Meaning of Business Environment

  • Sum Total of All Individuals, Institutions and Other Forces
  • Outside a Business
  • Affect Business Performance

Features/Characteristics of Business Environment

  1. totality of external forces
  2. specific and general forces
  3. inter-relatedness
  4. dynamic nature
  5. uncertainty
  6. complexity
  7. relativity

Importance of Business Environment

  1. First mover advantage
  • Early identification of opportunities.
  • First to exploit opportunities.
  1. Identify threats and early warning signals
  • Threats are external trends and changes that hinder firm’s performance.
  • Environmental awareness.
  1. Tapping useful resources
  • Assemble various resources.
  • Convert input resources into output.
  1. Coping with rapid changes
  • Turbulent market conditions, Less brand loyalty, Fragmentation (division) of markets.
  • Increasing dynamic environment.
  • Examine environment and develop suitable course of action.
  1. Helps in planning and policy formulation
  • Deciding future course of action (planning).
  • Training guidelines for decision making (policy).
  • Think afresh about how to deal with situation.
  1. Improving performance
  • Continuous monitoring of environment.
  • Understanding business environment to make a difference in performance.

 Elements/Dimensions of business environment (PESTL)

  1. Economic Environment
  • Interest rates,
  • Inflation rates,
  • Changes in disposable income of people,
  • Stock market indices,
  • The value of rupee.
  • Existing structure of the economy; capitalistic, socialistic or mixed
  • The rates of growth of GNP and per capita income
  • Rates of saving and investment
  • Balance of payments and changes in foreign exchange reserves
  • Agricultural and industrial production trends
  • Expansion of transportation and communication facilities
  • Money supply in the economy
  • Public debt (internal and external)
  • Planned outlay in private and public sectors
  1. Social Environment
  • Traditions,
  • Values,
  • Social trends,
  • Social expectations
  • Attitudes towards product innovations, lifestyles, occupational distribution
  • Consumer preferences
  • Concern with quality of life
  • Life expectancy
  • Expectations from the workforce
  • Shifts in the presence of women in the workforce
  • Birth and death rates
  • Population shifts
  • Educational system and literacy rates
  • Consumption habits
  1. Technological Environment
  • Scientific improvements and innovations
  • New ways of producing goods and services
  • New methods and techniques of operating a business.
  1. Political Environment
  • Political conditions,
  • General stability and peace in the country
  • Specific attitudes of elected government towards business
  • Prevailing political system
  • The degree of politicisation of business and economic issues
  • Dominant ideologies and values of major political parties
  • The nature and profile of political leadership and thinking of political personalities
  • The level of political morality
  • Political institutions like the government and allied agencies
  • Political ideology and practices of the ruling party
  • The extent and nature of government intervention in business
  • The nature of relationship of our country with foreign countries
  1. Legal Environment
  • Various legislations(Acts) passed by the government,
  • Administrative orders issued by government authorities,
  • Court orders and judgments, decisions rendered by various commissions and agencies at every level of the government—center, state or local.
  • Statutory warning on products like cigarettes or tobacco etc.
  • Some special laws relating to business are;
  1. Companies Act 2013;
  2. Industries (Development and Regulations) Act 1951;
  3. Foreign Exchange Management Act
  4. Imports and Exports (Control) Act 1947;
  5. Factories Act, 1948;
  6. Trade Union Act; 1926;
  7. Workmen’s Compensation Act, 1923;
  8. Industrial Disputes Act, 1947,
  9. Consumer Protection Act, 2019,
  10. Competition Act, 2002.

Demonetisation

  1. The Government of India, made an announcement on November 8, 2016.
  2. The two largest denomination notes, ₹500 and ₹1,000 were ‘demonetised’.
  3. Ceasing to be legal tender except for a few specified purposes such as paying utility bills.

Aim/Purpose of Demonetisation

  1. To curb corruption
  2. Counterfeiting the use of high denomination notes for illegal activities;
  3. Accumulation of ‘black money’ generated by undeclared income

Features of Demonetisation

  1. Tax administration measure.
  2. Indicates that tax evasion will no longer be tolerated or accepted.
  3. Channelizing savings into the formal financial system.
  4. Creation of less-cash or cash-lite economy.

Impact of Demonetization

  1. Money/Interest rates
  • Decline in cash transactions
  • Bank deposits increased
  • Increase in financial savings
  1. Private wealth - declined
  2. Public sector wealth - No effect
  3. Digitisation - increased
  4. Real estate Prices - declined
  5. Tax collection - increased

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