Business Studies I Chapter 3 Business Environment

Business environment means the sum total of those factors which influence the business and over which the business has no control.

The importance of business environment is highlighted by the following facts:

(i) First Mover Advantage: The study of business environment enables us to know about the opportunities available. A company which is more conscious about the changes taking place in the business environment is the first mover. It takes advantage of it by becoming the first supplier.

(ii) Warning Signal: Along with the availability of opportunities provided by the study of business environment, we also come to know about the threats accompanying them. If the knowledge about the threats is available in time, efforts can easily be made to face or surmount them. This is possible only by regularly studying the changes taking place in the business environment.

(iii) Tapping Useful Resources: An organisation needs a member of resources to carry on its business (e.g. material machine, man, money etc.). With the help of these resources goods and services are produced. A business gets resources from the environment and provides goods and services to the same environment. A study of business environment tells a business the requirements of the environment and what can it make available to get its needs fulfilled. Therefore, it is possible to get useful resources from the business environment.

(iv) Coping with Rapid Changes: These days business is being run in a rapidly changing environment. Various factors connected with business, e.g. competition, fashion, number of customers, technology, etc. are changing quickly. Changes do not affect business as much as the rapidity of the changes. It means that if the speed of the change is a little less it can be faced with comparative ease but to face the rapidity of change is a very difficult task. This can be possible only by constant vigil over the business environment and studying it simultaneously.

(v) Assisting in Planning and Policy: The knowledge of the business environment presents the basis for planning and policy. For example, the ITC Hotels decided to establish many new hotels abroad and in India only after a careful study of the business environment. They felt that tourism industry was the biggest industry in the world. Its future was particularly bright in India. The Government also has a special interest in the development of this industry because of many reasons (for example, the receipt of foreign exchange, increase of employment, etc.). The ITC Hotels formulated their future strategy on the basis of this information. In this way, anyone can defeat their competitors by formulating their plans.

Dimensions of business enviornment include economic, social, technological, political and legal conditions.

It refers to unshackle the economy from bureaucratic cobweb to make it more competitive.

It refer to such an economic process through which some public sector undertaking is brought either partially or completely under private ownership.

It refers to integrate the economy with the rest of the world.

The impacts of government policy changes on Business and Industry in India are the following:

(i) Increasing Competition: Today, business is facing all round competition. The competition for Indian companies has increased especially in service industries like: Telecommunication, Airlines, Banking, insurance, etc. Competition has crossed the national boundaries and assumed a global shape. The following are the chief competitors: (a) New and old Indian companies, (b) Multinational Companies, (c) Import. Increasing competition has adversely affected many companies. For example, once a popular Western Coloured Television has lost much ground in the TV market and its contribution to the market is almost negligible.

(ii) More Demanding Customers: As a result of the economic reforms, the customers have complete information about the goods available in the market. Earlier, they used to purchase goods and services without much inquiry because of the lack of information. But these days because of the availability of enough information the area of customers’ demand has increased considerably. Now, they have started buying good quality goods and services.

(iii) Rapidly Changing Technological Environment: Rapid changes are taking place in the technological environment as compared to other factors in respect of business environment. The reason is increase in competition. These days only that particular company can remain steadfast in the market which markets, products of better convenience. This is possible only by using latest technology. Latest technology makes modern machinery and production process available. Big firms are grappling with this environment but for the smaller firms it is an alarm bell.

(iv) Necessity for Change: Before the implementation of economic reforms (before 1991) the businesses were more stable. Policies once laid down used to continue for a long time. However, these days because of the free economic environment the various factors of business environment are undergoing rapid changes. Consequently, the businesses have become unstable and the policies have to be changed quickly.

(v) Need for Developing Human Resource: It is a big challenge to achieve success in business these days. It is not easy for the ordinary employees to face this challenge. It needs a thoroughly accomplished human resource equipped with the latest information. There has been a shortage of trained human resource in India. That is the reason that their demand is now rapidly increasing.

Following are the chief characteristics of the business environment:

(i) Totality of External Forces: Business environment is the sum total of all those factors/forces which are available outside the business and over which the business has no control. It is the group of many such forces, that is why, its nature is of totality.

(ii) Specific and General Forces: The forces present outside the business can be divided into two parts — specific and general.

(a) Specific: They are the forces which affect the firms of an industry separately, e.g., customers, suppliers, competitive firms, investors, etc.

(b) General: They are the forces which affect all the firms of an industry equally, e.g., social, political, legal and technical situations.

(iii) Inter-relatedness: The different factors of business environment are co-related. For example, let us suppose that there is a change in the import-export policy with the coming of a new government. In this case the coming of new government to power and change in the import-export policy are political and economic changes respectively. Thus, a change in one factor affects the other factor.

(iv) Dynamic Nature: As is clear that environment is a mixture of many factors and changes in some or the other factors continue to take place, therefore, it is said that business environment is dynamic.

(1) Economic Environment: Among the various dimensions of business environment, the economic environment has a special significance. Economic environment can be divided into three parts. They are as under:

(i) Economic System: Economic system influences the freedom or openness of business.

(ii) Economic Policies: The economic policies are laid down to direct the economic activities.

(iii) Economic Conditions: Economic Conditions are those conditions which are related with the possibilities of economic development of a country. Businessmen are influenced by these programmes and they start their own programmes like the advertisement policy, discovery of new market, bringing new products in the market, new methods of production, etc.

(2) Political Environment: Political environment is the outcome of a combination of various ideologies advocated by different political parties. Every political party has a different attitude towards business community. A living example of this can be seen during elections in the shape of fluctuations in the share market.

(3) Social Environment: Various social factors e.g., customs, fashions, traditions, wishes, hopes, level of education, population, standard of living of the people, religious values, distribution of income, corruption, family set-up, consumers’ consciousness, etc. influence business in some way or the other.

(4) Legal Regulatory Environment: Many acts are passed from time to time in order to control and regulate business activities. The sum-total of all these Acts creates legal regulatory environment.

(5) Technological Environment: Technological environment includes the discovery of new methods and implements for the production of goods and services. Technological changes make available better methods of production and that makes the optimum use of the raw material possible. The technological changes offer both the possibilities and threats for business.

In every organisation the study of business environment has an important role as far as its performance is concerned. Those organisations which keep a constant eye on it and analyse it correctly definitely win the race and remain alive for a long time. On the other hand, those organisations which do not care about it cannot remain steadfast in the market, are likely to close down. Therefore, it can safely be asserted that an organisation can improve its present as well as future with the help of the study of business environment.

The study of business environment enables us to know about the opportunities available. A company which is more conscious about the changes taking place in the business environment is the first mover. It takes advantage of it by becoming the first supplier. In other words, a company which has the capacity to know the possibilities of the opportunities available can be the greatest beneficiary. For example, the ASIAN PAINTS a leading company of the paint industry, at one stage lagged behind because of technology. This was smartly understood by another company, GOODLASS NEROLAC (GN). In order to exploit this situation, the latter company entered with a contract with a foreign company named KANSAI PAINTS (KP) with the purpose of acquiring latest technology. The KP made available to the GN the Cathodic Electro Deposition (CED) technology. On this very basis, the GN was able to obtain the contract for the entire paint requirements of the MARUTI UDYOG. In this way, the GN earned huge profits by entering the market with the latest technology. It was a first mover advantage of the company.

Features of Business Environment:

1. Dynamic nature: Business environment is dynamic as it keeps on changing in term of technological improvement, change in fashion and taste, entry of new competitors in the market, etc.
2. Uncertainty: Business environment is uncertain as it is very difficult to predict future happenings, especially when environment changes are taking place too frequently e.g. in case of IT and fashion industries.

Customers, Suppliers, Competitors and Investors.

As it is the group of many outside forces, that is why, its nature is of totality.

Because they continue to change quickly.

No, as all the factors of business environment are related to each other.

It means that business environment is related to the local conditions.

Threats refer to the negative changes that occurred in the business environment and hinder the performance of an organisation.

Opportunities refer to the positive changes that occurred in the business environment and help the organisation to improve its performance.

Social, Political, Economic and Legal.

Micro Environment: Micro environment means that environment which includes those factors with which business is closely related. These factors influence every industrial unit differently. These factors are as under:

(i) Customers: Customers of an industrial unit can be of different types. They include household, government industry, commercial enterprises, etc. The number of different types of customers highly influences a firm. For example, a firm supplies goods only to the government. It means that firm has only one customer. If because of some reason their relations get soured, the supply of goods will stop and in that case the closure of that firm is certain. This clearly indicates that the customers do influence business. Therefore, a firm should make efforts to have different kinds of customers.

(ii) Suppliers: Like the customers, the suppliers also influence business. If a business has only one supplier and he gets annoyed because of some reason, the supply of goods can be stopped and the very existence of the business can be threatened or endangered. Hence, efforts should be made to have various suppliers.

(iii) Competitors: The competing firms can influence business in a number of ways. They can do so by bringing new and cheap products in the market or by launching some sale promotion scheme, etc.

(iv) Public: Public has different constituents like the local public, press or media, etc. The attitude or behaviour of these constituents can affect business units. For example, the local population can oppose some established firm whose business is excessively noisy. Similarly, if the media gives some favourable report about a particular company, the price of its share can register an increase on this count.

Internal environment includes all those factors which influence business and which are present within the business itself. These factors are usually under the control of business. The study of internal factors is really important for the study of internal environment. These factors are:

(i) Objectives of Business,

(ii) Policies of Business,

(iii) Production Capacity,

(iv) Production Methods,

(v) Management Information System,

(vi) Participation in Management.

External environment includes all those factors which influence business and exist outside the business. Business has no control over these factors. The information about these factors is important for the study of the external environment. Some of these factors are those with which a particular company has very close relationship, e.g. customers, suppliers, competitors, etc. However, there are some other factors which influence the entire business community, e.g. political environment, economic environment, etc.

Economic System: It is necessary to know about the economic system prevailing in a country in order to understand the economic environment. Economic system influences the freedom or openness of business. Economic system is mainly of three kinds:

(i) Socialistic Economic System: Under this system, business is directed and controlled by the government. In other words, individuals have no freedom to run business,

(ii) Capitalistic Economic System: Under this system, private ownership of business is given importance. Hence, business gets extended.

(iii) Mixed Economic System: Under this system, business is owned both by the government and individuals.

Economic Policies of India: In order to direct the economic activities in India, the following major economic policies have been framed:

(i) Import-export Policy to control import-export in the country.

(ii) Employment policy to make employment available to the people of the country.

(iii) Tax policy to form a structure of direct and the indirect taxes.

(iv) Industrial policy to encourage industrial development in the country.

(v) Public Expenditure Policy in order to control public expenditure.

(vi) Public Debt Policy in order to control public debt.

Business is born and develops in society. Therefore, the effect of various social factors on business is but natural. For example, some years ago the manufacturers of Vanaspati Ghee used to import animal fat for manufacturing Ghee. On the basis of the strong public protests, the government cancelled the import licence of these manufacturers. Similarly, with the news that some cold drinks contain pesticidal element, people protected against it and minimised the consumption of these cold drinks.

Impact of Economic Environment on Business: The following are the chief examples of the impact of economic environment on business:

(i) After reforms were introduced in the banking sector, the bank loans were allowed on easy terms. It also led to better services. It helped really fast development of business.

(ii) The change in the economic environment resulted in the establishment of Leasing Companies, Mutual Funds and Venture Capital Business.

Impact of Legal Regulatory Environment on Business: The following are the examples of the impact of the legal regulatory environment on business:

(i) By removing control on the capital market, a huge amount of capital was collected through various new issues in the primary market.

(ii) By giving relaxation imposed on the Foreign Direct Investment (FDI) and Foreign Exchange, many multinational companies entered in the Indian market. Consequently, there has been a tremendous increase in the foreign exchange reserves in the country.

Political environment of business means the outcome of a combination of various ideologies advocated by different political parties. It includes the factors related to the governmental activities, such as: type of government in existence (single party or coalition government), attitude of government towards different industrial sectors, progress towards the passage of laws, platforms of various political parties, predisposition of candidates running for various posts, efforts by various groups of people for getting maturity in their favour, etc.

Impact of Political Environment on Business: The following are some of the examples of the impact of the political environment on business:

(i) In the year 1977, the Janta Government adopted a stringent attitude towards the multinational companies. As a result of this attitude, the multinational companies like the IBM and the Coca-Cola had to quit India.

(ii) The new government encouraged the multinational companies for investment in India. This led to the opening of the doors of the Indian market for the multinational companies. Consequently, the Coca-cola, entered the Indian market once again.

(iii) It was only because of the political interest that Hyderabad came to be known as Cyberabad. In other words, it came to be recognised as the centre of Information Technology (IT). As a result of it, many I.T. companies came to be established.

The following are the examples of impact of technological environment on business:

(i) With the advent of television in the market, the cinema and the radio industry were adversely affected.

(ii) With the arrival of the photostat machines in the market, the carbon paper industry suffered a set back.

(iii) With the entry of synthetic thread in the market, the cotton cloth industry was badly affected.

It refers to all those external factors which are closely related with business and influence each industrial unit differently.

These are traders and agents.

The economic policies are laid down to direct the economic activities.

After reforms were introduced in the banking sector, the bank loans were allowed on easy terms.

By removing control on the capital market, a huge amount of capital was collected by issuing various new issues in the primary market.

(i) New Industrial Policy (NIP): Under Industrial Policy, keeping in view the priorities of the country and its economic development, the roles of the public and private sectors are clearly decided.

Under the new industrial policy, the industries have been freed to a large extent from the licences and other controls. In order to encourage modernisation, stress has been laid upon the use of high technique. A great reduction has been affected in the role of the public sector.

Efforts have been made to encourage foreign investment. Investment decision by companies has been facilitated by ending restriction imposed by the MRTP Act. Similarly, Foreign Exchange Regulation Act (FERA) has been replaced by Foreign Exchange Management Act (FEMA).

(ii) New Trade Policy: Trade policy means the policy through which the foreign trade is controlled and regulated. As a result of liberalisation, trade policy has undergone tremendous changes. Especially, the foreign trade has been freed from the unnecessary controls. The age old restrictions have been eliminated at one go. Some of the chief characteristics of new trade policy are as follows:

(i) Restrictions on the exports-imports have almost disappeared leaving only a few items.

(ii) Export-import tax on some items has been completely abolished and on some other items, it has been reduced to the minimum level.

(iii) The procedure regarding import-export has been simplified.

(iii) Fiscal Reforms: The government policy regarding the income and expenditure is called fiscal policy. The greatest problem facing the Government of India is that of the fiscal deficits. In the year 1990-91, the fiscal deficit was 8% of the GDP.

In order to handle the problem of fiscal deficit, basic changes were made in the tax system or structure. The following are the major steps taken in this direction:

(a) The rate of the individual and corporate tax has been reduced in order to bring more people in the tax net.

(b) Tax procedure has been simplified.

(c) Heavy reduction in the import duties has been implemented.

(iv) Monetary Reforms: Monetary policy is a sort of control policy through which the central bank controls the supply of money with a view to achieving the objects of the general economic policy. Reforms in this policy are called monetary reforms. The major points with regard to the monetary reforms are given below:

(a) Statutory Liquidity Ratio (SLR) has been lowered.

(b) The banks have been allowed freedom to decide the rate of interest on the amount deposited.

(c) New Standards have been laid down for the income recognition for the banks.

(v) Capital Market Reforms: The market in which securities are sold and bought is known as the capital market. The reforms connected with it are known as capital market reforms. This market is the pivot of the economy of a country. The government has taken the following steps for the development of this market:

(a) Under the Portfolio Investment Scheme, the limit for investment by the NRIs and Foreign Companies in buying the shares and debentures of the Indian companies has been raised. (Portfolio investment scheme means investing in the securities)

(b) In order to control the capital market, the Securities and Exchange Board of India (SEBI) has been constituted.

(c) The restriction in respect of interest on debentures has been lifted. Now, it is decided on the basis of demand and supply.

Some important points of the new industrial policy have been highlighted in the following details:

(i) Abolition of Licensing: Before the advent of the new industrial policy, the Indian industries were operating under strict licensing system. Now, mostly the industries have been freed from the licensing and other restrictions.

(ii) Freedom to Import Technology: The use of high technology has been given prominence in the new industrial policy. Therefore, foreign technique collaboration has been allowed.

(iii) Contraction of Public Sector: A policy of not expanding unprofitable industrial units in the public sector has been adopted. Apart from this policy, the government is following the course of disinvestment in such public sector undertaking. (Selling some share of public sector enterprises to private sector entrepreneurs is called disinvestment. This is a medium of privatisation.)

(iv) Free Entry of Foreign Investment: Many steps have been taken to attract foreign investment:

(a) In the year 1991, 51% of foreign investment in 34 high priority industries was allowed without seeking government permission.

(b) Non-Resident Indians (NRls) were allowed to invest 100% in the Export Houses, Hospitals, Hotels, etc.

(c) Foreign Investment Promotion Board (FIPB) was established with a view to speedily clearing foreign investment proposals.

(d) Restrictions which were previously in operation to regulate dividends repatriation by the foreign investors have been removed. They can now take dividends to their native countries.

(v) MRTPC Restrictions Removed: Monopolies and Restrictive Trade Practices Act has been done away with. Now the companies do not need to seek government permission to issue shares, extend their area of operation, and establish a new unit.

(vi) FERA Restrictions Removed: Foreign Exchange Regulation Act has been replaced by Foreign Exchange Management Act. It regulates the foreign transactions. These transactions have now become simple.

(vii) Increase in the Importance of Role of Small Industries: Efforts have been made to give importance to the role of the small industries in the economic development of the country.
Increasing Competition, More Demanding Customers, Rapidly Changing Technological Environment, Necessity for Change, Need for Developing Human Resource are some of the impacts on Business and Industry.

It refers to the policy through which the foreign trade is regulated.

It refers to the policy of the government connected with the income and expenditure of the country.

It means that the country is spending more than its income.

It refers to the sum total of the financial value of all the produced goods and services during a year in a country.

It means that companies will sell goods at the prices determined by the government.

Under this concept, first of all market is surveyed and then production is undertaken.

(i) Fall in standard of living

(ii) Increase in domestic expenditure

(iii) Increase in the cost of agricultural products.

 (i) Encouragement to country made products

(ii) Development of market for domestic products

(iii) Development of national values.

(A) Tapping useful resources: Environment is the source of all resources a business needs for its operation. It takes natural resources, human resource and financial resource and convert them to goods and services to customers, make payment of taxes to government, return on financial investment to investors and so on. As an organisation is completely dependent on the resources from environment, a manager should have a good understanding about business environment.
(B) Coping with rapid changes: Business environment is increasingly dynamic where changes are taking place in a fast pace. Business, Social, political, economic and technological environment is changing in such a pace that managers must understand and examine the environment thoroughly and develop suitable course of action.

(i) The general principles of management that can be identified is the principle of initiative and principle of Espirit De Corps (write anyone). According to Fayol, Workers should be encouraged to develop and carry out their plans for improvements. Here the company is enhancing individual creativity and thus encouraging initiative. In the same way through teamwork and by honouring mutual trust and respect, they are following the principle of Espirit De Corps.

The dimensions of business environment are legal environment, social environment and cultural environment.

(ii) Values, conveying are:
(a) Respect for law
(b) Cleanliness and hygiene
(c) Raising standard of living and
(d) Secularism.

Political environment includes political conditions such as general stability and peace in the country and the attitude of elected government towards business.  

Understanding of business environment is important for managers because,
(i) It helps the firm to identify opportunities and get the first mover advantage: The ability to identifying the external opportunities early and to make the first move, makes an organisation the market leader. Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors and become the market follower.
(ii) It helps the firm to identify threats and early warning signals: Business environment is prone to numerous threats. Environmental awareness can help managers to identify various threats on time and serve as an early warning signal.
(iii) It helps in tapping useful resources: Environment is the source of all resources a business needs for its operation. It takes natural resources, human resource and financial resource and convert them to goods and services to customers, make payment of taxes to government, return on financial investment to investors and so on. As an organisation is completely dependent on the resources from environment, a manager should have a good understanding about business environment.
(iv) It helps in assisting in planning and policy formulation: Business environment is very dynamic and is a source of both opportunities and threats. Only with a clear understanding of the various aspects of the environment, a manager can make plans for future and formulate policies.

1) Market Catalyst: The government can implement a policy that changes the social behaviour in the business environment. For example, the government can levy taxes on the use of carbon-based fuels and grant subsidies for businesses that use renewable energy. Similarly, tax and duty exemptions on a particular sector trigger investment in it and may generate growth.

2) Political Stability: Government policy will always depend on the political culture of the moment. A stable political system can make business-friendly decisions that promote local businesses and attract foreign investors. Unstable systems present challenges that has a negative affect on the business environment.

3) Government Spending: Governments get money to spend from taxation. Increased spending requires increases in taxes or borrowing. Any tax increase will discourage investment, especially among entrepreneurs, who take the risks of starting and managing businesses.

4) Interest Rates: Government policy can influence interest rates, a rise in which increases the cost of borrowing in the business community. Higher rates also lead to decreased consumer spending. Lower interest rates attract investment as businesses increase production.

5) Regulations: Trade regulations, and the requirements for permits or licenses have effects on business. Businesses might spend a lot of money and time to comply with regulations that ultimately prove to be ineffective and unnecessary. Fair and effective regulations, however, promote business growth.

An organization is exposed to external environment, which is dynamic in nature. Threats are anything from an organization's external environment that can adversely affect its performance or achievement of goals.

Specific forces of business environment include investors, customers, competitors and suppliers. It affects individual enterprises directly and immediately in their day-to-day working. 

Increased competition: Changes in government policies, especially, the New Industrial Policy, 1991 deregulated the industrial economy in a substantial manner through privatisation, liberalisation and globalisation. It resulted in increased competition for Indian firms from both domestic and foreign countries.
More demanding consumers: Due to globalisation and information technology boom, consumers became well aware of the availability of different products in the market. Due to wider choice for products, consumers became more demanding and specific about the quality, price and features of the products.

The method used by the company to raise the additional capital is Private placement. 

(a) Two major concepts related to government policy which has been discussed in the above paragraph are
1) Liberalisation: Liberalisation refers to the elimination of government control and restrictions in the form of licenses, permits, and quotas. The main aim was to liberalise the Indian business industry from excessive government control and to give complete freedom to make their own decisions regarding the investments, marketing, pricing, and production.
2) Globalisation: Globalisation refers to the process of socioeconomic integration and development of various economies of the world. It is a process associated with a free flow of information, knowledge, services and goods so as to expand business and trade across the borders of countries. It aims at increasing openness, growing economic independence and promoting economic integration in the world economy.
(b) Impacts of Liberalisation and globalisation on Indian business and industry are
i. Increased competition: The policy allowed easy entry of foreign firms and abolition of licensing and encouragement of foreign direct investments leading to aggressive competition internally as well as externally.  The domestic companies thus, have to compete with the international firms in the market which is a serious challenge and threat to them.
ii. Increased demand: with the inclusion of new market and companies the consumers demand has increased. Because of the fierce competition from the foreign market and new businessmen joining the production line, there has been a tremendous increase in customers’ demands for the better and different changing choice of goods and services.
iii. Change in business policies: due to new market and industrial policies,  the business enterprises had to alter their policies and operations from time to time following the government policies.

Legal Environment

Economic Environment

Social Environment

Opportunities here refer to the favorable condition in the organization environment.

This is the effect of Legal environment.

Liberalization

Legal environment consists of rules and regulations, framed by the Parliament, under which business must operate. To exist and grow, business is required to follow all the rules and regulations that constitute this environment.

Two examples protecting ‘consumer’s interests’ are:

1. Advertisement of alcoholic beverages is prohibited.
2. Packets of cigarettes should mention the statutory warning ‘Cigarette smoking is injurious to health’.

1. Social Environment: It includes social forces like custom and tradition, values, social trends and society’s expectation from business.
2. Technological environment: It includes forces relating to scientific improvement and innovation which provide new ways of producing goods & services and new methods and techniques of operating a business.

Business environment includes both specific forces (investors, customers, competitors and suppliers) and general forces (economic, social, political, legal and technological conditions). Specific forces affect an individual firm directly and immediately in its day to-
day working while general forces have impact on all business firm and thus may affect
an individual firm only indirectly.

Opportunities refer to the positive external trends /changes that will help to improve a firm’s performance. On the other hand, threats refer to the external environment trends / changes that will hinder a firm performance.

Dimensions of business environment:

1. Economic environment: Customer income is rising.
2. Social environment: People have developed a taste for better quality product even though they may have to pay more.
3. Political environment: the government permitted cent per cent foreign direct investment in some sector of retailing.

1. Comes to India to start a new business……. launches a new product in e-learning for senior secondary school student in commerce stream.
   1. It helps in assisting in planning and policy formulation.
   2. It helps the firm to identify opportunities and get the first mover advantage.
2. His business starts flourishing in India.
   1. It helps in improving performance.
3. Now more Indian companies entered into the market with different subject also.
   1. It helps the firm to identify threats and early warning signals.

Increasing competition: Government policies have enabled co-existence of government sector companies with private companies and compete fairly, leading to increasing competition.
More demanding customers: Government policies leading to economic libralisation allow consumers to become well-informed, increase their purchasing power (through rising incomes) and change their lifestyle, which makes them more demanding about quality and value-driven products/services.

1. business environment helps in tapping useful resources.
   ‘it assembled various inputs like finance, machines, etc. from its environment’.
2. (1) Social environment
   ‘….it has been dumping its untreated poisonous waste on the river bank which created many health problems for the people'.
   (2) Legal environment
   ‘….the court passed an order to seal the manufacturing unit of the company’.
3. Values overlooked:
   Environment protection.
   Concern for human life.
   Respect for law and order.
   Social responsibility.

(a) Features of business Environment:

1. Dynamic nature: Fashion and taste of the consumer is changing at a fast pace.
2. Uncertainty: It is very difficult for the company to predict future happening.
3. Complexity: It is difficult to know the extent of the relative impact of the social, economic, political, technological or legal factor on decreasing in demand of its products in the market.

(b) Top Level Management

(c) Impact of government policy change in business:

1. Increasing competition: New competitors have entered the market with new design.
2. More demanding customer: Customer demand is increasing.
3. Market orientation: It was decided that they would study and analyse the market first to identify customer taste and fashion and then manufacture garments accordingly. It was also decided to increase expenditure on advertising after sale service etc.

(d) Business environment helps the manger in coping with rapid changes.

Importance of business environment:

1. Identify opportunities and get first mover advantage: Early identification of opportunities help the firm to be the first to exploit them instead of losing them to competitors.
2. Identify threats and early warning signals: Environmental awareness can help managers to identify various threats on time and serve as an early warning signal.
3. Tap useful resources: A business firm assembles various resources called inputs like finance, machines, raw materials, power and water, labour, etc. from its environment.
4. Assist in planning and policy formulation: Since business environment provides both opportunities and threats for the firm, its understanding and analysis can be the basis for planning and policy formulation.
5. Helps in coping with rapid changes: Managers must understand and examine the environment and develop suitable courses of action to cope with rapid change in business environment.

1. Legal environment: The court passed an order that all schools must have water purifier for the school children.
2. Social environment: Society in general is more concerned about quality of life.
3. Technological environment: Innovative techniques are being developed to manufacture water purifier at competitive rate.
4. Economic environment: Income is rising and children at home are also drinking purified water.
5. Political environment: The government is also showing positives attitude towards the water purifier.

1. Legal environment: The court passed an order to ban polythene bags.
2. Social environment: The bags are creating many environmental problems which affect the life of people in general. Social in general is more concerned about quality of life.
3. Political environment: The government decided to give subsidy to jute industry to promote this business.
4. Technological environment: Innovative techniques are being developed to manufacture jute bags at low rates.
5. Economic environment: Incomes are rising and people can afford to buy these bags.