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Business Studies 6 Marks Question

Business Environment · CBSE STD 12 Commerce (CBSE - English Medium). 34 questions.

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34 questions · timed · auto-graded

Question 16 Marks
The court passed an order to ban polythene bags as
  1. These bags are creating many environmental problems, which affect the life of people in general.
  2. Society, in general, is more concerned about the quality of life.
The government decided to give subsidy to jute industry to promote this business.
  1. Innovative techniques are being developed to manufacture jute bags at low rates.
  2. Incomes are rising and people can afford to buy these bags.
Identify the different dimensions of business environment by quoting the lines from the above particulars.
Answer
The following are the different dimensions of business environment that can be identified from the given particulars:
  1. Economic environment: It comprises economic variables, such as interest rates, income and stock market indices, which affect the functioning of enterprises. The line that depicts this dimension is ‘Incomes are rising and people can afford to buy these bags.’
  2. Social environment: Social environment refers to social forces such as customs, traditions, values, trends, etc. The line that depicts this dimension is ‘Society, in general, is more concerned about the quality of life.’
  3. Technological environment: Technological environment includes technological changes and improvements. The line that depicts this dimension is ‘Innovative techniques are being developed to manufacture jute bags at low rates.’
  4. Legal environment: It comprises the legislations and rules passed by the government, such as the Companies Act, the Trade union Act, etc. These legislations govern how an enterprise should function and behave. The line that depicts this dimension is ‘The court passed an order to ban polythene bags.’
  5. Political environment: Political conditions such as peace and stability and law and order compose the political business environment. It directly affects the functioning of enterprises. The line that depicts this dimension is ‘The government decided to give subsidy to jute industry to promote this business.’
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Question 26 Marks
State any five points which clarify how understanding of Business Environment helps the managers.
Answer
  1. It enables the firm to identify opportunities and getting the first mover advantage: Opportunities refer to the positive external trends or changes that will help a firm to improve its performance. Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors.
  2. It helps the firm to identify threats and early warning signals: Threats refer to the external environment trends and changes that will hinder a firm’s performance. Besides opportunities, environment happens to be the source of many threats. Environmental awareness can help managers to identify various threats on time and serve as an early warning signal.
  3. It helps in coping with rapid changes: Today’s business environment is getting increasingly dynamic where changes are taking place at a fast pace. It is not the fact of change itself that is so important as the pace of change. Turbulent market conditions, less brand loyalty, divisions and sub-divisions (fragmentation) of markets, more demanding customers, rapid changes in technology and intense global competition are just a few of the images used to describe today’s business environment.
  4. It helps in assisting in planning and policy formulation: Since environment is a source of both opportunities and threats for a business enterprise, its understanding and analysis can be the basis for deciding the future course of action (planning) or training guidelines for decision making (policy).
  5. It helps in improving performance: The final reason for understanding business environment relates to whether or not it really makes a difference in the performance of an enterprise. The answer is that it does appear to make a difference. Many studies reveal that the future of an enterprise is closely bound up with what is happening in the environment.
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Question 36 Marks
Explain by giving any five reasons why understanding of business environment is important for managers.
Answer
  1. It enables the firm to identify opportunities and getting the first mover advantage: Opportunities refer to the positive external trends or changes that will help a firm to improve its performance. Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors.
  2. It helps the firm to identify threats and early warning signals: Threats refer to the external environment trends and changes that will hinder a firm’s performance. Besides opportunities, environment happens to be the source of many threats. Environmental awareness can help managers to identify various threats on time and serve as an early warning signal.
  3. It helps in coping with rapid changes: Today’s business environment is getting increasingly dynamic where changes are taking place at a fast pace. It is not the fact of change itself that is so important as the pace of change. Turbulent market conditions, less brand loyalty, divisions and sub-divisions (fragmentation) of markets, more demanding customers, rapid changes in technology and intense global competition are just a few of the images used to describe today’s business environment.
  4. It helps in assisting in planning and policy formulation: Since environment is a source of both opportunities and threats for a business enterprise, its understanding and analysis can be the basis for deciding the future course of action (planning) or training guidelines for decision making (policy) .
  5. It helps in improving performance: The final reason for understanding business environment relates to whether or not it really makes a difference in the performance of an enterprise. The answer is that it does appear to make a difference. Many studies reveal that the future of an enterprise is closely bound up with what is happening in the environment.
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Question 46 Marks
The court passed an order that all the schools must have water purifier for the school children as:
  1. Society in general is more concerned about the quality of life.
  2. Innovative techniques are being developed to manufacture water purifier at competitive rates;
  3. Incomes are rising and children at home are also drinking purified water. The Government is also showing positive attitude towards the water purifier business.
Identify the different dimensions of business environment by quoting from the above details.
Answer
  1. Legal environment: ‘The court passes an order that all schools must have water? unifier for the school children’.
  2. Social environment: 'Society, in general, is more concerned about quality of life'.
  3. Technological environment: 'Innovative techniques are being developed to manufacture water purifier at competitive rates'.
  4. Economic environment: 'Incomes are rising and children at home are also drinking purified water'.
  5. Political environment: 'The government is also showing positive attitude towards the water purifier business'.
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Question 56 Marks
State any five impacts of Government policy changes on Business and Industry.
Answer
Impact of government policy changes on business and industry in India:
  1. Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines, banking, insurance, etc. which were earlier in the public sector.
  2. More demanding customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.
  3. Rapidly changing technological environment: Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services. The rapidly changing technological environment creates tough challenges before smaller firms.
  4. Necessity for change: In a regulated environment of pre- 1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.
  5. Need for developing human resource: Indian enterprises have suffered for long with inadequately trained personnel. The new market conditions require people with higher competence and greater commitment. Hence the need for developing human resources.
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Question 66 Marks
Explain any five impacts of government policy changes on business and industry in India.
Answer
Impact of government policy changes on business and industry in India:
  1. Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines, banking, insurance, etc. which were earlier in the public sector.
  2. More demanding customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.
  3. Rapidly changing technological environment: Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services. The rapidly changing technological environment creates tough challenges before smaller firms.
  4. Necessity for change: In a regulated environment of pre- 1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.
  5. Need for developing human resource: Indian enterprises have suffered for long with inadequately trained personnel. The new market conditions require people with higher competence and greater commitment. Hence the need for developing human resources.
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Question 76 Marks
Explain in brief the term ‘Liberalisation’. In what ways have the Indian business houses/management responded to this change?
Answer
Liberalisation: The economic reforms that were introduced were aimed at liberalising the Indian business and industry from all unnecessary controls and restrictions. They signalled the end of the licence-pemit-quota raj. Liberalization offers the opportunity for the sector to compete internationally, contributing to GDP growth and generating foreign exchange. India's IT services have become globally competitive as many companies have outsourced certain administrative functions to countries where costs are lowerThe Indian corporate sector has come face-to-face with several challenges due to government policy changes. These challenges can be explained as follows
  1. Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines, banking, insurance, etc. which were earlier in the public sector.
  2. More demanding customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.
  3. Need for developing human resource: Indian enterprises have suffered for long with inadequately trained personnel. The new market conditions require people with higher competence and greater commitment. Hence the need for developing human resources.
  4. Market orientation: Earlier firms used to produce first and go to the market for sale later. In other words, they had production oriented marketing operations
  5. Necessity for change: In a regulated environment of pre- 1991 era, the firms could have relatively stable policies and practices. After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.
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Question 86 Marks
With rapid advancements in the field of replacing manual work with machines, a Robot named 'Sujan? has been invented and developed and is likely to get the citizenship of the country of its origin.
It has led to a stage where machines are being used in place of human beings. 'Sujan’ is doing all types of work whether routine or hazardous and even answering the queries of people. However, this issue has to be carefully looked into keeping in mind the consumer attitude towards product innovations, problem of unemployment and its impact on the quality of life. Through the orders and decisions of various commissions and agencies at Centre, State or local level the Indian Government is playing a very significant role in balancing the use of human and machine power. Various dimensions of business environment are being discussed in the above para.
By quoting the lines from the above identify and explain any three dimensions.
Answer
  1. Technological Environment: With rapid advancements _______ has been invented and developed. Technological environment 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.
  2. Social Environment: 'However, this issue has to be _______ its impact on the quality of life'. Social environment includes social forces like customs and traditions, values, social trends and society's expectation from business.
  3. Legal environment: ‘Through the orders and _______ use of human and machine power.’
Legal environment includes various legislations passed by the Government administrative orders issued by government authorities, court judgments as well as the decisions rendered by various commissions and agencies at every level of the government- Centre, state or local.
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Question 96 Marks
Edu Comp is the first company which identified the need of teachers and students of this era in India. The company supplied smart boards through which teachers are teaching in an interesting and creative way. This new way of teaching was welcomed and supported by schools, teachers, students and parents. It is really very helpful for teachers and students. So, many schools are coming up with this facility for their students. The business of the company is growing day-by-day.
  1. Which importance of business environment is benefiting the given company?
  2. Describe any other three points which highlight importance of business environment.
Answer
  1. Business environment it enables the firm to identify opportunities and getting the first mover advantage.
  2. The three points which highlight importance of business environment are:
  1. Helps in identification of threats and early warning signals: A good knowledge and understanding of the business environment enables managers to identify the various threats and serve as an early warning signal.
  2. Coping with the rapid changes: Environmental understanding sensitise the management to the changing needs and wishes of its customers and develop suitable causes of action.
  3. Tapping useful resources: The organization receives inputs finance, material, manpower, equipment, etc. from the external environment. This is an interaction process, perceiving the needs of the external environment and catering to them, satisfying the expectations and demands of different groups, such as consumers, employees, shareholders, suppliers, general public and so on. This can be done better by understanding the business environment.
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Question 106 Marks
“Zero Defect Zero Effect” is a slogan coined by the Prime Minister of India, Narendra Modi, with reference to the Make in India initiative launched by the government. The slogan reflects the efficiency of production processes, i.e., the products have no defects and the process through which the product is made has zero adverse environmental and ecological effects. The ZED model aims to make India the manufacturing hub of the world and prevent the products developed in India from being rejected by the global market. Moreover, before the initiative was launched, the limits of foreign direct investment in various sectors had been relaxed. The application for licences was made available online and the validity of licences was increased to three years.
By quoting lines, identify the major components of New Economic Policy of 1991 that are being referred to in the paragraph.
Answer
The major components of New Economic Policy of 1991 that are being referred to are:
  1. Liberalisation: “Moreover, before the initiative _______ licences was increased to three years."
  2. Globalisation: "The ZED model aims to _______ rejected by the global market.”
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Question 116 Marks
The Government of India has recently come up with an amendment to Section 6 of the Payment of Wages Act 1936, to allow employers of certain industries to make payment through various electronics modes of payments. The amendment will be applicable to all the public sector undertakings for wages disbursement using e-payment options. This is another milestone in the direction to further push to cashless economy. Identify and explain any two dimensions of business environment which relate to the above mentioned case.
Answer
The various dimensions of business environment which relate to the above mentioned case are stated below:
  1. Political Environment: It includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business.
  2. Legal Environment: It includes various legislations passed by the Government administrative orders issued by government authorities, court judgments as well as the decisions rendered by various commissions and agencies at every level of the government-centre, state or local. It is imperative for the management of every enterprise to obey the law of the land.
  3. 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.
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Question 126 Marks
Identify the dimension of business environment, in each of the following cases, and explain them:
  1. The project of Nano Car re-established in Gujarat.
  2. Decrease in the repo rate to overcome recession.
  3. Rise in the BSE price index, soon after the both declaration of Lok Sabha Election, 2014 results.
  4. Increase in the number of working women.
  5. Prohibition of advertisement of alcoholic beverages on Doordarshan.
  6. Demand for reservation for minorities in government jobs.
Answer
Dimension of business environment are as follows:
  1. Political environment: It includes political condition of the country and attitude of the government towards business policy.
  2. Economic environment: It includes economic factors like inflation, interest rates, tax rates, GDP etc that affect business enterprises.
  3. Political environment: It includes political condition of the country and attitude of the government towards business policy.
  4. Social environment: It consists of all the social forces within which business operates such as trends, customs and traditions.
  5. Legal environment: It includes legislations passed by the courts, government, commissions and administrative bodies.
  6. Social environment: It consists of all the social forces within which business operates such as trends, customs and traditions.
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Question 136 Marks
Mr. Ajay after completing MBA from USA comes to India to start a new business under the banner Ecom Creations Ltd. He launches a new product in e-learning for Senior Secondary School students in commerce stream, which already has an established market in UK and USA but not in India. His business starts flourishing in India. Now more Indian companies entered into the market with other subjects also.
Identify and quote the lines from above para which highlight the significance of understanding business environment.
Answer
Following lines highlight the accompanied significance of understanding business environment:
  1. 'Comes to India to start a new business ________ launches a new product in e-learning for Senior Secondary School students in Commerce stream' shows business environment:
  1. Assist in planning and policy formulization
  2. It enables the firm to identify opportunity and getting the first mover advantage.
  1. 'His business starts flourishing in India’ shows:
  1. It helps in improving performance.
  1. 'Now more Indian companies entered into the market with different subjects also’ shows:
  1. It helps the firm to identify threats and early warning signals.
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Question 146 Marks
It is heartening that the implementation of compliance requirements of the Companies Act, 2013 has progressed substantially with NIFTY 500 companies. Data shows a significant increase in women's participation in the top management of Indian Companies from 5% few years ago to 13% now. Even companies which are not in NIFTY 500 have undertaken drives to increase women's participation across different areas of work. The government had also announced that it would support such companies.
Identify and explain the dimensions of business environment discussed above which brought about the change.
Answer
The dimensions of Business environment discussed in the given paragraph are:
  1. Legal environment: Legal environment includes various legislations passed by the Government, administrative orders issued by government authorities, court judgements, as well as the decisions rendered by various commissions and agencies at every level of government-Center, State, Local. Non-compliance of laws can land the business enterprises into legal problems.
  2. Political environment: Political environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business. Attitudes of the government officials may have either positive or negative impact upon business.
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Question 156 Marks
What are the benefits and challenges before India for becoming a cashless economy?
Answer
The benefits of a cashless economy are:
  1. Cashless economy will enhance our current banking system. There will be increased access to credit for people who do not fall in any banking network.
  2. It will help in widening the bracket of tax payers. All the transactions are monitored and traced back to a given individual. It will be difficult to evade tax then.
  3. The risk of counterfeit currency is minimised as the circulation of notes is reduced.
  4. It will facilitate faster transfer of money to places across India. Making and receiving payments will be safe, convenient and hasslefree.
The challenges before India for becoming a cashless economy are:
  1. Lesser literacy rate among the population makes digital India a distant dream. People have to be made aware of how to use the digital medium to transact.
  2. In India, a lot of villages do not have uninterrupted electricity supply. In the absence of this, digital transactions are impossible.
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Question 166 Marks
Mention the various dimensions of business environment.
Answer
The following are the dimensions of business environment.
  1. Economic Environment: It comprises of the economic variables such as interest rates, income, stock market indices that affect the functioning of the enterprises. For example, an increase in income affects the demand for goods and services of the enterprises.
  2. Social Environment: Social environment refers to the social forces such as customs, traditions, social values, social trend etc. For example, religious celebrations provide business opportunities to many enterprises such as those producing sweets, decoration items, etc.
  3. Technological Environment: Technological environment includes technological changes and improvements. For example, introduction of computers, internet, new telecommunication facilities, etc. all affect the business enterprises. An improvement in the technology used in the manufacturing of a product provides new business opportunities for the enterprises while on the other hand, is a threat for the enterprises using obsolete technology.
  4. Legal Environment: It comprises of the legislation and rules passed by the government such as the Companies Act, Trade union Act, etc. These legislations govern how an enterprise functions and behaves. Knowledge of these legislation is essential for enterprises as their non-compliance can lead to legal trouble for them.
  5. Political Environment: Political conditions such as peace and stability, law and order compose political business environment. It directly affects the functioning of enterprises. For example, a situation of political unrest erodes confidence of the investors and thereby, makes it difficult for the enterprises to function smoothly.
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Question 176 Marks
XYZ Ltd. Co., manufacturing cosmetics and enjoying a predominant position in the industry has grown in size. Its business was very good till 1991. But after that new liberalized environment has seen the entry of many MNCs in this sector with the result that market share of XYZ has declined. The company followed a very centralised business model with directors and divisional heads making even minor decisions.
  1. Which function of management is being indicated here?
  2. What dimension of environment is implicit in this case? Indicate by quoting the lines from above para.
Answer
  1. The organising function is indicated here.
  2. Political environment is implicit in this case. The lines 'New liberalised environment has seen the entry of many MNC's in this sector'.
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Question 186 Marks
On 8 November 2016, the Government of India announced the demonetisation making all 500 and 1,000 bank notes of the Mahatma Gandhi Series invalid past midnight. The government claimed that the action would curtail the use of illicit and counterfeit cash to fund illegal activities and terrorism. The BSE SENSEX and NIFTY 50 stock indices fell over 6 percent on the day after the announcement. The decision was heavily criticised by members of the opposition parties, leading to debates in both houses of parliament and triggering organised protests against the government in several places across India. People seeking to exchange their bank notes had to stand in lengthy queues, and several deaths were linked to the inconveniences caused due to the rush to exchange cash. After demonetisation the demand for point of sales (PoS) or card swipe machines has increased. E-payment options like PayTM has also seen a rise.
Identify and quote the lines of the various dimensions of business environment which relate to the above mentioned case.
Answer
The various dimensions of business environment which relate to the above mentioned case are:
  1. Political environment. “The Government of India _______ invalid past midnight."
  2. Technological environment. “After demonetization the demand _______ PayTM has also seen a rise."
  3. Social environment. “People seeking to exchange _______ caused due to the rush to exchange cash.”
  4. Economic environment. “The BSE SENSEX and NIFTY 50 _______ after the announcement."
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Question 196 Marks
Mr. Bali, the Production manager of classic Ltd., is successfully running his department. He has created such an environment that no one becomes hurdle in anybody's work, but all of them are ready to help each other. Mr. Bali has been observing a change in market for last few days. In the past, they used to produce goods according to their will and with a little bit of effort could sell them. But now they have to produce goods as desired by the people. When Mr. Bali investigated to know the reasons for this change, he came to know that on account of positive policies of the govt., running the business had become easy. Due to this, several new people had entered the business. Consequently, competition has increased and now the control of the market had slipped out of the hands of producers into the hands of customers.
  1. Identify the concept of management described here? Give two points of its importance.
  2. Identify the business environment dimension and the concept there of.
Answer
  1. The concept of co-ordination is described here. The two points of its importance are:
  1. Functional differentiation.
  2. Growth in size.
  1. The economic environment affected the business.Due to liberalisation of economy, the business was liberalised from all unnecessary controls and restrictions. This resulted in entry of new players into the market which increased competition.
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Question 206 Marks
In what ways do managers respond to various changes taking place in business environment?
OR
Explain the various ways in which companies responded to changes in the business environment.
Answer
Companies responded due to changes in the business environment in the given mentioned ways:
  1. Acquisitions and mergers: Business organizations went through a lot of changes such as mergers, amalgamations, acquisitions, takeover bids etc. These were conducted with different purposes in mind such as:
  1. To achieve market dominance.
  2. To get entry in new markets.
  3. To increase their product range.
  4. To attain core competency.
  5. For access to technology.
  1. Diversification spree: The corporate scene witnessed a spate of diversification as well. For example, ITC which was initially only into tobacco products and hotels later entered in fast moving consumer goods, paperboards and packaging, agri business and information technology.
  2. Consolidation of multinationals: Many MNC's entered India through new joint ventures agreements. For example, US based pharmaceutical Merck joined hands with Sun Pharma. Similarly, Pfizer entered into marketing alliance with Biocon Ltd.
  3. Brand building: Companies increased their expenditures to build brands. For examples, dot. com companies such as bookmyshow.com, flipcart.com etc.
  4. Customer focus: There is a lot of emphasis on increasing customer satisfaction by placing more focus on quality, enhanced features, packaging, services etc.
  5. Use of advanced technology: Successful companies make use of latest technology to enhance quality of products and reduce costs.
  6. Increased compensation levels: Companies have enhanced the compensation levels for managerial and technical services. This is done to attract and retain the competent personnel who can help the organistion to attain new heights. Also, to motivate employess, performance related incentive schemes are becoming popular.
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Question 216 Marks
The organic food market in India is growing at 25-30 per cent which reflects a clear shift in consumer tastes and preferences. The current growth in the organic food market is driven by multiplicity of factors like rising health consciousness, changing lifestyles, increase in disposable income and growing availability of organic food products in shopping malls, retail outlets and online. Identify and explain the features of business environment being referred to here.
Answer
The features of business environment being referred to in the given case are:
  1. Dynamic nature: It is dynamic in nature and keeps on changing due to technological upgradations, shifts in consumer preferences or increase in competition in the market.
  2. Inter-relatedness: All the elements of business environment are closely inter-related. Therefore, any change is one element may necessitate corresponding changes in the other elements as well.
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Question 226 Marks
Recently, many companies have planned for major investment in retail business. Increasing incomes, rise in living standards, government policy of liberalisation and its favourable attitude towards modernisation has favoured their decision.
Identify the various dimensions of business environment and explain their effect on businesses.
Answer
Various dimensions of business environment affected are:
  1. Rise in living standards affect social environment: The social environment consists of all the social and cultural forces within which business firms operate. It comprises of customs and traditions, values, social trends, etc. For example, traditions refer to such social practices that are followed since decades. Traditions like celebrations of festivals provide greater opportunities to businesses like confectionary, sweets, greeting cards, gift galleries, etc.
  2. Increasing income affect economic environment: The economic environment consists of the factors and forces concerned with means of production and distribution of wealth. It comprises of interest rate, rate of stri inflation, value of GDP, per capita income, Toto tax rates, disposable income, etc. For example, with an increase in the inflation .290 rates, there is a rise in the cost of production. This affects the profits of the business adversely.
  3. Liberalisation policy is an element of legal environment: Business has to function within the framework of laws and regulations of the country. Legal environment include various legislations passed by the government, court judgements, decisions of various commissions and agencies at every level of administration. Non-compliance of these regulations can create legal problem for business enterprises. A number of laws have been implemented by the government through the enactment of the Companies Act, Foreign Exchange Management Act, Factories Act, Competitions Act, etc. For example, the advertisement of alcoholic beverages is prohibited, which affects the marketing of such products.
  4. Favourable attitude of government is an element of political environment: The political environment consists of the forces concerning management of public affairs and their impact on business. It includes political conditions in the country and attitude of the government towards businesses and business policy. For example, decisions regarding offering subsidy to the producers gives a boost to such industries.
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Question 236 Marks
Make in India is an initiative launched by the Government of India to encourage national and multinational companies to manufacture their products in India. It focuses on job creation and skill enhancement and is in twenty five sectors of the economy. Under the initiative, brochures on these sectors and a web portal were released. The initiative aims at high quality standards and minimising the impact on the environment. It also seeks to attract foreign capital investment in India.
By quoting lines, identify the various dimensions of business environment being referred to in the paragraph.
Answer
The various dimensions of business environment being referred to are:
  1. Political environment. “Make in India is an initiative _______ their products in India."
  2. Technological environment. “Under the initiative, brochures on _______ portal were released."
  3. Economic environment. "It also seeks to _______ investment in India.”
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Question 246 Marks
Explain, with examples, the various dimensions of business environment.
Answer
Dimension of business environment:
  1. Economic Environment: It includes the changes in the system due to economic policies made by the government. Reserve Bank of India is the key regulator of country's economic environment since it,
  1. Influences the interest rates.
  2. Controls the flow of money in the economy.
  3. Regulates the working of banks.
Example: When the banks reduce the interest rates on long term loans, automobiles and construction industries get a boost to the business as more spending is made on the purchase of homes and cars through loans.
  1. Social Environment: The social environment of business include the social forces like customs and traditions, values, social trends, society’s expectations from business etc. In business terms, these values translate into freedom of choice in the market. Major elements of social environment are:
  1. Life expectancy.
  2. Shifts in the presence of women in the workforce.
  3. Consumption habits.
Example: Due to the shift in the presence of women in the workforce, the demand for readymade ladies formal wear, cosmetics, packed/processed food, electronic gadgets has gone up.
  1. Technological Environment: Technological environment 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.
Example: Because of technological advancement, it has become possible to book railway tickets through internet from home, office etc.
  1. Political Environment: Political environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business. It is only of use when a business enterprise can predict its business activities under stable political conditions. Major elements of political environment are:
  1. The constitution of the country.
  2. The nature and profile of political leadership and thinking of political personalities.
  3. Political ideology and practices of the ruling party.
Example: After the NEP of 1991, due to globalisation the foreign companies started coming to India, but due to the bureaucratic red tape it became difficult for them to cut through it to do business here. As a result, these companies were discouraged in our country regarding investments. The situation has improved overtime.
  1. Legal Environment: Legal environment includes various legislations passed by the Government administrative orders issued by government authorities, court judgements as well as the decisions rendered by various commissions and agencies. It is imperative for the management of every enterprise to obey the law of the land. Therefore, an adequate knowledge of rules and regulations framed by the government is a pre-requisite for better business performance.
Example: There is a government regulation to protect consumer’s interest e.g., the advertisements of alcoholic beverages is prohibited.
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Question 256 Marks
How would you characterise business environment? Explain, with examples, the difference between general and specific environment.
Answer
Features of business environment:
  1. Totality of External Forces: Business environment is aggregative in nature as it is the sum total of all things external to business firms.
  2. Inter-relatedness: Different elements of business environment are closely related to each other, e.g., increased awareness of health care have increased the demand for many health products.
  3. Dynamic Nature: The business environment is highly dynamic. It keeps on changing. Sometimes there is a change in technology, tastes and preference of consumer etc.
  4. Uncertainity: The environment cannot be predicted. It is highly uncertain and unpredictable
  5. Complexity: Since there are many elements of business. Environment and they are inter-related and dynamic in nature. Therefore, it becomes very difficult to understand them as a whole.
Difference between Specific and General Environment: There are two types of forces operating in business environment specific and general. Specific forces affect the individual enterprises directly and immediately, e.g., customers, suppliers.
General forces affect the firms and only indirectly e.g., social conditions or political conditions.
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Question 266 Marks
In an environment of rising petroleum prices and a large middle class population in India. KV Motors Ltd. recognized the need for small cars in India. It created a product far superior than their competitors not only in terms of quality but also in terms of overall driving experience. It soon became the leader in the small car market. As the Indian government was encouraging foreign investment, MNCs having a big name in car manufacturing entered the Indian market.
KV Motors further expanded its service network and quality creating an entry barrier for the competitors. It depicted its strengths through various brand-building activities. As a result, the market share of KV Motors is refusing to go down in spite of all major automakers as its competitors.
  1. Identify the economic reforms highlighted in the above case.
  2. Quoting the lines, explain any two points of importance of Business Environment being highlighted in the above case.
Answer
  1. The economic reforms highlighted in the above case are:
  1. Liberalisation: This economic reform aims at freeing the Indian business and industry from all unnecessary controls and restrictions. The business has been given freedom from licensing and quota requirement. Businesses can decide the scale of their activities. This reform has removed the restrictions from the movement of goods and services and simplifies the procedure for imports and exports.
  2. Globalisation: This economic reform has integrated Indian economy with world's economy. It aims at increasing the level of interaction and interdependence among various nations. It ensures free flow of goods and services and capital across nations.’
  1. The importance of business environment have been highlighted here are:
  1. Enables the identification of opportunities and getting the first mover advantage: The lives “KV motors Ltd. Recognized _______ in India". Opportunities are the favourable changes in the business environment which can help a firm to improve its performance. Early identification of this opportunity helps an enterprise to take the first mover advantage otherwise it would be lost to its competitors.
  2. Improvement in performance: The lines “As a result, _______ as its competition.” A continuous monitoring of business environment helps an organisation to timely make the required changes. It not only improves their present performance, but also helps the organisations to succeed in the market for a long period of time.
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Question 276 Marks
What are the essential features of:
  1. Liberalisation,
  2. Privatisation and,
  3. Globalisation?
Answer
Essential features of:
  1. Liberalisation:
  1. Abolishing licensing requirements in most of the industries except a short list.
  2. No restriction on expansion or contraction of business.
  3. Free movement of goods and services.
  4. Freedom in fixing the prices of goods and services.
  5. Reduction in tax rates.
  6. Simplifying procedures for imports and exports.
  7. Making it easier to attract foreign capital and technology to India.
  1. Privatisation:
  1. The government redefined the role of public sector.
  2. Policy of planned disinvestments of the public sector.
  3. Refining of sick enterprises to the Board of Industrial and Financial Reconstruction.
  1. Globalisation:
  1. Import liberalisation.
  2. Export promotion.
  3. Foreign exchange reforms.
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Question 286 Marks
Why it is important for business enterprises to understand their environment? Explain briefly.
Answer
Understanding of business environment is of vital importance for successful functioning of an organisation. Any organisation cannot function independently. It's functioning and performance depends on several external forces as well. A continuous evaluation and understanding of the business environment helps a firm to take account of these forces in a better manner and thereby, improve its functioning. The following points highlight the importance of understanding of environment for business enterprises.
  1. Identification of Opportunities: With a careful analysis of the business environment an enterprise can identify the positive opportunities for business. An early identification of the opportunities helps it in taking first hand advantage in competition.
  2. Identification of Threats: Besides positive opportunities, a study of business environment helps an enterprise in the identification of threats or negative signals that may adversely affects its functioning. Thereby, it enables it to take appropriate preventive measures.
  3. Accumulating Useful Resources: Environment provides a business various resources or inputs for its functioning such as raw material, machinery, labour, etc. On the other hand, enterprises provide the environment with output in the form of goods and services. That is, environment acts both as a source of resources as well as a source of demand for the products of the enterprises. Thus, it becomes logical for the enterprises to take up those resources from the environment that can be converted into the desired output. This is possible only if the enterprises have an understanding of what the environment desires and what it can offer.
  4. Adjusting to Changes: Business environment is dynamic in nature. Changes in technology, consumers taste and preference, government policies take place continuously. A careful analysis and understanding of the environment helps an enterprise in dealing with these changes in a better manner and thereby, take appropriate actions.
  5. Formulating Plans and Policies: A continuous study of environment helps an organisation in the identification of the opportunities and threats. Thereby, it guides the organisation in framing suitable plans and policies in view of the current scenario.
  6. Improving Performance: A continuous analysis of the environment helps the enterprises in framing suitable policies and plans and thereby, improves their performance.
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Question 296 Marks
Briefly explain the following:
  1. Liberalisation
  2. Privatisation
  3. Globlisation.
Answer
  1. Liberalisation: Liberalisation refers to the removal of unnecessary controls and restrictions of the government in the form of licenses, permits and quotas. India initiated liberalisation of industries in 1991. Liberalisation of industries in India took the following form.
  1. License required for the establishment of industries were abolished.
  2. Enterprises became free in deciding the scale and size of production and the price of the products.
  3. Restrictions were removed on the movement of goods and services.
  4. Procedures regarding exports and imports were relaxed.
  1. Privatisation: Privatisation implies according greater role to the private sector and reducing the involvement of public sector. Privatisation was followed in India in the following manner.
  1. Disinvestment of the public sector enterprises.
  2. Establishing Board of Industrial and Financial Reconstruction for the revival of the sick and loss making enterprises.
  3. Diluting the stake of government in the public sector enterprises.
  1. Globalisation: Globalisation refers to the process of integration of various economies of the world. It implies reducing the restrictions on the import and export such as licensing and tariffs. In India the following policies were followed with regard to globalisation.
  1. Removal on restriction on imports.
  2. Abolishing the export duty.
  3. Reducing import duty.
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Question 306 Marks
How would you argue that the success of a business enterprise is significantly influenced by its environment?
Answer
Importance of business environment:
  1. It Enables the firm to Identify Opportunities and Getting the First Mover Advantage: Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them instead of loosing them to competitors, e.g., Eureka Forbes introduced Aquaguard and took away the cream of demand.
  2. It Helps the Firm to Identify Threats and Early Warning Signals: Environment happens to be the source of many threats. Environmental awareness can help managers to identify various threats on time and serve as an early warning signals e.g., Lakme took serious steps to improve the quality and types of products as foreign multinational cosmetics companies started coming to India after 1991.
  3. It Helps in Tapping Useful Resources: Environment offers various resources for running a business in return the business enterprise supplies the environment with its outputs such as goods and services for customers, taxes for government. In order to arrange for the best possible resources, better understanding of the environment becomes important.
  4. It Helps in Coping with Rapid Changes: It is not the fact of change itself that is so important as the pace of change. There are many changes taking place in the environment and at a fast speed. In order to effectively cope with these changes, managers must understand and examine the environment and develop suitable courses of action.
  5. It Helps in Assisting in Planning and Policy Formulation: Since environment is a source of both opportunities and threats, its understanding and analysis only helps in formulating the best possible policies to handle the future properly.
  6. It Helps in Improving Performance: Continuous monitoring and adopting changes in an enterprise will help in improving not only their present performance, but also continue to succeed in the market in long run.
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Question 316 Marks
What economic changes were initiated by the Government under the Industrial Policy, 1991? What impact have these changes made on business and industry?
Answer
Economic changes initiated by the government under the Industrial Policy, 1991:
  1. The government reduced the number of industries under compulsory licensing to six.
  2. The role of public sector was reduced. It was now limited only to four industries of strategic importance.
  3. Disinvestment was carried out in case of many public sector industrial enterprises.
  4. Foreign Direct Investment was permitted.
  5. Automatic permission was now granted for technology agreements with foreign companies.
  6. Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India.
The Indian corporate sector has come face-to-face with several challenges due to government policy changes. Some of them are:
  1. Increasing Competition: The competition has increased due to entry of new players (privatisation and globalisation).
  2. More Demanding Customers: Customers today, has become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality of goods and services.
  3. Rapidly Changes Technological Environment: The rapidly changing technological environment creates tough challenges before smaller firms.
  4. Necessity for Change: After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.
  5. Need for Developing Human Resources: Earlier, Indian enterprises worked with inadequately trained personnel. The new market conditions require people with higher competence and greater commitment. Hence, the need for developing human resources.
  6. Market Orientation: Before 1991, all firms worked with production oriented marketing operations. In a fast changing world, there was a shift to market orientation. The firms had to study and analyse the market first and produce goods accordingly.
  7. Loss of Budgetary Support to the Public Sector: The public sector undertakings have realised that in order to survive and grow, they will have to be more efficient and generate their own resources for the purpose.
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Question 326 Marks
Briefly discuss the impact of Government policy changes on business and industry.
Answer
The policies of liberalisation, privatisation and globalisation by the government affect the functioning of the business enterprises. The following points highlight the impact of government policy changes on the business and industry.
  1. Increased Competition: As a result of the policies such as relaxation of the licensing policy and reduction of import duties, the competition faced by the domestic firmsincreases. India companies experienced competition in service industry such as telecommunication, banking, insurance, etc.
  2. Increased Demand: As competition increases, the choice of goods and services for the consumers also increases. Thus, consumers also gain from quality products and greater variety.
  3. Change in Business Policies: The government policies directly impact the functioning of the business enterprises. As a result, they have to alter their policies appropriately.
  4. Technological Changes: As competition increases firms tend to find new and innovative ways to survive in the market. In such a scenario, technological improvements become imperative.
  5. Need for Trained Personnel: Innovations and improvement in product, application of improved technologies requires skilled and trained personnel. Thus, there arises a need for the development of human resources.
  6. Greater Market Orientation: With increased competition, the production has become market oriented. That is, the enterprises produce as per the demand market.
  7. Less Reliance on Budgetary Support by Public Sector Enterprises: To survive the increased competition, the public sector enterprises must improve efficiency and productivity rather than relying on budgetary support to cover their losses.
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Question 336 Marks
The court passed an order to ban polythene bags as:
  1. These bags are creating many environmental problems which affect the life of people in general.
  2. Society in general is more concerned about quality of life.
  3. The government decided to give subsidy to jute industry to promote this business.
  4. Innovative techniques are being developed to manufacture jute bags at low rates.
  5. Incomes are rising and people can afford to buy these bags.
Identify the different dimensions of business environment by quoting the lines from the above particulars.
Answer
The quoted points from the above lines with different dimensions of business environment are as follows:
  1. "The court passed an order to ban polythene bags' The quoted line is depicting the legal environment. Business has to function within the framework of laws and regulations of the country. Legal environment exercises significant influence on business activities.
  2. 'Polythene bags are creating many environmental problems which affect the life of people in general' and 'society in general is more concerned about quality of life' These quoted lines are depicting the social environment. It consists of all the social and cultural forces within which business firms operate.
  3. 'Government decided to give subsidy to jute industry to promote this business' The quoted line is depicting the political environment. It is concerning with the forces related with political stability and conditions that have strong impact on business.
  4. 'Innovative techniques are being developed to manufacture jute bags at low rates' The quoted line is depicting the technological environment. It includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services.
  5. 'Incomes are rising and people can afford to buy these bags' The quoted line is depicting the economic environment. It consists of the factors and forces concerning means of production and distribution of wealth. It includes all such forces of economic development which influence the product market scope of business.
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Question 346 Marks
Highlight the management response to changes in business environment.
Answer
Business Environment: Business environment means the sum total of those factors which influence the business and over which the business has no control.
Changes: A prominent feature of business environment is its being dynamic. It means that business environment undergoes continuous changes, for example,
  1. Change in the taste of the customers.
  2. Change in the attitude or conduct of the suppliers (for example, laying down the condition of advance payment).
  3. Change in the form or nature of competition because of the entry of many competitors in the market.
  4. Change in the attitude of the general public (for example, opposing the pollution spread firm).
  5. Change in the expectation of the people from business.
  6. Change in the political structure.
  7. Change in the economic policies.
  8. Change in the legal regulations.
Managerial Response: After having clarified that there are compulsory changes going on in the business environment, the major question about the managerial response to these changes remains to be tackled. In other words, whether the managers give them any importance or not. In response to this question it would be appropriate to say that if the managers want that their business should continue to exist for a long time and that it should continue developing, giving importance to these changes is absolutely essential, otherwise not. It is obvious that all the managers would like to see their business to continue for a long time and flourish. Consequently, they would give importance to changes.
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