Business environment
Meaning of Business Environment:
§ Business environment means the sum total of ALL INDIVIDUALS, INSTITUTIONS & OTHER
FORCES that are outside the control of a business enterprise but they may affect its
performance.
§ The study of the business environment enables the managers to identify THREATS AND
OPPORTUNITIES.
Threats and Opportunities
Threats refer to the Negative changes that occur in the business environment and hinder the
performance of an organisation.
Opportunities refer to the Positive changes that occur in the business environment and help
the organisation to improve the performance.
Features of business environment
(i) Totality of external forces:
Business environment is the sum total of all factors/things external to business firms and, as
such,
is aggregative in nature.
(ii) Specific and general forces:
Business environment includes both specific such as customers, investors, etc and general
forces such as social, political,legal and technological.
(iii) Interrelatedness:
Different elements or parts of business environment
are closely inter-related.
(iv) Dynamic nature
Business environment is dynamic
and keeps on changing whether in terms of technological improvement, shifts in consumer
preferences etc.
(v) Uncertainty:
Business environment is uncertain as it is very difficult to predict future happenings, especially
when environment changes are taking place too frequently.
(vi) Complexity:
Business environment is complex as it consists of numerous interrelated and dynamic
conditions or
forces that are relatively easier to understand in parts
but difficult to grasp in its totality.
(vii) Relativity:
Business environment is a relative concept since it differs from country to country and even
region to
region.
Importance of business environment:
(1) It enable the firm to identify opportunities and getting the first mover advantage:
Environment provides numerous opportunities and helps in early identification of them which
further help an enterprise to become the first mover and strengthen its position in the industry.
(2) It helps the firm to identify threats and early warning signals:
Besides opportunities, the environment provides numerous threats as well. Environmental
awareness can help firms to identify them on time and serve as an early warning signal.
(3) It helps in Tapping Useful Resources:
The business environment helps in tapping useful resources in the form of INPUTS &
OUTPUTS.
(4) It helps in Coping with Rapid Changes:
The business environment helps in coping with the pace of change in an increasingly dynamic
environment.
(5) It helps in Assisting in Planning and Policy Formulation:
Since environment is the source of both OPPORTUNITIES and THREATS, its understanding
and analysis provides the base for
future course of action, i.e., PLANNING and developing guidelines for decision-making, i.e.,
POLICY.
(6) It helps in Improving Performance:
A business environment helps in improving performance of an enterprise by continuously
monitoring the environment and adjusting itself accordingly.
Components of business environment
(1) Economic Environment:
Economic environment refers to the Economic Factors that can affect management practices in
a business enterprise, such as,
Changes in disposable income of people, Inflation rates, Interest rates, Stock market indices,
Value of rupee.
(2) SOCIAL ENVIRONMENT
Social environment refers to the combination of all the characteristics of the society (social
forces) in which the organisation exists, such as,
Customs and Traditions, Social Trends, Values, social trends
and Society's expectations from business.
(3) Technology cal environment:
Technological environment refers to scientific improvements and innovations relating to various
business activities, such as.
•New ways of producing goods and services.
•New methods and techniques of operating business.
(4) Political Environment
Political environment refers to political conditions in the country and the attitude of the elected
government towards business.
•It has a great impact on the business community
•It may have either positive or negative impact upon business
•Therefore, businessmen must scan it constantly and carefully.
(5) Legal environment:
Legal environment refers to the sum total of all the
•ACTs passed by the government
•JUDGEMENT of courts, and
•Decisions rendered by various Commissions and Agencies.
Demonetisation:
Concept of Demonetisation
Demonetisation refers to withdrawal of the status of LEGAL TENDER to the currency in
circulation.
It includes:
•The government of India, made an announcement on November 8, 2016 with profound
implications for the Indian economy.
•Because of this announcement two largest denomination notes 500 and 1000 rupee lost their
status of legal tender.
•This led to 86% of the money in circulation invalid.
Features of demonetization are:
(i) Tax administrative measure: Demonetisation is viewed as a tax
administration measure and people with black money had to declare their unaccounted wealth
and pay taxes at a penalty rate.
(ii) Text Evasion control measure: Demonetisation is also interpreted as a shift on the part of
the government indicating that tax evasion will no longer be tolerated or accepted.
(iii) Channelising saving into the formal financial system: Demonetisation led to tax
administration channelizing savings into the formal financial system, to enable banks with
deposits to provide a base loan, at lower interest rates.
(iv) Creating Less-Cash Economy: It creates a less-cash or cash-lite economy and hence
digital transactions are increased.