Notes Chapter 3. Business Environment - Important points | Class 12 Business studies - Toppers Study

Notes Chapter 3. Business Environment - Important points | Class 12 Business studies - Toppers Study

CHAPTER – 3

BUSINESS ENVIRONMENT

Business environment - Business environment is the surroundings in which business exists. In other words Business environment means the total sum of the factors which effect the business and Business man has to deal with to achieve its objectives.

FEATURES OF BUSINESS ENVIRONMENT

1. Totality of external forces - Business environment includes all the external forces or factors which directly or indirectly effect the business. 

2. Specific and general forces - Business environment includes both specific and general forces. Specific forces effect business directly while general forces effect a business indirectly. 

3. Inter-related - All the factors of a business environment are inter related to each other. For example, increased awareness of health care has raised the demand for organic food and roasted snacks.

4. Dynamic - Business environment is dynamic in nature which keeps on changing with the change in technology, consumer’s fashion and tastes etc. 
5. Uncertainty - Business environment is uncertain so it is difficult to predict the future environmental changes and their impact.

6. Complex - business environment is complex. It is very difficult know how the business environment effects the business and business decisions. it is easy to understand in parts separately but it is difficult to understand in totaliy.

7. Relativity - Business environment is a relative concept whose impact differs from country to country and firm to firm. For example, finding pesticites in cold drinks, resulted decrease in sale of cold drinks annd increased in sale of juices.

IMPORTANCE OF BUSINESS ENVIRONMENT

1. It helps in Identification of opportunities to get first mover advantage -  Understanding of business environment helps an organisation in identifying useful opportunities and helps to getting their benefits or maximum profit prior to competitors.

2. It helps in Identification of threats - Correct knowledge of business environment helps an organisation to identify threats on time which may effect the business badly. 

3. It helps in Tapping useful resources - All the business need resources for running a business. like as capital, labour, machines, raw material etc. we get these resources from our environment. so it is essential to monitor business environment timely.

4. It helps in Coping with Rapid changes - Continuous study of business environment helps in knowing the changes which are taking place fastly in business environment. 

5. It helps in Assistance in planning and policy formulation -  Understanding and analysis of business environment helps in making plans & policies. All the plans and policies are formed by keeping in mind business environment.   

6. It helps in Helps in Improving performance - Correct analysis and continuous monitoring of business environment helps an organisation in improving its performance.

DIMENSIONS/COMPONENTS OF BUSINESS ENVIRONMENT

1. Economic Environment:

(i) It has immediate and direct economic effect on a business.

(ii) Rate of interest, inflation rate, change in the income of
people, monetary policy, price level etc. are some economic factors which
could affect business organisations.

(iii) Economic environment may offer many opportunities to a business.

2. Social Environment:

(i) All business exist in the society. so It has direct effect on a business. 

(ii) It includes various social factos like taste, preferences, customs etc. 

(iii) Changes in social environment effect an organisation for long time. for example, health and fittness trends create demand for diet food, gyms.