Business Studies 3 Marks Question

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.

1. Equity cost: The rate of return expected by the shareholders is directly related to the risk associated with their investment. As the financial risk faced by the company increases, the shareholders’ expectation of rate of return increases and vice versa.

2. Floatation cost: It refers to the cost of raising funds such as broker’s commission and underwriting commission. The higher the floatation cost involved in raising funds from a particular source, the lower is its proportion in the capital structure. For instance, if public issue of shares involves higher floatation cost than debt, then the company would option for more of debt and less of equity in the capital structure.

1. Achievement of goals: Management helps in the achievement of goals such that the efforts of all the individuals are organised and directed towards the common goals of the organisation.
2. Increases efficiency: An increase in efficiency implies minimising the costs and increasing the productivity through the optimum utilisation of resources. As management helps in optimum utilisation of resources, it helps in increasing efficiency.
3. Creates dynamic organisation: Management helps an organisation to adapt to the changes in external factors such as political, social, environmental and economical changes.

• Coordination is required at all levels of management due to the interdependent nature of activities of various departments.
• It integrates the efforts of different departments and different levels.

• Coordination is the function of every manager in the organisation.
• Top level managers need to coordinate with their subordinates to ensure that the overall policies for the organisation are duly carried out.
• Middle level management coordinates with both the top level and first line managers.
• Operational level management coordinates the activities of its workers to ensure that work proceeds according to plans.

1. Fluctuations in business cycle: During a boom period, the market flourishes and thereby there is higher sale, higher production, higher stock and debtors. Thus, during this period the need for working capital by a company increases. As against this, in a period of depression, there is low demand, lesser production and sale, etc. Therefore, the requirement for working capital is also less.

2. Inflation: A rise in the rate of inflation implies that the prices of raw materials, labour, etc. increase. This suggests that larger amount of funds would be required to maintain even the existing volume of production and sales. This in turn increases the requirement of working capital. On the other hand, a low rate of inflation implies less requirement of working capital for a business.

3. Extent of availability of raw material: If the raw materials required by the company are such that they are easily available, then this suggests that the firm need not maintain a large stock of inventories of raw material. In such situations, the company requires less working capital. On the other hand, if the raw materials are not easily available or their supply is not smooth, then the company must maintain a huge stock of raw material to ensure uninterrupted operations, thereby requiring a large working capital.

1. The different styles of management in practice adopted by Arun and his father reflect that management is an art.
2. ‘Harmony, Not Discord’ is the related principle of scientific management.
   Taylor emphasised that there should be complete harmony between the management
   and workers instead of a kind of class-conflict, the mangers versus workers. To achieve this state, Taylor called for complete mental revolution on the part of both management and workers. The prosperity for the employer cannot exist for a long time unless it is accompanied by prosperity for the employees and vice versa. He advocated paternalistic style of management should be in practice.
3. The related dimensions of the business environment are :
   • Economic Environment: Economic environment comprises of factors that can affect management practices in a business enterprise includes interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee etc.
   • Social Environment: Social environment includes the social forces like customs and traditions, values, social trends, society’s expectations from business, etc.
   • 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.

1. The feature of management which is being highlighted is Dynamic.
2. The related dimension of the business environment is Social.
3. The related principle of general management is Initiative.

Initiative means taking the first step with self-motivation. The workers should be encouraged to develop and carry out their plans for improvement. Suggestion system should be adopted in the organization.

1. The various dimensions of business environment being referred to the in the above case are as follows :
   • 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.
   • 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— center, state or local.
   • Social Environment: Social environment includes the social forces like customs and traditions, values, social trends, society’s expectations from business, etc.
2. The two values which the Cerebra Integrated Technologies wants to convey through this initiative are :
   • Sustainable development
   • Concern for environment.

1. The features of business environment being referred to in the above case are as follows :
   • 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.
   • Inter-relatedness: All the elements of business environment are closely interrelated. Therefore, any change is one element may necessitate corresponding changes in the other elements as well.
2. The various components of general forces which have led to a growth in the organic food market are as follows :
   • Social: “rising health consciousness, changing lifestyles”
   • Economic: “increase in disposable income”
   • Technological: “growing availability of organic food products in shopping malls, retail outlets and online.”

1. Economic environment is the dimension of business environment of India being referred here.
2. The three factors which broadly affect the economic environment of India are stated below:
   • Stage of economic development of the country.
   • The economic structure in the form of mixed economy which recognises the role of both public and private sectors.
   • Economic planning, including five year plans, annual budgets, and so on.

1. The various dimensions of business environment being referred to in the above case are as follows:
   • 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.
   • Legal Environment: 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 -Center, State or Local .
2. The two values which the State Government of Kerala wants to convey through this initiative are:
   • High quality standards
   • Good health

1. Inter-relatedness is the relevant feature of business environment which is being discussed above.
2. The three points which highlight the importance of business environment and its understanding by managers are described below:
   • It enables the firm to identify opportunities and getting the first mover advantage: The dynamic business environment provides numerous opportunities for a business to evolve as per the changing needs. Therefore, early identification of the forthcoming opportunities helps an enterprise to be the first to exploit them instead of losing them to the competitors.
   • It helps the firm to identify threats and early warning signals: Sometimes the changes in the external environment may pose as a threat and hinder a firm’s performance. An awareness about the business environment helps the managers to identify such threats on time and take necessary decisions and action.
   • It helps in tapping useful resources: As the enterprise designs policies that allow it to get the resources that it needs so that it can convert those resources into outputs that the environment desires.

1. Liberalisation: These economic reforms signalled the end of the licence-pemit-quota raj and were aimed at liberalising the Indian business and industry from all unnecessary controls and restrictions.
   “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. Various other norms and procedures were also relaxed by the government.”
2. Globalisation: Globalisation means the integration of the various economies of the world leading towards the emergence of a cohesive global economy.
   “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.”

1. The term ‘Business Environment’ means the sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance.
2. The term ‘Threats’ refers to the external environment, trends and changes that will hinder a firm’s performance.
   “Through an analysis report of the business environment, it has been brought to his notice that in the coming years, shopping at a mall will not be a necessity for the buyers as purchases can be made online from anywhere and at any time with ease and at the consumer’s convenience. Hence, malls will have to provide much more than shopping to be able to attract customers.”
   The term ‘opportunities’ refers to the positive external trends or changes that will help a firm to improve its performance.
   “As a result, the company gains enormously by getting the first mover advantage.”

1. The various dimensions of business environment being referred to in the above case are as follows :
   • Political Environment: “Make in India is an initiative launched by the Government of India to encourage national and multinational companies to manufacture their products in India.”
   • Technological Environment: “Under the initiative, brochures on the twenty five sectors and a web portal were released.”
   • Economic Environment: “It also seeks to attract foreign capital investment in India.”
2. The two values which the Government of India wants to convey through this initiative are:
   • High quality standards
   • Concern for environment

1. The various dimensions of business environment which relate to the above mentioned case are outlined below :
   • 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.
   • 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.
   • Legal environment: 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 .
   • Social environment: Social Environment includes the social forces like customs and traditions, values, social trends, society’s expectations from business, etc.
   • Economic Environment: Economic Environment comprises of factors that can affect management practices in a business enterprise includes interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee etc.
2. The two values that the government seeks to promote through demonitisation are:
   • Transparency in dealings
   • Promote well being of people

1. Legal Environment: “The court passed an order that all schools must have water purifiers for the school children.”
2. Social Environment: “Society in general is more concerned about the quality of life.”
3. Political Environment: “The government is also showing a positive attitude towards the business of water purifiers.”
4. Technological environment: “Innovative techniques are being developed to manufacture water purifiers at competitive rate.”
5. Economic Environment: “Incomes are rising and children are drinking purified water at their homes as well.”

1. Legal Environment: “The court passed an order to ban polythene bags.”
2. Social Environment: “The bags create many environmental problems which affect the life of people and society at large is more concerned about the,,quality of life.”
3. Political Environment: “The government decided to give a subsidy to the jute industry in order to promote this business.”
4. Technological environment: “Innovative techniques are being developed to manufacture jute bags at low rate.”
5. Economic Environment: “Incomes are rising and people can afford to buy these bags.”

1. Legal Environment: “As per the directions issued by the Supreme Court.’
2. Political Environment: “The government passed an order to ban the sale of tobacco products within the area of 200 meters of all educational institutions.”
3. Social Environment: “Its consumption is injurious to health and people are becoming more conscious about health and fitness.”

1. The understanding of business environment helps in assisting in planning and policy formulation as its understanding and analysis can be the basis for deciding the future course of action or decision making.
   It enables the firm to identify opportunities and getting the first mover advantage instead of losing them to its competitors.
   ” After completing his MBA from USA, Mr. Ajay came to India .to start a new business under the banner Ecom Creations Ltd. He launched a new product in e-learning for senior secondary school students in the commerce stream which already had an established market in UK and the USA but not in India.”
2. It helps in improving performance of an enterprise through continuous monitoring of the environment and adopting suitable business practices which help to improve both their present and future performance.
   “His business started flourishing in India.”
3. It helps the firm to identify threats and early warning signals that is likely to hinder a firm’s performance and take timely actions.
   “As a result, more Indian companies entered into the market with other subjects.”

1. The dimension of business environment being discussed above is Social.
   Social Environment includes the social forces like customs and traditions, values, social trends, society’s expectations from business, etc.
2. The principle of management being followed by Fortio is ‘Remuneration of employees’. Remuneration of employees: The overall pay and compensation should be fair to both employees and the organization. The employees should be paid fair wages, which should give them at least a reasonable standard of living. At the same time it should be within the paying capacity of the company i.e. remuneration should be just and equitable.
3. The values being communicated by the company to the society are :
   • Justice
   • Ethical Behaviour

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.
2. 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.

1. Liberalisation and globalisation are the two major concepts related to government policy that have been discussed.
   • Liberalisation: These economic reforms signalled the end of the licence-pemit-quota raj and were aimed at liberalising the Indian business and industry from all unnecessary controls and restrictions.
   • Globalisation: Globalisation means the integration of the various economies of the world leading towards the emergence of a cohesive global economy.
2. The three impacts of reforms on Indian business and industry are outlined below:
   • Increasing competition: The Indian firms are facing lot of competition due to changes in the rules of industrial licensing and entry of foreign firms. This change is more apparent in the sectors which were earlier reserved for private sector only like banking, insurance, telecommunications, etc.
   • More demanding customers: With the easy availability of wider choice in purchasing better quality of goods and services due to high competition consumers have become more aware and demanding. The growing expections of the consumers has increased the pressure on the business firms.
   • Rapidly changing technological environment: With the entry of new firms which are far more superior in terms of technology the small firms are facing a lot of challenges. Moreover, the firms are constantly involved in innovating new products and upgrading present products with the help of better technologies in order to satisfy the customers demands.

1. With the advent of television in the market, the cinema and the radio industry were adversely affected.
2. With the arrival of the photostat machines in the market, the carbon paper industry suffered a setback.
3. With the entry of synthetic thread in the market, the cotton cloth industry was badly affected.

1. IT companies have found Hyderabad, approvingly nick-named by the media as Cyberabad, to be the most hospitable location primarily due to them supportive political climate.
2. Due to change in political scenario, government allowed Pepsi and Cola to enter the Indian market to give boost to the food processing industry and that paved the way for the entry of multinationals in India in a big way.

1. Increase in Competition: Owing Privatisation of the Business Units of Public Sector, there has taken place an increase in competition. For example, the privatisation in telecommunication has resulted in a lot of increase in competition. Consequently, telecommunication services have become cheaper and of better quality.
2. Reduction in Political Interference: Privatisation results in freedom from political interference. Consequently, there is no unnecessary delay in taking decisions and the work is done at a fast speed.
3. Increase in Responsibility: Privatisation has led to the development of the sense of responsibility in the employees. The employees who used to be careless while working in Public Sector have now become honest in discharges their duties. Now, they are apprehensive of being fired from the company in case of non-performance. Such a change in the attitude/ approach of the employees has resulted in a positive impact on industry and business.

1. Steam engines to electric engines.
2. Vacuum tubes to transistors.
3. Fountain pens to gel pens.
4. Typewriters to computers.

1. Dynamic Nature: It is dynamic as it keeps on changing because of changing in its various components.
2. Uncertainty: It is uncertain as it is difficult to predict the behaviour of environmental factors as they continue to change quickly.

1. Increasing Competition: Today, business is facing all round competition. The competition for Indian companies has increased especially in service industries like: Telecommunication, Airlines, Banking, insurance, etc. Competition has crossed the national boundaries and assumed a global shape. The following are the chief competitors: (a) New and old Indian companies, (b) Multinational Companies, (c) Import. Increasing competition has adversely affected many companies. For example, once a popular Western Coloured Television has lost much ground in the TV market and its contribution to the market is almost negligible.
2. More Demanding Customers: As a result of the economic reforms, the customers have complete information about the goods available in the market. Earlier, they used to purchase goods and services without much inquiry because of the lack of information. But these days because of the availability of enough information the area of customers’ demand has increased considerably. Now, they have started buying good quality goods and services.

1. Political stability in the country.
2. Peace in the country.
3. Attitude of the government towards business.
4. Type of government, i.e., single party government or multi-party government.
5. Ideologies of various political parties.

1. Political stability builds up confidence among business people to invest in the long-term projects. But, the instability in politics results in disinvestment.
2. The attitude of the government towards business also affects its performance. e.g. If government provides subsidy in the production of cotton garments, it will have positive impact on cotton textile business and vice-versa.

1. Economic environment.
2. Social environment.
3. Technological environment.
4. Legal environment.

1. Removal of controls over capital markets has increased capital issue in the primary markets.
2. Relaxation in restrictions on FDI has increased the foreign exchange reserves in the country.

1. Increase in taxes by government can make products expensive, causing reduced demand.
2. Technological improvements may render existing products obsolete.
3. Change in taste and fashion may shift demand.
4. Increased competition may reduce profit margins.

1. Objectives of Business.
2. Policies of Business.
3. Production Capacity.
4. Production Methods.
5. Management Information System.
6. Participation in Management.

1. Technological Environment
2. Business environment is dynamic in nature.
3. Other features of business environment are:

1. Totality of external forces.
2. Specific and General Forces.
3. Inter-relatedness.
4. Uncertainity.
5. Complexity.
6. Relativity.

1. It helps in exposing firm to international competition.
2. It increases the inflow of foreign capital.
3. It simplifies the procedures of import and exports.
4. Removal of restrictions enables the firm to decide the price of goods and services.
5. Employment opportunity increases.

1. Strategic alliances, mergers and acquisitions of businesses.
2. Diversification.
3. Collaboration with multinationals.
4. Brand building.
5. Restructuring of business activities.
6. Capital restructures.
7. Customer focus.
8. Latest technology.
9. Compensation levels and incentive schemes.