CBSE Class 12 Business Studies Chapter 3 Notes: Business Environment

Class 12 Business Studies Chapter 3 Notes (Business Environment)

Our Business Studies teachers have worked tirelessly to bring you the best revision notes for CBSE Class 12th Chapter 3: Business Environment.

With these notes, you can:

• Boost recall of key terms and definitions during the exam.
• Link concepts together (e.g., PESTL dimensions and features of business environment), making it easier to tackle application-based questions.
• Keep your focus on high-weight chapters.
• Build confidence and cut exam-day stress.

Before you proceed, below are the quick details:

• Class: 12
• Subject: Business Studies
• Chapter Number: 3
• Chapter Name: Business Environment

Let's start.

Table of Contents

Business Environment	Features/Characteristics of Management
Importance of Business Environment	Dimensions of Business Environment
Demonitisation	Features of Demonitisation
Impact of Demonitisation

Business Environment

Business Environment refers to the totality of external forces, factors, individuals and institutions which are outside the control of a business enterprise but that may affect its performance. 

In simple words, the business environment is the surrounding in which a business exists.

Features/Characteristics of Business Environment

Learning Technique (India , Gurugram , Manesar , Delhi , CP)

Feature	Explanation
Totality of external forces	It includes all the forces, institutions and factors which are external to business organizations.
Specific and general forces	It includes both specific and general forces. Specific forces affect business enterprises directly and immediately in their day-to-day working. General forces have an impact on all business enterprises and thus, may affect an individual firm only indirectly. (Such Social, Political, Legal and Technological conditions).
Inter-relatedness	All the forces and factors of the business environment are interrelated to each other. For example: With the inclination of youth toward western culture, the demand for fast food is increasing.
Dynamic nature	The business environment is dynamic as it keeps on changing in terms of technological improvement, a shift in consumer preferences, and the entry of new competition in the market. It is not static and rigid i.e. why it is essential to monitor and scan the business environment continuously.
Uncertain	It is very difficult to predict changes of business environment. As the environment is changing very fast. For example, in the IT, and fashion industries frequent and fast changes are taking place.
Complexity	It is very difficult to understand the impact of the business environment on companies. Although it is easy to scan the environment, it is very difficult to know how these changes will influence it. For example, it may be difficult to know the extent of the relative impact of the social, economic, political, technological or legal factors on the change in demand for a product in the market.
Relativity	Business environment differs from country to country, and region to region as political condition, cultures are different in different countries. For example, there may be more demand for sarees in India as compared to the USA. The same condition in the environment may have different effects on different enterprises.

Importance of Business Environment (Learning Trick T O P I C)

Importance	Explanation
Identify Threats and give early warning signals	A businessman who can scan and understand the business environment in time to get a warning signal to deal with the constraints of the negative policies of the business environment. Timely scanning of business environments and qualitative information which business gets is taken as a warning signal and changes in the companies are made. For example, on scanning the business environment, the Maruti Udyog company got the qualitative information that more foreign car manufacturing companies are going to set up their business in India. They took it as a warning signal and started increasing their production capacity. The Maruti Company accepted the entry of foreign car companies as a warning signal and increased their production to supply the cars without any waiting period to compete with the new companies.
Tapping useful resources	Businessmen have to supply the goods to the market according to the demand in the market. To supply outputs they need input, raw materials, etc. They acquire raw materials and other resources keeping in mind the output demanded by the environment. They select resources according to availability in the environment and the demand for output in the environment. For example, with the demand for LED, 3D T.V. manufacturers are collecting resources necessary to manufacture LED & 3D T.V. rather than collecting resources of black and white T.V. or flat screen etc.
Identify Opportunities and give first mover advantage	Businessmen who can understand and scan the opportunities of the business environment at an early stage get maximum benefit or they can capture a big share of the market. For example, WhatsApp was the first application for mobile chats. Afterwards, many other applications came but still WhatsApp is no. 1 in mobile chat. The environment provides numerous opportunities for business success.
Assists in Planning and Policy formulation	The major strategies plan and policies in the organization are formed keeping in mind the business environment because the policies and strategies have to be implemented in the presence of environmental factors. Scanning environmental factors helps in finding out the opportunities for business and strategies can be made to grab these opportunities. For example, on scanning the Indian business environment we find there is great scope for the tourism industry in our country. So, businessmen are planning strategies to grab these opportunities.
Improves performance	With continuous scanning of the business environment companies can easily improve their performance. By making changes in the internal environment matching to the external environment, organizations can properly improve their market share.
Coping up with rapid changes	Today changes are taking place very fast and these changes have a great impact on business. So, it is essential to understand these changes as early as possible. Businessmen make changes in their internal environment also to match the external environment. For example, due to increasing competition, customers are becoming more demanding and it has become essential for business enterprises to adapt rapidly to the changing technology environment.

Dimensions of Business Environment

(Learning Trick P E S T L )

Dimension	Explanation
Political Environment	It includes political conditions such as general stability, political environment and peace in the country and the attitude of the elected government representatives towards businesses. Political stability builds confidence in the business community. Political unrest and threats to law & order situations may bring uncertainty to business activities. Example: Bangalore is called the Silicon Valley of India due to the favorable political conditions provided by the state government to the IT industries.
Economic Environment	Economic environment refers to all the forces and factors which have a bearing on the functioning of a business enterprise. It has an immediate and direct impact on a business. Rate of interest, inflation rate, change in disposable income of people, monetary policy, stock market indices etc. are some economic factors, which could affect business firms. An increase or decrease in economic factors results in opportunities or constraints on a business enterprise.
Social Environment	The business environment includes various social forces such as customs, beliefs, literacy rate, educational levels, lifestyle, values etc. Social trends present various opportunities and threats to business enterprises. The celebration of Diwali, Eid and Christmas in India provides financial opportunities for confectionery manufacturers, garments businesses and many other related businesses. Example- Importance of place of women in the workforce, Birth and death rate of the population, Tradition, customer and habits of people.
Technological Environment	It includes forces related to scientific improvements and innovations which provide new ways of producing goods and services. New methods and techniques of operating business. A businessman must closely monitor the technological changes taking place in the industry as it helps in facing competition and improving the quality of the product.
Legal Environment	It includes various laws and legislative acts, Administrative orders issued by government authorities, Court judgements as well as decisions of various commissions and agencies at every level of the government center, state or local. Example: Advertisement of Alcoholic beverages is prohibited.

Demonetisation

Demonetisation is an act of cancelling the legal tender status of a currency unit in circulation.

• The Government of India announced on November 8, 2016, with profound implications for the Indian economy. The two largest denomination notes, Rs 500 and Rs 1,000 were 'demonetised' with immediate effect, ceasing to be legal tender except for a few specified purposes such as paying utility bills. This led to eighty-six per cent of the money in circulation being invalid.

• The people of India had to deposit invalid currency in the banks, which came along with the restrictions placed on cash withdrawals. In other words, restrictions were placed on the convertibility of domestic money and bank deposits.

Features of Demonetisation

• Tax administration measure - Cash holdings arising from declared income were readily deposited in banks and exchanged for new notes. But those with black money had to declare unaccounted income and pay a tax penalty

• Non-acceptance of tax evasion - It indicated that tax evasion will no longer be tolerated or excepted. Tax collection increased because of increased disclosure. 

• Channelization of savings into formal financial system - Bank deposits increase. 

• Create a cash-lite economy - Cash transactions declined. Digital transactions using RuPay cards and Debit cards, Aadhar-enabled Payment systems (AEPS), etc. increased.

Impact of Demonetization

1. Money/Interest rates:
• Decline in cash transactions
• Bank deposits increased
• Increase in financial savings
2. Private wealth: 
• Declined since some high demonetized notes were not returned and real estate prices fell
3. Public sector wealth:
• No effect
4. Digitization:
• Digital transactions amongst new users (RuPay/AEPS) increased
5. Real estate:
• Prices declined
6. Tax collection:
• Rise in income tax collection because of increased disclosure

The End

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A List of Notes:

Chapter 1  |  Chapter 2  |  Chapter 3  |  Chapter 4  |  Chapter 5  |  Chapter 6  |  Chapter 7  |  Chapter 8  |  Chapter 9  |  Chapter 10  |  Chapter 11  |  Chapter 12

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