BUSINESS ENVIRONMENT Chap 1 Imp Questions

BUSINESSENVIRONMENT Meaning:
Business environment is an environment in which business is

carried out. Business environment encompasses all those
factors that affect a company’s operations, including
customers, competitors, suppliers, distributors, industry
trends, substitutes, regulations, government activities, the
economy, demographics, social &cultural factors innovation &
technological developments. In short, B u s i n e s s
environment refers to the total surroundings having various
opportunities and threats to the firm and have direct/indirect
influence on working
Business Meaning:
Business refers to all those economic activities which are
concerned with the production or purchase of goods &
services for the purpose of sale at a profit
FEATURESOFBUSINESSENVIORNMENT
1.Environment is Complex: A business environment has a
plethora of factors events, conditions, & influences arising
from a variety of sources. Therefore, it is very difficult to
understand all the factors affecting a given environment at any
time. Although we can understand it in parts, it is impossible
to grasp it in totality.
2.Environ mentisDynamic: Business also keeps a changing
constantly. This is due to a wide range of influencing factors.
These factors create dynamism in the environment causing it
to continuously change its shape & character.
3.Environment is Multifaceted: Due to complexity &

dynamism of a business environment, it continuously changes
its shape & character. However, different observes view the
changes differently. Therefore a particular observer might see
a specific change in the environment as an opportunity while
someone else might perceive it a threat.
4.Environment has long term impact on business:

Environment has long lasting impact on functioning of
business organizations. Their growth & profitability depends
upon the environment under which they have to operate.
Environment influences business enterprises. Such influences
may be positive or negative & may affect the profitability,
efficiency & development of business.
5.Environment influences business organization: Businesses

organizational have limited capacity to influence business
environment as it is the result of government policies & social
& technological changes which are basically external variables.
6.Environment and business planning go together: Business
environment & business planning are closely related concepts.
In fact, planning is necessary in order to derive maximum
benefit from favorable environment. Similarly, planning is
useful for dealing with the problems created by unfavorable
environment.
FEMA: Foreign Exchange Management Act
LPG: Liberalization Privatization globalization

Foreign exchange:
Foreign exchange, also known as forex, is the conversion of
one country's currency into another. The value of any
particular currency is determined by market forces related to
trade, investment, tourism, and geopolitical risk.
What do you mean by environmental analysis?

Environmental Analysis is described as the process which
examines all the components, internal or external that has an
influence on the performance of the organization. The internal
components indicate the strengths and weakness of the
business entity whereas the external components represent
the opportunities and threats outside the organization.
1.Briefly explain micro and macro environmental factors?
A. INTERNAL/MICROENVIRONMENT Micro environment
includes [COSPIC]
1.Customers:
Customers are the people money to acquire an organization’s
products. A consumer occupies the central position in the
marketing environment. The marketer has to closely monitor
& analyze changes in consumer tastes & preferences & their
buying habits.
2.Competitors:
Competitors are the other business entities that compete for
resources. A study of the competitive scenario is essential for
the marketer, particularly threats from competition. In
modern age an absolute monopoly is very rare thing. Most of
the firms have to work in some type of competition such as
monopolistic competition or oligopoly.
3.Suppliers:
Suppliers provide raw materials, equipment, services & so on.
Suppliers with their own bargaining power affect the cost
structure of the industry. They constitute a major force, which
shapes competition in the industry. The quality of the
commodity & the cost of production are considerably
influence by the supplies of the inputs.
4.MarketInter mediaries:
It includes agents & brokers who help the company to find
customers. It is a link between the company & the consumer.
They refer to the different levels in the chain from the
production unit to the final customer. The chain incorporates
the stockiest, the wholesalers, the distributors, the retailers
etc.
5. Public :
Public is any group that has actual or potential interest in the
business. The prospects of firm depend upon the society in
which it has to work & sell its products. In a homogenous
society, the job of the firm is easy. The people have almost the
same habits like & dislike values & ethical norms. In a
heterogeneous society the job of the firm is difficult. A
particular product may be acceptable to particular of the
society but not acceptable to some other sections
B.EXTERNAL/MACROENVIRONMENT [LENSPT]
1.Economic Enviromment: It refers to those economic factors
which have impact on the working of business. It consists of
economic factors that influence the business in a country.
These factors include gross national product, corporate profit,
inflation rate, employment, balance of payments, interest
rates consumer income etc.
a.Economic conditions: Economic conditions include income
level, distribution of income, demand & supply trends etc. if
the company is in boom condition, it positively affects demand
& market share. On the other hand if the economy is in
depression it will have negative effects on the business.
b.Economic Polices: Economic policies are framed by the
government. These policies establish relationship between
business & Policies are: i. Industrial policies ii. iii. iv. v. Fiscal
policies Monetary policies government. The effect of these
policies may be favorable or unfavorable. Some of the p
Foreign investment policies Export– import (EXIM) policies.
c.Economic system: Different economic systems prevail in
different countries. These systems affect the business. The
economic system includes capitalism, socialism &mixed
economies. The world economy is primarily governed by three
types of economic systems i.e.,
i. Capitalist economy
ii. Socialist Economy
iii. Mixed economy
d.Economic Growth: The stage of economic growth of the
economy has direct impact on the business strategies.
Increased economic growth rate result in increase in
consumption expenditure, lower the general pressure within
an industry & offers moreopportunities then threats.
e.The rate of interest: The rate of interest affects the demand
for the products in the economy, particularly when general
goods are to be purchased through borrowed finance. Low
interest rated provides opportunities to the industries to
expand whereas rising interest pose a threat to these
institution.
f. Currency Exchange: Current exchange rates have direct
impact on the business environment. When the rupee
wasdevalued in 1991, it was to make Indian products cheaper
in the worldmarket & consequently boost India’s exports.
2.Political Environment:
Political environment affects the different business units. A
stable & dynamic political environment is necessary for
business growth. Political environment includes political
stability in the country, relation of the government with other
countries, welfare activities of government, centre-state
relationship & views of opposition parties towards business. If
the political system is stable & efficient then the business
grows.
3.Socio-cultural Environment:
Socio-Cultural environment refers to social & cultural factors
which are beyond the control of business units. Such factors
include attitude of people to work, family system,
castesystem, educationsystem, habits, language, religion has
considerable components of business environment. Religion
has considerable effect on business. Some religious restrict
their followers they do not allow its followers to engage in
leather industry, wine making etc. similarly; the social
environment of business also includes social factors like
customer, traditions, values, beliefs, poverty literacy, life
expectancy rate etc.
4.Technological Environment:
It is the most important factor which affects the business
enterprise. The faster changes in technology create problems
for business enterprises. Products have shorter life span than
the past because of rapid technological developments.
Technology provides various advantages. Success in many
industries depends on innovation & research. To promote
innovation & research some companies establish research &
development departments in their enterprises.
5.Legal Environment:
It refers to the set of laws & regulations which influence the
business organization & their operations. Every business
organization has to obey & work within the framework of law.
The legal environment is derived partly from the political
climate in a country & has three distinct dimensions to it:
6.Natural Environment:
It refers to geographical & ecological factors which are beyond
the control of the enterprise. It includes natural resources,
weather & climatic conditions, landforms, rainfall,
environmental pollution etc. Climate & weather conditions
affect the location of certain industries like textile industries.
Similarly environmental pollution in the form of air pollution,
have caused disturbances in ecological balance.

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BUSINESSENVIRONMENT Meaning:

Business environment is an environment in which business is

3.Environment is Multifaceted: Due to complexity &

4.Environment has long term impact on business:

5.Environment influences business organization: Businesses

FEMA: Foreign Exchange Management Act

LPG: Liberalization Privatization globalization

What do you mean by environmental analysis?

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