Sec A:

Significance of business environment

Ans:
Significance of Business Environment

 First Mover Advantage:

Awareness of environment helps an enterprise to take advantage of early opportunities
instead of losing them to competitors.
E.g. Maruti Udyog became leader in small car

 Early Warning Signal:

Environmental awareness serves as an early warning signal. It makes a firm aware of

the future threats or crisis so that the firm can take timely action to minimize the adverse
effects.

 Customer Focus:

Environmental understanding makes the management sensitive to the changing needs

and expectations of the consumers.
E.g. Apps in mobile

 Strategy Formulation:

Environmental monitoring provides relevant information about the business opportunities

on the basis of which firms makes their strategies.
e.g. ITC in travel and tourism sector

 Public Image:

A business firm can improve its image by showing that it is sensitive to its environment
and responsive as per the need of customers.

 Continuous Learning:

Environmental analysis serves as broad and ongoing education for business executive
so that they can react in an appropriate manner to the changing scenario and thereby
increase the success of their organization.

Types of business environment

Internal Environment
 1. Financial Resources
2. Physical and human
3. Objectives of Business
4. Work Environment
5. Corporate Image
6. Labour management Relationship
7. Technological Capabilities

External Environment
1. Macro Environment Resources
2. Micro Environment

Internal Environment:
Internal environment refers to factors existing within a business firm. These factors are generally
regarded as controllable factors because the company has control over these factors.

1. Financial Factors: Factors like financial policies, financial procedures and capital
structure are also important internal environment affecting business performance,
strategies and decisions.
2. Physical and Human Resources: The characteristics of the human resources like skill,
quality, moral, commitment etc., contribute to the strength and weakness of an
organization.

3. Objectives of Business: The business domain of the company, direction of development,

business policy etc., are guided by the objectives of the company

4. Work Environment: The organizational structure, company policies, extent of

professionalism in management etc., are important factors influencing business
decisions.

5. Company Image and Brand: The image of the company matters while raising finance,
forming joint ventures, entering purchase or sales contract etc.

6. Labour Management Relationship: Factors like the amount of support top management
enjoys from different level of employees, and other participants influences company
decisions and their implementations.

7. R&D and Technological Capabilities: It determines a company’s ability to innovate and

compete.
External Environment

The external environment refers to the factors existing outside the business firm. The external
factors are beyond the control of a company; hence its success depends to the adaptability of
the environment.

Again external environment is divided in two parts:

1. Micro Environment
2. Macro Environment

Micro Environment: The factors which are close to the company and affects its ability to work
constitutes micro environment. It is known as the operating environment of business.
When competing form in the industry have the same micro elements, the success of the firm
depends on their relative effectiveness in dealing with these elements.

1. Suppliers: Suppliers are those who supply the inputs like raw material and components
to the company. Uncertainties regarding the supply constraints the company to maintain
high inventories causing cost increase.

2. Customers: Success of any business depends upon identifying customers, their needs,
likes etc., and enhancing the level of customer satisfaction. The major task of a business
is to create and sustain customers.

3. Competitors: Competitors mans other business units which are marketing or producing
similar products or a very close substitute of our product. Business has to adjust its
various activities according to the action and reactions of competitors.

4. Marketing Intermediaries: These are the firms that aid the company in promoting , selling
and distributing its goods to final buyers. They are the vital links between the company
and the final consumers.

5. Public: A public is any group that has an actual or potential interest in or impact on an
organization's ability to achieve its interest. Some companies are seriously affected by
such public. E.g. Media

Macro Environment
Macro environment means general environment of business. Macro forces are uncontrollable in
comparison to the micro forces of environment. The growth and survival of business depends
upon its adaptability to macro environmental factors.
The important macro environment are:

1. Economic Environment
2. Non-Economic Environment

Economic Environment:

To know the economic environment of a country or a business one has to understand the
economic policies of the nation. These policies put direct impact on the working and success of
the business. Economic conditions, economic policies (Industrial policies, monetary and fiscal
policy etc) and the economic system are the important factors that constitute economic
environment of the business.

Non-Economic Environment Socio cultural Environment:

The socio-cultural environmental factors consist of human relationship and the development.
Some of the important factors in the social environment are the buying and consumption habit of
people, their languages, beliefs and values, custom and traditions, etc that effeccts the
business.

1. Legal Environment: Every country follows its own system of law. The companies
operating in the global market have to take into account the provisions with rspect to the
legal environment prevalent in the countries which thy do business. These law and
regulations affect the day-to-day operations of business.

2. International Environment: The international environment is particularly important for

industries directly depending on imports or exports. E.g. Import export policies of various
countries.
3. Political Environment: The political environment consists of factors related to the
management of public affairs that have a considerable impact on the business of an
organization. It impacts the legislations and government rules and regulations under
which business organizations operates in a country.
4. Technological Environment: Technological environment comprises both machines (hard
technology) and scientific thinking (soft technology) used to solve problems and promote
progress. It also represents the degree of advancement of goods and services that are
prevalent in a country or a region.
5. Natural Environment: Geographical factors such as natural resources endowments,
6. weather and climatic conditions, location aspects in the global context, port facilities etc.,
are all relevant to business.
What is environmental scanning
The word scanning means to look carefully into or to examine. The term Environmental
Scanning in business means to “Carefully analyze the various factors influencing the business”.
Environmental Scanning is a continuous process. It is a process by which the organizations
monitor their relevant environment to identify opportunities and threats affecting their business.
According to B.W.Denning “The advocates of systematic corporate planning (strategic
management process) base their case on the view that the determination of the future can be
improved by a systematic analytical approach which reviews the business as a
whole in relation to the environment.” Need of Environment Scanning Effective Utilization of
Resources. The key to business success is the most effective utilization of resources.
Companies which fails to do so are doomed to failure.

Sec B:

Evolution of market economy in Indian context.

The evolution of the market economy in India has been a dynamic process influenced by
various economic policies and historical events. Here's a brief overview of its evolution:

1. Pre-Independence Era: India had a predominantly agrarian economy under British

colonial rule. The economy was characterized by land-based revenue collection and
limited industrialization. The market economy, as we know it today, was in its nascent
stage.

2. Post-Independence and Mixed Economy: After gaining independence in 1947, India

adopted a mixed economy approach, combining elements of both socialism and
capitalism. The government played a dominant role in various sectors, including heavy
industries and infrastructure development. This period witnessed the establishment of
public sector enterprises.

3. Economic Reforms of 1991: The significant turning point in India's economic evolution
came in 1991 when the country faced a severe economic crisis. The government
introduced a series of economic reforms known as the LPG (Liberalization, Privatization,
and Globalization) policies. These reforms aimed to liberalize various sectors, reduce
government intervention, and open up the Indian economy to global markets. This
marked the beginning of India's transition toward a more market-oriented economy.

4. Liberalization and Privatization: The liberalization policies removed many trade barriers,
reduced industrial licensing, and encouraged foreign direct investment (FDI).
 Privatization initiatives led to the sale of government-owned enterprises to the private
sector, promoting competition and efficiency.

5. Globalization: India's integration into the global economy accelerated with increased
trade, technological advancements, and the growth of the services sector, particularly
information technology (IT) and business process outsourcing (BPO). This globalization
brought foreign investments and exposure to international markets.

6. Economic Growth: India experienced significant economic growth in the decades

following the economic reforms. Sectors such as IT, telecommunications,
pharmaceuticals, and services contributed substantially to this growth. The market
economy expanded as entrepreneurship and private enterprise flourished.

What are the features of planned economy.

A planned economy, also known as a command economy, is characterized by central

government control over economic activities. Here are the key features of a planned economy:

1. Centralized Economic Planning: In a planned economy, the government or a central

planning authority makes decisions regarding production, allocation of resources, and
distribution of goods and services. Centralized planning aims to achieve specific
economic goals set by the government.

2. Government Ownership: The government typically owns and controls the means of
production, including industries, factories, and agricultural land. Private ownership is
limited, and the government often dictates what to produce, how much to produce, and
at what price.

3. Allocation of Resources: Resources such as labor, capital, and raw materials are
allocated based on a predetermined plan rather than market forces like supply and
demand. The government decides how resources are utilized.

4. Fixed Prices: In a planned economy, prices of goods and services are often fixed or
controlled by the government. This is done to ensure affordability and equitable
distribution of essential items.

5. Limited Consumer Choice: Consumer choice is limited because the government decides
what products and services are produced and made available. Variety may be limited
compared to a market economy.

6. Employment Stability: Planned economies often prioritize full employment, with the
government acting as the primary employer. Employment stability is maintained, but job
mobility and career choices may be restricted.
7. Lack of Competition: Competition among businesses is limited or non-existent in a
planned economy, as the government usually holds a monopoly or tightly controls key
industries.

8. Social Welfare Focus: Planned economies often emphasize social welfare programs,
including healthcare, education, and housing, to ensure that citizens' basic needs are
met.