Business Environment Study Notes

By Gaurav Mohanty|Updated : August 24th, 2021

Business: Business is an economic affair, which is related to continuous production and distribution of goods and services for satisfying the needs of the customers.

Environment: Environment includes all the conditions and circumstances which influences surroundings and affects the total organization or any of its part. Each business organization operates in its unique environment.

Business Management: Business Management can be defined as a combination of the organising, planning and analysing of business activities that are required to efficiently manage and run a business.

Table of Content

The business environment is classified into two categories:

Micro Environment

This type of environment has a direct impact on business activities. Micro Environment includes:

(i) Suppliers

(ii) Customers

(iii) Competitors

(iv) Public

(v) Market Intermediaries

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Macro Environment

A macro environment is a general business environment, which influences all business groups at large. The five elements in the macro business environment are:

(i) Political: It includes the below-listed points:

  1. Political stability
  2. Political principles and ideologies
  3. Current and future taxation policy
  4. Regulatory bodies and processes
  5. Government term and change

(ii) Economic: Economic Environment consists of:

  1. Economic situation and trends
  2. Market and trade cycles
  3. Specific industry factors
  4. Customer/end-user drivers
  5. Interest and exchange rates
  6. Inflation and unemployment
  7. Strength of consumer spending

(iii) Social: Social Environment consists of the below-mentioned elements:

  1. Lifestyle trends
  2. Demographics
  3. Consumer attitudes and opinions
  4. Consumer buying patterns
  5. Ethics/religious factors
  6. Media views and perception

(iv) Technological: Technological environment refers to changes taking place in the method of production, use of new equipment and machinery to improve, the quality of the product.

  1. Replacement technology/solutions
  2. Maturity of technology
  3. Innovation potential
  4. Technology access, licensing, patents
  5. Intellectual property rights and copyrights

(v) Legal Environment includes the below-listed elements:

  1. Business and corporate laws
  2. Employment law
  3. Competition law
  4. Health and safety law
  5. International treaty and law
  6. Regional legislation

What is an Economic System? 

(a) Economic System: Economic systems are the laid down procedures through which countries and governments distribute their resources and trade goods. There are three types of economic systems:

  • Planned economy: In a planned economy, the government controls and regulates production, distribution and prices. North Korea is an example of a planned economy.
  • Mixed Economy: Mixed economy envisages the co-existence of both public and private sector undertakings. The major establishments are owned and run by Government and the Government itself set the rules and regulations for the private enterprises. Example of Mixed Economy: All western European countries.
  • Market economy: In this economy, prices are determined by levels of supply and demand, not by the central Government. Under this system, Government interferences will be minimum and can be termed as laisses fair system, i.e. lack of external force. Examples: USA and Japan

(b) Economic policy: In this, measures are adopted by the government to manage the economy as a means of achieving economic goals.

(c) Fiscal policy: Fiscal policy includes the Government’s tactics on public expenditure and revenue. When the government decides on the purchase of goods and services, the transfer of payment distribution, or the collection of taxes, it comes under Fiscal policy. Example: Implementation of Goods and Services Tax (GST). It is many a time referred to as the Budgetary Policy of the Government, which involves the government manipulating its level of spending and tax rates within the economy.

There are two types of fiscal policy: 

  1. Expansionary: Expansionary Fiscal Policy, is a form of fiscal policy that includes a decrease in taxes or increases government expenditure or both in order to fight recessionary pressure.
  2. Contractionary: Contractionary Fiscal Policy is used to slow down economic growth, such as when inflation is growing too rapidly. 

(d) Main aims of fiscal policy in a developing economy:

  1. Full employment in the country.
  2. Price stability in the economy.
  3. Increasing the rate of economic growth.
  4. Optimum allocation of resources and optimum utilisation.
  5. Equitable distribution of income and wealth between the population of the country.
  6. Economic stability in the long run.
  7. Capital formation and growth.

(e) Monetary policy: Monetary policy is the macro-economic policy formulated by the central bank (Reserve bank of India). It involves the management of the money supply and interest rate through the use of various tools.

The main tools of Monetary Policy are:

  1. CRR (capital reserve ratio): It is the ratio fixed by RBI of total deposits of a bank which is to be maintained by the bank with the RBI in cash form.
  2. SLR (Statutory Liquidity Ratio): It is the ratio fixed by RBI of total deposits of a bank which is to be maintained by the bank with itself in the non-cash form prescribed by RBI.
  3. Bank Rate: It is the interest rate that RBI charges on its long term lending from the banks.
  4. Repo Rate: Introduced in Dec 1992. It is the rate of interest levied by RBI from its clients on their short term borrowings.
  5. Reverse Repo Rate: It was established in 1996. It is the rate of interest the RBI pays to its clients who offer short term loans to it.
  6. MSF (Marginal Standing Facility): It was introduced in May 2011. Under this scheme, banks can borrow money overnight up to 1% of their NDTL (Net Demand Time Liabilities) from RBI at an interest rate 3% higher than the current repo rate.
  7. Base Rate/Prime Lending Rate: It is the interest rate below which scheduled commercial banks will lend no loans to their customers.

The main aim of monetary policy is to maintain price stability in the economy while keeping in mind the objective of growth. 

Legal Environment: In the Legal Environment, the government set various laws and regulations, which impact business organisations and their operations. Every business entity has to follow and work within the guidelines of Government laws.

Important Acts related to Legal Environment for exam point of view:

  • FEMA (Foreign Exchange Management Act,1999)
  • Companies Act, 2013
  • Environment Protection Act, 1986
  • Competition Commission, 2002
  • Consumer Protection Act (1986)

(a) Consumer Protection Act (1986): It is an Act of Parliament in which there is a provision to protect the interests of consumers in India. It was introduced in 1986 to protect the interest of the consumer and to check their exploitation from producers. It came into force on 1st July 1987 all over India except Jammu and Kashmir. It is known as COPRA. COPRA was amended twice in 1993 and 2002.

The major objectives of the consumer protection act are:

  • To protect the consumers against immoral and unfair activities of the traders.
  • For Compensation to the consumers.
  • Setting up consumer forums and councils for the disposal of consumer disputes.
  • To educate the consumers for their rights controlling to markets.

Limits of the amount to be filled:

  1. District: up to 20 lakhs
  2. State: 20 lakhs to 1 crore
  3. National: above 1 crore

Major points regarding the Consumer Protection Act, 1986:

  1. If someone wants to move from national to state to the district then it can be moved within 30 days.
  2. Consumer protection amendment act 2002 was passed on 17th December 2002 and implemented on 15th March 2003.
  3. It covers some areas also such as:
  • banking
  • insurance
  • transport
  • processing
  • physicians

    4. It covers the six rights of the consumers-

  •  Right to safety
  • right to be informed
  • right to choose
  • right to be heard
  • right to redressal
  • right to consumer education

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FAQs

  • The business environment encompasses all those factors that affect a company's operations and includes customers, competitors, stakeholders, suppliers, industry trends, regulations other government activities, social and economic factors, and technological developments.

  • These business sectors operate in the three business environments, i.e. micro, market, and macro.

  • The business environment brings both threats and opportunities to a business. Hence, understanding of environment helps the management in future planning and decision making.

  • An environment determines the growth, profitability and even longevity of a business and gets altered by them as well. These factors influence the operations of a company directly or indirectly depending on its type.

  • A company environment needs to be a good place for employees, so they can provide a good experience for the clients and customers they help and your business serves. Satisfaction for employees makes more satisfaction for clients and customers.

IPM, CUET & BBA Exams

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IPM, CUET & BBA Exams

CUETIPM ATDU JATSETNCHM JEEGGSIPU CETJIPMATUGAT BBA ExamChrist University BBA Exam
tags :IPM, CUET & BBA ExamsGeneralChrist University ExamBBA & HMXavier University ExamIPMAT ExamDU JAT Exam

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