Business Environment Class 12 Notes CBSE Business Studies Chapter 3 (Free PDF Download)

Meaning of Business Environment

Business environment refers to all the factors that are outside the control of the business enterprise but may equally affect the performance of the business. The social, political, economic, technological factors that operate outside a business forms a part of the business environment.

Features of Business Environment

• Totality of External Forces: Includes every external or outside force that could impact a business organisation such as government, competitors, etc.

• Specific and General Forces: Particular factors are those that have a direct impact on a single corporate organisation. General forces are those that have a direct impact on the broader industry yet have an indirect impact on a firm.

• Inter-Relatedness: Changes in general forces may have an impact on particular forces. A change in government (a political power, for example) may result in a change in tax rates or import-export rates (an economic force)

• Dynamic Nature: The external forces keep changing due to constant change in technology, consumer preferences, availability of different types of raw material etc.

• Uncertainty: Constant changes in environment makes it difficult to predict changes in the external environment.

• Complexity: The interrelated and dynamic nature of external forces makes it difficult to prepare one single strategy to handle all the changes.

• Relativity: The impact of changes depends on business to business country to country region to region etc.

Importance of Business Environment

• Identification of Opportunities: It enables the firm to identify opportunities and get the first mover advantage. The positive external changes provide opportunities to a business organisation to improve its performance.

• Identifying Threat: It helps the firm to identify threats and provide early warning signals. Adverse changes in the external factors act as ‘threats’ to the business which hinders performance. Early identification of threats helps managers to make strategies to convert threats into opportunities.

• Tapping Useful Resources: Business utilizes the resources of the external environment as inputs like finance, labour etc., and supplies its output to the environment in the form of goods and services, taxes, etc.

• Coping with Rapid Changes: The business environment is extremely dynamic so the managers need to develop strategies not only to cope with the changes but also to use them as their strengths to improve their market shares.

• Planning and Policy Formulation: Clear understanding and analysis of the business environment help businesses to formulate its future plans and strategies to cope with all the external changes.

• Improves Performance: The continuous monitoring of the business environment and changing business practices from traditional methods help business in improving their present performance and also continue to retain its market position in the long run.

Dimensions in Business Environment

• Economic Environment: It refers to all those factors and forces that have an economic impact on the business activities. Key economic factors include inflation, money supply, price level, etc. For example, increase in inflation rates result in fall in disposable incomes and as a result the demand for products falls.

• Social Environment: The social environment represents the society's conventions and traditions, values, culture, social trends, beliefs, and ethics in which businesses operate. Businesses, for example, are increasingly worried about the quality of things they offer as consumers become more conscious of their rights.

• Political Environment: It includes political stability such as political leadership, political stability, practices of the ruling party, etc. For example, change in government, or unstable government.

• Legal Environment: It includes all the legislations passed, administrative orders issued, court judgements or decisions taken by government or its related offices. For example, all cigarette packets must carry a warning ‘smoking is injurious to health’.

• Technological Environment: It consists of forces relating to scientific improvements and innovations, which lead to better production techniques and methods to produce goods. For example, shift from books to e-books, telephones to touch screen mobile phones. 

Economic Environment In India

The Indian economic environment consists of various factors that impact the means of production and distribution of wealth. 

Some of the factors are:

• Economic development stages of the country.

• The economic structure of the country; Mixed economy structure.

• Economic policies such as fiscal and monetary policies of the government.

• Government’s economic planning for the country in terms of five year plans etc.

• Economic indices of the country such as growth rate, national income, balance of payment, savings and investment rate etc.

• Infrastructural facilities of the country such as health, communication, transportation etc.

Objectives of India's Development Plans

• To raise the standard of living by reducing unemployment and poverty.

• To set up a strong industrial base with emphasis on heavy and basic industries.

• Self-Reliance.

• Reduction in wealth and income inequalities.

• Prevent exploitation and adopt a socialist pattern of development.

New Industrial Policy 1991

Due to economic problems like high government deficit, foreign exchange crisis and rising prices, the Government of India developed the new industrial policy with an aim to overcome the economic problems.

Features:

• Industries under compulsory licensing were brought down to six by the government.

• Dereservation of industries was done and the role of the public sector was limited only to four industries.

• Disinvestment was carried out for many public sector industries.

• Foreign capital policy was liberalised. 

• FDI upto 100% was permitted for many sectors.

• Automatic grants were given for technology agreements with foreign countries.

• Foreign Investment Promotion Board (FIPB) was set up to promote foreign investment in India.

Liberalisation

It is a reform which was introduced to remove unnecessary controls, licensing and government restrictions in an economy. This marked the end of license raj in India. 

The main objectives of introducing liberalisation were:

• To restrict licensing requirements to only a few core industries.

• To remove all restrictions related to scale of operation expansion or contraction of business activities.

• To remove restrictions on the movement of goods and services.

• To provide freedom to fix prices.

• To reduce tax rates and remove unnecessary control.

• Twinkle import of foreign capital and technology.

• To simplify the procedures of import and export.

Privatisation

It refers to the transfer of development responsibilities from the state to the private sector. Private sector enterprises are those in which the government owns less than 51 percent of the company.

 Objectives:

• To introduce plant disinvestment of the public sector. 

• Dilute the ownership stake in public sector companies to less than 51%.

• Establishment of the Board of Industrial and Financial Reconstruction to evaluate the loss making and sick enterprises. 

• Disinvestment, that means to transfer the ownership from the public sector to the private sector.

Globalisation

Globalisation entails making it possible for the world's diverse economies to participate in the creation of a global economy. This was done to facilitate the free movement of imports and exports around the world.

Globalisation promoted fast technological progress since geographical barriers were no longer an impediment.

Demonetization

• The term demonetisation means to invalidate all the currency notes of a particular denomination by the government of a country. 

• The Indian Government demonetised the two largest denomination notes of Rs 500 and Rs 1000 on 8th November, 2016. 

• The aim of this move was to curb corruption and illegal activities and stop hoarding of black money.

Features of Demonetisation

• After demonetisation, cash is deposited into banks for exchanging with new notes which makes the payment of tax compulsory with penalty rate.

• Government introduced demonetisation to reduce tax evasion.

• Demonetisation reduces the cash transactions in the economy which means more savings through the financial system and improving tax payment system.

• Demonetisation facilitates tax administration, and pave way for a cashless economy

Impact of Demonetisation

Impact of Government Policy Changes on Business and Industry

The LPG reforms brought about a significant impact on Indian business and industry. The challenges are:

• Increased competition: Increase in the number of Indian firms and entry of foreign companies increased competition especially in the service industry.

• More demanding customers: Increase in the number of enterprises gives consumers wider choice of products leading to rise in expectations and demands.

• Rapidly changing technological environment: Fast changing technology requires companies to install the latest machinery, adopt latest techniques of production leading to an increase in investments in the business.

• Necessity for change: With change in government policies business had to modify their policies and practices, invest in research and development, innovation etc.

• Need for developing human resource: With change in technology business enterprises need to educate and train their staff so that they are competent to handle changes.

• Market orientation: With increased awareness among consumers business enterprises had to shift the product oriented operations to market oriented operations.

• Loss of budgetary support to the public sector: Public sector had to run in competition with the private sector. Therefore, they had to organise their own resources and functions efficiently.

Class 12 Business Studies Chapter 3 Revision Notes: Free PDF Download

What is the Meaning of Business Environment?

The business environment refers to the individuals, institutions, and various other elements that has an impact on business performance but cannot be controlled by the business enterprise. As per class 12 business studies chapter 3 revision notes, the technological, economic, social and political forces are also a part of the business environment. 

The class 12 business studies chapter 3 revision notes also mention that besides the awareness about external forces it is also important for the businesses to be dynamic. The reason for this is dynamic businesses can easily adapt to business environmental change, and on the basis of these changes they can also formulate plans.

Highlights of Class 12 Business Studies Business Environment Revision Notes

• Meaning of business environment

• Features of the business environment

• Importance of business environment

• The dimension of the business environment

• The economic environment in India

• Branches of new economic policy

• Impact of government policy changes of business and industry

Why Business Environment is Important?

The importance of a business environment is clearly stated in the revision notes class 12 business studies chapter 3. Following are the main points of the notes at a glance. 

• The business environment helps the firm in the identification of opportunities. These opportunities are exploited by business firms to the advantages of the company. It is the opportunity that helps businesses to grow. 

• It is also the environment that opens the door for businesses to collect various resources that are useful for the business. The understanding of the business environment allows the firms to formulate policies that will produce a beneficial outcome.

• Lastly, the business environment helps the business to identify potential threats and serve warning signals. There are numerous companies that have altered their business approach to understand the rising competition in the market. If you want to know more about importance go through the class 12 notes Business Environment. 

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CBSE Class 12 Revision Notes and Key Points

CBSE Class 12 Revision Notes on Business Studies may help students revise the complete syllabus before exams. The revision notes contain all of the chapter's main formulae and topics. After finishing reading each chapter from the textbook, students can refer to these revision notes to complete the preparation for the exam. If you want to have a quick revision of the chapters just before the stressful exam days, revision notes will surely help you save a lot of time.

You can also download the other chapters' revision notes of CBSE Class 12 Business Studies available in free pdf format from our website. 

Conclusion

Students are advised to have an in-depth knowledge of each concept to secure high marks in the exam. As Chapter 3 Business Environment is an important chapter for Class 12, Revision Notes on Chapter 3 will help you clear your doubts during the last-minute revision before the exam. You can also check out the important questions and NCERT Solutions of Chapter 3 of Class 12 Business Studies from our website.

Other Chapter Links On CBSE Class 12 Business Studies Revision Notes

• Chapter 1 - Nature and Significance of Management Notes

• Chapter 2 - Principles of Management Notes

• Chapter 3 - Business Environment Notes

• Chapter 4 - Planning Notes

• Chapter 5 - Organising Notes

• Chapter 6 - Staffing Notes

• Chapter 7 - Directing Notes

• Chapter 8 - Controlling Notes

• Chapter 9 - Financial Management Notes

• Chapter 10 - Financial Markets Notes

• Chapter 11 - Marketing Notes

• Chapter 12 - Consumer Protection Notes

• Chapter 13 - Entrepreneurship Development Notes