CBSE Class XII Business Studies Fundamental Concepts

Chapter 3

Business Environment

Meaning of business environment and its categories

What is business environment? 2 marks

Environment of a business means the external forces influencing the business decisions. They can be forces of economic, social, political and technological factors. These factors are outside the control of the business. The business can do little to change them. Every business decision is taken on the basis of environment. Companies that fail to understand environment cannot survive.

What is Economic and non- economic environment?

Business environment can be classified into two major categories; the economic environment and the non economic environment. The economic environment consists of factors like fiscal policy, the monetary policy, the industrial policy, nature of the economic system, the pace of the economic development etc. Non economic environment refers to social, cultural, political, legal and technological factors.

“Environment provides with constraints and opportunities”. Discuss with help of an example. 3 marks

The environment consists of constraints and opportunities. Constraints such as economic conditions, customs, government regulations, scarcity of natural resources, labour supply etc. restricts development of business in a country. For example, foreign direct investment in India is not picking up the way we expected due political and bureaucratic constraints.

Environment offers various opportunities to a business. Large demand for products and changing trends and needs are opportunities for a business. For example, economic development and changing trends have created large demand for consumer electronics and luxury goods in India. There are several Indian and foreign companies competing for the market share in the attractive Indian consumer goods industry.

Importance / benefits of understanding business environment

Define environment scanning. 2 marks

Environment scanning means a process by which organizations monitor their relevant environment to identify opportunities and threats affecting their business. By monitoring the environment through environment scanning an organization can consider the impact of the different events and trends in the business activities. Opportunities and threats are identified by environment scanning and the business decisions are based on the information obtained.