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FYBCOM Sem 1 Commerce Chapter 4 Notes | Business Environment | Mumbai University

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FYBCOM Sem 1 Commerce Chapter 4 Notes
FYBCOM Sem 1 Commerce Chapter 4 Notes

FYBCOM Sem 1 Commerce Chapter 4 Notes
(Business Environment)

1) Define Business Environment. Explain its features.

Answer : Business environment consists of all those forces or factors both internal and external that affects the working of a business. Business environment refers to the socio-economic surrounding under which business activities are to be conducted. Such environment is the net result or sum total of various political, economic, social, technological, natural and other factors. Environmental factors are largely beyond the control of business enterprises.

According to Keith Davis, –
“Environment of the business means the aggregate of all conditions, events and influences that surround and affect it”.

The internal factors comprises of firm’s plans and policies, resources like manpower, capital, machineries etc. The external environment comprises of the micro factors such as customers, competitors, suppliers etc. and the macro factors such as economic, political, social, technical and other factors. Analysis of the internal environment helps the firm to identify its strengths and weaknesses and the analysis of external environment helps to identify opportunities and threats. The following are the important features / characteristics of business environment.

1) Dynamic in nature :
Business environment is flexible and perpetually evolving. It changes frequently due to various external forces i.e. economic, political, social, international, technological, and demographic. Business enterprises have to operate under such dynamic environmental conditions.

2) Inseparable part of business :
Business environment refers to the socio-economic surrounding under which business activities are conducted. Business can’t work in isolation. Both, business and its environment are interdependent on each other. Business is not only influenced by its environment but also can’t function without it.

3) Internal and External Factors :
Activities of business enterprises are affected by internal and external factors. The internal factors are controllable in nature. It includes manpower, machinery, management labour relations, etc. The external factors are beyond the control of a business enterprise. But it can adjust its strategies depending upon the changes in external factors.

4) Opportunities and Obstacles :
Environment provides opportunities and creates obstacles in the working of the enterprise. Opportunities may be termed as favourable situations which can help to make more profit and growth. On the other hand, obstacles imply unfavourable environment, which affect the enterprises profitability and growth. Both the situation must be accepted by business enterprise with confidence.

5) Regulates scope of business :
Environment provides the frame-work within which business enterprises have to operate. Business activities have to be adjusted as per the prevailing environment. For example, manufacturers of product like cigarettes and alcoholic drinks can’t advertise on television. Such regulations must be taken into account.

6) Multi – Dimensional :
Changes in environment may have positive and negative impact on the working of business, enterprises. Environmental change may be favourable to some enterprises and unfavourable to others. For example, Government of India has liberalised the entry of foreign countries into India. The foreign firms consider it as on opportunity, whereas, Indian firms consider it as a threat.

2) What are the importances of Business Environment.

Answer : The environmental factors vary from country to country, even region to region. For example, Social environment in US is different as compared to India. Therefore Multinational Corporation like McDonald’s has modified their products to suit India’s consumption habits. Business environment consists of all those forces or factors both internal and external that affects the working of a business. Business environment refers to the socio-economic surrounding under which business activities are to be conducted. The following are the importance of business environment.

1) Identification of Strengths :
The analysis of the internal environment helps to identify the strengths of the firm. Strength is an inherent capacity of an organization which can used to gain strategic advantage over its competitors. Every organization must strive to maintain and improve on its strengths.

2) Identification of weaknesses :
The analysis of the internal environment also helps to identify weakness of the firm. A weakness is an inherent limitation of the organization which creates a strategic disadvantage. Therefore, the firm should identify its weaknesses and correct them as early as possible.

3) Identification of Threats :
Environmental analysis helps to identify threats from the environment. A threat is an unfavourable condition in the organization’s environment that creates a risk or damage to the organization like rapid technological changes that have made technologies used by organizations obsolete. Identification of threat helps to defuse the same.

4) Identification of Opportunities :
The analysis of the external environment helps to identify the opportunities in the market. An opportunity is a favourable condition in the organisation’s environment, which enables it to strengthen its position as we see how liberalization has brought global opportunities for Indian business houses.

5) Understand future problems :
The study of business environment is needed in order to understand future problems and prospects of business well in advance. This enables a business enterprise to face problems boldly and also take the benefit of favourable business situation.

6) Business Expansion :
The environment analysis provides opportunities for expansion and diversification of business activities. Because environment analysis helps to discover and exploit such opportunities fully when the environment is favourable, new ideas, ventures and schemes may be put into action. It plays an important role in Business Environment.

3) Explain the interrelationship between business and environment.

Answer : Interrelationship is a meeting point between two subjects. Business and environment are like the two sides of the same coin i.e. one can’t survive without the other. Business and environment are independent but interdependent on each other for survival and growth. Environment supplies resources to the business organizations for undertaking production activities. At the same time, products manufactured are sold to the people who are the part of demographic environment. Growth and profitability of business depend on the environment under which business has to operate. “To manage business means to manage the environment around the business”. The interface between business and the various types of environment can be briefly explained as follows –

1) Business and natural environment :
Business firms depend on natural environment for the supply of resources like raw materials, water, etc. The natural environment also benefits from business. This is because of developments in the field of technology; there is availability of alternative sources of energy. Business firms have also come up with innovations that can substitute natural resources or materials. Such technological developments and innovations help to preserve and protect the environment

2) Business and demographic environment :
Demographic environment factors such as age, sex, male, female, rural – urban population, education etc. influence business decisions. The business firms can take business decisions depending on demographic features of population. For example, the income of the people in India is quite low. This affects the purchasing power and has to be taken into account by the manufacturers while fixing the price of their products.

3) Business and regulatory environment :
The legal environment has a good influence on business decisions. Business firms need to follow the provisions of various laws or acts affecting their business decisions. It should carry on their business within the frame work given by the legal environment. Business firms can influence legal environment. They can support government in framing various laws and acts. Through proper representations, business firms can influence the framing of laws and acts in the country.

4) Business and socio-cultural environment :
Business firms need to monitor closely the socio-cultural environment. The social and cultural environment greatly influences business decisions. An analysis of socio-cultural environment would enable the business firm to design and promote its products and services effectively. For example, in India, people are emotionally attached to their festivals, dance, music and so on. Business firms can dramatise the socio-cultural elements in their advertisements.

5) Business and international environment :
Business firms, especially those dealing in foreign trade are affected by international environment. The international environment is affected by international forums like WTO, trading block like NAFTA, ASEAN etc. Due to globalization and liberalization business organization are forced to view business issues from a global perceptive. Hence, business policies and practices may be adjusted to survive in the global environment. Business organizations also have a capacity to influence the international environment but to a limited extent. The business community can influence their government to represent it effectively at various international forums.

4) Explain the factors of Internal environment.

Answer : Internal Business Environment refers to all the factors within an organization which affect its functioning. These factors are generally regarded as controllable i.e. the organization can alter or modify such factors. A firms’ internal environment consists of its plans, policies, resources, relations and other internal factors which affect its working. Factors of Internal Environment :

1) Vision, mission and objectives :
A vision statement highlights the long term goals of the organization. It is broad based and provides necessary directions to the business. On the other hand, short term targets are referred to as mission statement. A mission statement provides directions in setting objectives and framing policies of the organization. There must be consistency between the vision statement, the mission statements and the objectives of the organization.

2) Plans and Policies :
A knowledge of internal environment and how it affect the functioning of the organization is important to understand the use of business plan and policies. Broadly, plan and policies cover functional areas i.e. production, marketing, finance and human resource development. Business plan and policies provide the broad guidelines within which an organization has to work.

3) Physical Resources :
Physical resources includes machines, equipment, buildings, office premises, furniture and fixture etc. Analysis of the internal environment may indicate the weaknesses of the physical resources, and as such the firm can take an appropriate measure to correct such weaknesses. For example, the obsolete machines may be replaced.

4) Financial Resources :
Finance is the life blood of all business activities. Every organization requires adequate fixed and working capital. The organization must have a sound financial policy where the inflow of funds is more than the outflow. In such a case, the organization does not fall into a liquidity trap.

5) Corporate Image :
Every organization enjoys an image among the employees. Some refer to their employers as progressive whereas others refer to them as conservative. To make the business acceptable to the society, every business must try to improve its image. Objectives base on enlightened lines certainly help to improve corporate image.

6) R & D Facilities :
Research and Development is the strength of the business. It helps the business to go ahead of the competitors by introducing new products and by improving the existing ones.

5) Discuss the factors of external environment.

Answer : External Business environment includes all those factors and forces, which are external to the business organization such as economic, socio-cultural, demographic etc. These external factors are beyond the control of the company. Hence they are regarded as uncontrollable factors especially as they are dynamic and keep on changing continuously. The external environment is broadly divided into Micro Environment and Macro Environment.

A) Micro Environment :
The micro environment consists of all those factors in the firm’s immediate environment. The micro environment can have direct impact on the working of a firm. Factors of Micro Environment :

1) The customer :
The key to success in marketing of goods depends on consumer – oriented approach. It is important to consider customer’s likes, dislikes, needs, preferences, buying motives and expectations. Higher customer patronage brings increased profit to the business.

2) The competitors :
A firm has to analyse its competitors’ activities. Information about competitors must be analysed with respect to their product designs, pricing, promotion, distribution, etc. Such analysis will enable the firm to design effective marketing – mix.

3) The Suppliers :
Suppliers include those who supply inputs like raw materials, and components to the organization. An organization can’t function without a smooth supply of its stocks and raw materials. Therefore, it becomes essentials to ensure a good relationship with its
suppliers to get quality goods at the right price and at right time.

4) Society :
The society may also affect company’s decisions. The society can either facilitate or make it difficult for a company to achieve its objectives. Business has not only to earn profits but also to serve the society. Society consists of general public, media, government, financial institutions and organised group. Like trade unions, shareholders associations etc. Society directly influences the decisions of a business.

B) Macro Environment :
The macro environment consists of the larger factors that affect the day to day functioning of a firm. It relates to demographic, economic, natural, technological, political, cultural, international and legal factors. Factors of macro environment :

1) Economic Environment :
Economic environment is one components of total business environment. It is the outcome of economic policies. Economic events within and outside the country also affect economic environment.

2) Political Environment :
Political environment refers to the situation created by political factors and forces. It suggests the influence exerted by the three political institutions i.e., legislature, executive and judiciary, in shaping, directing, developing and controlling business activities.

3) Legal Environment :
The legal environment is comparatively new component of total business environment. Legal environment is the net result of various laws, rules, procedures and regulations made by the government in regard to the formation and operations of business enterprises.

4) Financial Environment :
Now-a-days, financial environment greatly influences the working of the firm. For example, poor financial climate in the country dampens the spirit of stock markets. Therefore, corporate firms find it difficult to raise funds from the primary market. The non- availability of right funds affects the growth prospects of corporate firms.

6) Write a note on Educational Environment.

Answer : Education is not stuffing mind with information but to make people enlightened, creative and honest. Education brings flexibility in life and we agree to disagree. Education prepares us to face the challenges of tomorrow and work in the direction to make this world a better place to live in. Education has bridged the gap between people and nations. It is also an important part of Business Environment.

The educational environment like business environment is fast changing throughout the world. Now, it is necessary to redefine and restructure education system particularly higher education so as to make it competitive, effective and market friendly.

According to the census of 2011, “every person above the age of 7 years who can read and write in any one language is said to be literate”.


1) Quality of education :
There is an urgent need to redefine policies and priorities in education, much importance need to be given to improve the quality of education at all levels i.e. right from primary to the professional education.

2) Role of private sector :
Considering the financial crunch, the government should gradually withdraw from higher education and allow professionally managed private institutions to take up the job of providing higher education. However, the government must monitor and supervise the working of private institutions to protect interest of the learners. It leads to improve quality of education.

3) Reduction in subsidy :
Subsidy on higher education is to be reduced gradually. This is because higher education benefits only a small percentage of population. The money saved by reducing subsidy on higher education can be effectively utilized for primary education.

7) What are the measures to improve educational standards in India.

Answer : The educational environment like business environment is fast changing throughout the world. Now, it is necessary to redefine and restructure education system particularly higher education so as to make it competitive, effective and market friendly.

The following measures are suggested to improve education in order to face the challenges of business, globalization and the society.

1) Training to Teachers :
Teachers must be trained on a regular basis. Teachers should develop new skills to impart education. They need to be student oriented i.e. they should understand the students well and accordingly train and assess them. The teacher should have the right concern and attitude towards the students. Teacher should develop new skills by attending orientation and refresher programmes.

2) Learning methods :
New learning techniques like individualized instructions, group discussion, case study, brain storming sessions, seminars, paper presentation should be incorporated to make courses effective and practical.

3) Revision of curriculum :
Proper steps should be taken to revise curriculum knowledgeable persons should be included in the syllabus framing committee. Assistance must also be taken from the industry at the time of course revision. The revision must take place on regular basis, say in every three years. Also examination reforms to be introduced.

4) Social and Cultural Development :
The education system must bring social development in the society. It must contribute to character building. Otherwise, education at whatever cost is meaningless. Therefore education should be socially and culturally oriented.

5) Relation between industries and institutions :
Business or management schools have to play constructive role in developing managerial talent with competitive skills. There must be an relation between educational institutions and industry.

8) Explain the impact of education on business.

Answer : Education is not stuffing mind with information but to make people enlightened, creative and honest. Education brings flexibility in life and we agree to disagree. Education prepares us to face the challenges of tomorrow and work in the direction to make this world a better place to live in. Education has bridged the gap between people and nations.

1) Rise of professionalism :
Now-a-days, there has been a good deal of arguments in favour of developing professional managers in India. Advanced education, managerial competence, commitment to national objectives and concern for workers and society are cited as qualities of a professional manager. The shift from owners management to professional management has come to stay in India. Managing a large business today needs educated personnel’s.

2) Technical Knowledge :
Education enable managers to become technology friendly in using computers, e-mail, internet, palm top and so on. Business is always information based. The use of advance technology helps managers to work out result oriented decisions.

3) Work culture :
Work culture means devotion and dedication to work. It ensures commitment and sincerity in work. The basic purpose is to use available capacity both physical and mental to the fullest extent. Education and training communicates to the workers the message of work is worship and dignity of labour.

4) Creativity :
Business provide ample opportunities to display individual creativity. One need not do what others have done in the past. Top management gives many chances to the managers to use their innovative and creative ideas and plans and bring success to the business. Education facilitates use of creative talents.

5) Optimum Utilisation of Resources :
By appointing professionally qualified managers business ensures that there is optimum utilization of resources both human and physical. Wastages of all types are either eliminated or minimized. This results into progress and prosperity of the business.

9) Evaluate the impact of business on education.

Answer : The educational environment like business environment is fast changing throughout the world. Now, it is necessary to redefine and restructure education system particularly higher education so as to make it competitive, effective and market friendly. Following are the impact of business on education.

1) Need for different courses :
Business has grown manifold. Different functions have to be performed day in and day out. This requires people possessing various skills. For imparting these skills new courses have to be started. So growth of business has necessitated the need for different courses by education institutions.

2) Practical knowledge :
Now a days many educational organizations invite people from the industry as faculty members as they have practical knowledge about functioning of the business enterprises. This helps students to get practical insight to the subject and makes them better equipped to face the market realities.

3) Dominance of private sector :
The economic reform gives birth to privatization. Importance to private sector is a global phenomenon. Private sector can take only those educated youth who have been trained to meet the challenges of this business.

4) Specialisation :
Specialisation is the need of the business. A specialist is a person who knows too little of a little thing. Education provides talented specialists by coaching them in specific areas of business like finance, marketing, production, R & D and so on.

5) Information revolution :
The widespread use of computers has made information only a click away. Data bank has become extremely popular where information is collected, stored and made available on demand. Education has to meet this need.


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