Chapter – 3 Business Environment (2+ 5 = 7 Marks)

What is meant by “business environment”? – 2 marks

Business environment means forces and institutions which the members of a firm must deal with in order to achieve the objectives of the organization.

Forces include politic, economic, social, technological, etc (PEST) and Institutions include (competitors, customers, suppliers, etc)

The environment provides both constraints and opportunities. Discuss with examples

• An environment provides constraints (restrictions), which could be in the form of economic conditions, customs, government regulations, availability of natural resources, labour supply.
  Example: Despite many initiatives, foreign direct investment in India is not picking up in the country because of political and bureaucratic reasons.
• On the other hand, environment also provides the firms numerous opportunities in the form of unmet and changing needs of the customer and market.
  Example: the growing demand for air conditioners has attracted many new domestic as well as multinational firms in the industry

What is meant by environment scanning? – 2 marks

• Environment scanning is a process by which organizations monitor their relevant environment so that they can consider the impact different events, trends, issues, expectations have on its strategic management process.
• Example – in the Union Carbide gas leakage incident in Bhopal in Dec-1984,
  The accident and the holocaust that resulted, was an “event”
  The consciousness on the part of the Regulatory Authorities regarding the safety from hazardous exposure to chemicals, was the “trend”
  The rising concern about environmental pollution was the “issue”
  “expectations” of the public from the government was to amend the laws to include safety measures and stricter enforcement through various mechanisms.

Briefly discuss two dimensions of general environment? Classify business environment in two major categories and give one example of each? – 2 marks

The two dimensions of general environment are:

Economic environment : includes fiscal, monetary and industrial policies, etc

Non economic environment : includes social, cultural, political, legal, technological factors, etc

Explain economic environment? – 2 marks

Economic environment consists of (BIG PICCED)

• Balance of payment
• Inflation rate
• Gross national product (GNP)
• Productivity
• Interest rate
• Consumer Income
• Corporate Profit
• Employment rates
• Debt & Spending