Summary and Notes of Ch 3 Business Environment| Class 12th Business Studies 

Meaning of business environment

The term business environment means the sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance.

Characteristics of Business Environment

• Totality of external forces: It is sum total of all those factors/forces which are available outside the business and over which the business has no control.

• Specific and General Forces- specific forces affect the firms of an industry separately for example suppliers, competitive firms, investors etc and general forces affect all the firms of an industry equally, for example, social, political and technical situation.

• Interrelatedness- The different factors of business environment are co- related. A change in one factor affects the other factor.

• Dynamic Nature- Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market.

• Uncertainty- Business environment is largely uncertain as it is very difficult to predict future happenings.

• Complexity- Environment comprises of many factors and individual effort cannot be recognise easily.

• Relatively- Business environment is a relative concept since it differs from country to country and even region to region.

Importance of Business Environment

• It enables the firms to identify opportunities and getting the first mover advantage.
• It helps the firm to identify threats and early warning signals.
• It helps in tapping useful resources.
• It helps in coping with rapid changes.
• It helps in assisting in planning and policy formulation.
• It helps in improving performance.

Dimensions of Business Environment

Dimensions of business environment have the following important factors:

• Economic Environment
• Political  Environment
• Social Environment
• Legal Regulatory Environment
• Technological Environment

• Economic Environment:  It refers to the combination of economic systems, economic policies, and economic conditions of a country.

• Political Environment: It refers to political conditions in the country and attitude of the government towards business.

• Social Environment: It refers to the combination of all the characteristics of the society in which the organisation exists.

• Technological Environment: Technological Environment consists of innovations of new techniques to produce goods and services and operating the new business.

• Legal Regulatory Environment: It refers the some total of all the act passed by the government judgements of the courts, and decisions rendered by various commissions and agencies in the country.

Economic Environment in India


Liberalisation means to unshackle the economy from bureaucratic cobweb to make it more competitive.
Following are its chief features:
• Abolishing licensing requirement in most of the industries except some.
• Freedom in deciding the scale of business activities.
• Removal of restrictions on the movement of goods and services.
• Freedom in fixing the prices of goods and services.
• Reduction in tax rate.
• Simplifying import-export procedure.
• Simplifying the process of attracting foreign capital and technology.


It refers to such an economic process through which some public sector undertakings are bought either partially or completely under private ownership.
Following are its chief features:
• Reducing the role of public sector and increasing the role of private sector.
• Reducing fiscal burden of the government.
• Reducing the size of the government machinery.
• Speeding up economic development.
• Improving management of enterprises.
• Increase in government treasury.


Globalisation means integrating the economy with the rest of the world.
Following are its chief features:
• Free flow of goods and services, capital, information and technology, movement of people in all the countries.
• The same conflict solving technique in all countries.


Demonetisation means restrictions were placed on the convertibility of domestic money and bank deposits.
Following are its chief features:
• Demonetisation is viewed as a tax administration measure.
• Tax evasion will no longer be tolerated or accepted.
• Create less-cash or cash- lite economy.

Impact of government policy changes on business and industry

The Indian Corporate sector has come face to face with several challenges due to government policy changes. Some important points in this respect of the following:

• Increasing competition.
• More Demanding Customers.
• Rapidly Changing Technological environment.
• Necessity for change.
• Need for Developing Human Resources.
• Market orientation.
• Loss of Budgetary Support to the public sector.

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