Chapter 3- Business Environment Flashcards
Meaning of business environment
Business environment is the sum total of all individuals, organisations and other forces that are outside the control of a business enterprise but that may affect its performance
Features of business environment
1) totality of external forces
2) specific and general forces
3) interrelatedness
4) dynamic nature
5) uncertainty
6) complexity
7) relativity
Meaning of opportunity
Opportunity refers to the positive external trends or changes that help a firm to improve its performance
Meaning of threats
Threats refer to the external environment trends or changes that will hinder a firm’s performance
Importance of business environment
1) it enables a firm to identify opportunities and getting first mover advantage
2) it helps a firm to identify threats and early warning signals
3) it helps in tapping useful resources
4) it helps in coping with rapid changes
5) it helps in assisting in planning and policy formulation
6) it helps in improving business performance
Components of economic environment
1) volume of imports and exports of different items
2) rates of saving and investment
3) balance of payment and changes in foreign exchange reserves
4) money supply in the economy
5) public debt
6) agricultural and industrial production trends
Components of social environment
1) concern with quality of life
2) life expectancy
3) birth and death rates
4) educational system and literacy rates
5) consumption habits
6) composition of family
Components of political environment
1) constitution of the country
2) prevailing political system
3) the level of political morality
4) political ideology and practices of ruling party
5) the nature of relationship of our country with foreign countries
6) political institutions like government and other allied agencies
Features of new industrial policy, 1991
1) the government reduced the number of industries under compulsory licensing to 6
2) the industries reserved for public sector was dereserved. The role of public sector was limited to 4 industries of strategic importance
3) disinvestment was carried out in public sector industrial enterprises
4) policies towards foreign capital was liberalised. Share of foreign equity participation was increased and in many activities 100% FDI was permitted
5) automatic permission was granted for technology agreement with foreign companies
6) foreign investment promotion board (FIPB) was set up to promote and channelise foreign investment in India
Liberalisation
The economic reforms that were introduced was to liberalise the Indian business and industries from unnecessary control and restrictions
Privatisation
The new economic reforms aimed at giving the private sector a greater role in the nation building process and a reduced role to the public sector
Globalisation
Globalisation means the integration of various economies of the world leading towards the emergence of a cohesive global economy
Impact of government policy changes on business and industry
1) increasing competition
2) more demanding customers
3) rapidly changing technological environment
4) necessity for change
5) need for developing human resources
6) market orientation
7) loss of budgetary support to the public sector