globalisation was aimed at encouraging foreign private participation in India’s industrial development, through import liberalisation, export promotion and rationalization of tariff structure.

Q.14 What are the essential features of:

a.Liberalisation,

b.Privatization and

c.Globalisation?

Ans. (a) Liberalisation: It means deregulations and reduction of government control in the business and large number of firms in various sectors functioning freely and without too much licensing.

(b) Privatisation: It means transferring of ownership from government to private sector. For example, Government of India has reduced its stake in various public sector undertakings and sold them to private sector.

(c) Globlisation: It means the integration of the various economies of the world and helping companies of one country to do business in other countries.

Q.15 Explain the following terms:

a.Liberalisation

b.Privatization

c.Globalisation

Ans. (a) Liberalisation: It means deregulations and reduction of government control in the business and large number of firms in various sectors functioning freely and without too much licensing.

(b) Privatisation: It means transferring of ownership from government to private sector. For example, Government of India has reduced its stake in various public sector undertakings and sold them to private sector.

(c) Globlisation: It means the integration of the various economies of the world and helping companies of one country to do business in other countries.