Business Environment — Business Studies STD 12 Commerce — Question

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.

2. 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.

3. 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.

4. 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.

5. 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.