CHAPTER

MANAGEMENT ANDBUSINESS
ENVIRONMENT

OLEARNING OBJECTIVES
3.1 INTRODUCTION
3.2 MEANING OFBUSINESS ENVIRONMENT
3.3 FEATURES/CHARACTERISTICS OF BUSINESS ENVIRONMENT
3.4 IMPORTANCE OF BUSINESS ENVIRONMENT
3.5 DIMENSIONS/ELEMENTS OF BUSINESS ENVIRONMENT
3.6 NEW INDUSTRIAL POLICY (NEW ECONOMIC POLICY)
3.7 DEMONETISATION
3.8 IMPACT OF ECONOMIC REFORMS ONTHE BUSINESS

3.1 INTRODUCTION
surrounding.
Abusiness does not operate in a vacuum. It is a part and parcel of the environment
Hence, in
Success of business largely depends upon the suitability of environment around it.
environment.
order to survive and grow,an enterprise has to adapt itself as per business
In this chapter,we will study the impact of environment on business and the strategies employed by
business to deal with environmnent challenges.

3.2 MEANING OF BUSINESS ENVIRONMENT

Business Environment means the sum total of all individuals,institutions and other forces
that are outside the control of a business enterprise, but that may affect its performance.
Thus, the economic, social, political, technological and other forces which operate outside a
business enterprise are part of its environment. Similarly, individual consumers,competing
institutions
enterprises,government, consumer groups, competitors, courts, media and other
working outside an enterprise also constitute its environment. All these forces are likely to influence
the performance ofa business enterprise although they happen to exist outside its boundaries.
3.1
3.2
Business Studies for
Clas XIl
Changes in
ncertainty, government
changes in 's economic policies, rapid technological developments,
and tastes of consumers and increased competition poolitical
the
working of abusinessfashions
enterprise in important ways. influence
Exampl
" es:
Increase in taxes by government can make things expensive to buy.
Technological improvements may render existing products obsolete.
Political uncertainty may create fear in the minds of investors.
Changes in fashions and tastes of
consumers may shift demand in the market from
products to new ones.
Increased Competition in the market may reduce profit margins of firms.
existirng
3.3
FEATURES/CHARACTERISTICs
Some of the important features of
business
OF BUSINESS
ENVIRONIMENT
1. Totality of External Forces: Businessenvironment are:is FEATURES OF BUSINESS
the sumtotal of all the external forces that environment ENVIRONMENT
directly or
indirectly influences working of abusiness system.
2. Specific and
the
General Totality of External Forces
Forces:
includes both specific and generalBusiness
forces.
environment
Specific and General Forces
Specific forces (such as investors,
competitors and suppliers) affect customers, Inter-relatedness
enterprises directly and immediately inindividual
their day Dynamic Nature
to-day working.
General forces (such as social, political, legal and Uncertainty
technological conditions) indirectly affect the
3.
business enterprises. Complexity
Inter-relatedness: The different elements of business Relativity
environment are closely inter-related.
For example, increased awareness for health care has
roasted snacks. raised the demand for organic food and
4. Dynamic Nature: The business environment is dynaric in
whether in terms of technological nature, i.e. it keeps on changing
of new competition in the market. improvement, shifts in consumer preferences or entry
Forexample,changes like invention of newtechniques
changes in industrial policy, etc. Due to dynamism of ofproduction, a new minister in the Govermment,
toremain highly cautious, alert and adaptable. business environment, management is required
6 Uncertainty: Business Environment is largely uncertain as it is very
future happenings, especially when difficult to predict
environment changing too
of information techrnology or fashion industries. is
frequently likein case
For example, it is very dificult for aaggarment
fashion. manufacturingcompany to predict thefrequentlyychanging
Managerment and Business Environment 3.3

6. Complexity: Business environment consists of numerous interrelated and dynamíc forCes

which arise from different sources. So, itbecomes difficult to understand what exactiy
constitutes agiven envìronment. Environment is acomplex phenomenon which is relatively
easier to understand in parts but difficultto grasp in its totality.
For example, it may be difficult to determine the extent of relative influence of social, economic,
political,technological or legal factors on change in demand of aproduct in the market.
7. Relativity: Business environment is a relative concept since it differs from country to
country arnd even region to region. For instance, political conditions in USA differ from
those in Chinaor Pakistan.
For example, a shift of preference from soft drinks to juices will be welcomed as an opportunity by
the juice company, while soft drinks company takes it as a threat.
3.4 IMPORTANCE OF BUSINESS ENVIRONMENT
To survive and grow in this competitive world, every business enterprise has to systematically
analyse and diagnose the environment. Agood understandíng of business environment by
business managers enables them not only to identify andevaluate, but also to react to the forces
external to their firms. Astudy of business environment is very important due to following reasons:
Identifíy opportunities and getting
Coping with rapid changes the first mover advatage

IMPORTANCE Identify threats and earty

Assisting in planning and OF BUSINESS warning signals
policy formulation ENVIRONMENT

Improving performance Tapping useful resources

1. Itenables the firm to identify opportunities and getting We will be the first company
to take advantage of this
the first mover advantage: Opportunities refer to the Opportunity
positive external trends or changes that will help a firm to
improve it_ performance. The external environment
provides numerous opportunities for business urits. The
company, which is more conscious about the changes of
business environment can take better advantage of
opportunities instead of losing them to competitors.
For example, Maruti Udyog became the leader in small car
market because it was the first to recognise the need for small
car.
ContinuouS Monitoring of Business
2. Helps the firm to identify threats and early warning Environment enables the management
to identify opportunities and getting the
signals: Threats refer toexternal environment trends and first mover advanlage.
 3.6
Business
Studies for
Short and Clas XI
" long-term
Each economic interest ratessignificantly affectthe demand for
factor :serveeither as an opportunity or as athreat to a business
can productand services.
Exampl
(1) eRise
s in enterprise,of
the disposableincome of people duetoincreasein gross domestic
acountry creates increasing demand for
(ii) Easy finance
schemes due to banking
products.
sector reforms have increasedthe demand
product
(iii) Rise in
inflation rates increases the production cost due to increase in priceforof carraws.
(iv) materials and wages.
Demonetisation of 500 and 1,000 notes had agreat influence onthe Indian)
()
Environment.of
Introduction GST will inluence almost all the business enterprises. Economic
Some
1. Components or Aspects of Economic Environment
Relative role of private and public sectors.
2. Growth rate of GNP and per
capita income at current and constant prices.
3. Rates of savings and
investments.
4. Volume of imports and exports of
different items.
5. Balance of payments and changes in
foreign exchange reserves.
6. Agricultural and industrial
7. Money supply in the
production trends.
economy.
Social Environment
Social Environment represents the customs and traditions,
and ethics of a society in which business values, culture, social trends, beliefs, HOrms
enterprises operate. Impact of "Social Environment"
" The Presence of Women' in the workforce has
Traditions: Define social practices significantly
influenced the working of many business enterprises
that have lasted for decades or even
Fashion Industry
centuríes.
(shifts towards Formal Wear) (Increase Electronics Industry
in demand of gadgets)
For example,celebration of festivals like
Diwali, ld, Christmas, Guru Parv, etc.
provides significant financial opportuni
ties for greetings card companies, sweet
shops, gift shops, etc.
"Values: Refer to concepts that asociety
holds in higher esteem. Individual
freedom, social justice, equality of
opportunity and national integration
are some examples of values.
For example, a business enterprise
must give equal status and same wages
to male and female workers, working at Cosmetic Industry Food Industry
the same level. (increase in Demand) (shift towards Packed Food)
 3.7
Management and Business Environment

. SocialTrends: Present various opportunities and threats to business enterprises.

For example,increased awareness towards health has increased the demand for products like organic
food, mineral water, gyms, etc. Howeve, this trend has harmed business in other industries like dairy
processing, tobacco and liquor.
Analysis and understanding of social environment is important as it determines the products, services
and standards of conduct that are acceptable to society.
Examples:
() McDonald's made significant changes in its ingredients of finger chips after
considering the trends and customs of social environment of India.
(ii) Demand for reservation in jobs for minorities and women.
(m) Equal pay to male and female workers for equal work.
Some Components of Social Environment
1. Atitudes towards product innovations, lifestyles, occupational distribution and consumer
preferences.
2. Concern with quality of life.
3. Life expectancy, birth and death rates.
4. Expectations from the workforce.
5. Shifts in the presence of wWomen in the workforce.
6. Educational system and literacy rates.
7. Consumption habits.
8.Composition of family.

Technological Environment
Technological environment includes forces relating to scientific improvements and innovations
which provide new ways of producing goods and services and new methods and technigues of
operating a business.
"Change in technology is mostly associated with better service
and cost efficiency. Technological advances create new products,
new prodution techniques and new ways of managing and
communicating. For instance, recent technological advances in
computers and electronics have modified the ways in which
companies advertise their products.
" Continuous innovations in different scientific and engineering
Technological Environment|
fields such as lasers, robotics, biotechnology, food preservatives, has postvey intuenced the
business activities.
etc. have provided numerous opportunities and threats for many
different enterprises.
Technological environment has resulted in shift in demarnd from vacuum tubes to transistors,
from steam locomotives to diesel and electric engines, from fountain pens to ballpoint,
from propeller airplanes to jets and from typewriters to computer based word processors.
Today,technology is changing at afast pace and technological environment is significanty afiecting
the business. Anumber of companies have failed due to delay in adopting new technological changes.
3.8
Business Studies for
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Exaples:
(9 Colour TV with remote in place of Black and White 1V.
(i) Electrostatic Copiers in place of manual Iphotostate machines.
(im) Computers with multiple word processors in place of single language word
(iv) Online booking of Rail and Air tickets instead of going to Reservation Office. proces ox.
Some Components of Technological Environment
1.Research and development activities.
2. Innovations in products and processes.
3. Import and Export of
4. New Equipments. Technology.

Political Environment
Political Environnent includes political conditions such as general stability and
country and specific attitudes that elected govermment representatives hold peace in the
" Political factors play a towards business
major role in shaping the environment, in which business firns
operate.
"The significance of political conditions in
business
business activities under stable political conditions. success lies in the predictability of
There may be uncertainty of business
activities due to political unrest and threats to law and order.
" A
stable government builds up confidence among the
term projects, whereas, political instability shakes thatbusiness people to invest in the long
The attitudes of government officials towards confidence.
upon business. For example,even after business may have either positive or negative impact
economic reforms of our economy in 1991, foreign
companies found it extremely difficult to cut through the bureaucratic red tape to get
permits for doing business in India.
Examples:
(i) In 1977, Janta
Government followed a strict
companies like Coca-cola and IBM to move out policy against MNC's and forced
of India.
(ii) Change in government policies in
Indian market.
1991 allowed Pepsi and other MNCs to enter into
Some Components of Political Environment
1. Constitution of the country.
2. Prevailing political system.
3. Political ideology and practices of the ruling party,
4 Extent and nature of
government intervention in business
5. Nature of relationship of our country with
6. Nature
foreign
and profile of politicalIleadership and countries.
thinking of political
personalities.
Management and Business Environment 3.9

Legal Environment
Legal Environment includes various legislations passed by the administrative orders issued
by goverment authorities, court judgnents as well as the decisions rendered by various
commissionsand agencies at every levelof the government.
" In other words, legal environment refers to the framework of laws and various legislations
within which business transactions are to take place.
" It is crucial for every enterprise to obey the rules or laws prescribed by the legislations.
An adequate knowledge of rules and regulations is a pre-requisite for better business
performance. Their non-compliance can cause legal problems to the business enterprise.
" To be successful in India, every business enterprises must have working knowledge
about various laws like Companies Act, Industries (Development and Regulations) Act,
FEMA, Factories Act, Trade Union Act, Industrial Disputes Act, Consumer Protection Act,
Competition Act, etc.
Apart from these laws,there area number of laws that regulate matters, such as standards
of product, packaging, promotion, ethics, etc. For example, in India, packaging of cigarettes
must carry the statutory warning: "Cigarette smoking is injurious to health".
Examples:
(i) Alcohol beverages are prohibited to be advertised on Television.
(ii) Companies producing hazardous goods have to conmply with the provisions of Bureau
of Indian Standards Act, 1986.
For "Economic Environment in India", refer Power Booster Section.

3.6 NEW INDUSTRIAL POLICY (NEWECONOMIC POLICY)

In 1991, the Indian Economy faced a serious foreign exchange crisis, high government deficit
and arising trend of prices despite bumper crops. As apart of economicreforms, the Indian
Government announced a New Industrial Policy in July 1991.
The main aim of the New Industrial Policy was to reate a more competitive environment in
the economy and to remove the barriers of entry and growth of firms. The broad features of this
policy were as follows:
1. Delicensing: The new policy abolished industrial licensing for all projects, except for six
industries.
2. Decrease in role of Public Sector: The role of public sector was limited only to four
industries of strategic importance and remaining industries were opened for private
sector.
3. Disinvestment: Disinvestment refers to selling a part or the whole of shares of public
sector undertakings. Disinvestment was carried out in case of many public sector industrial
enterprises.
4. Liberalisation of Foreign Capital: The share of foreign equity participation was increased
and in many activities 100 per cent Foreign Direct Investment was permitted.
 3.10 Business
Studies for
5.
Olas
Automatic permission
was
Liberal policy tor technical collaboration:
granted fo
6. technology
Setting
agreements with foreign companies. (FIPB): FIPB was
up of Foreign Investment Promotion Board set up to0
7.
and channelise foreign investment in India.
goods produced
promoe
De-reservation under small-scale industries:Many by
In
industries were dereserved.
essence, New Industrial from the
smal -sCae
Policy has sought to liberate industry shackles of the
licensing system (Liberalisation), drastically reduce the role of public sector
and encourage foreign private participation in India's industrial development
So, the three main Components of New Industrial Policy or. New Economic Policy are:
((GPlorbivaaltiissaattiioonn
Liberalisation
" Privatisation
" Globalisation
Let us discuss them one by
one.
Liberalisation
Liberalisation means removal of urinecess arucontrols and restrictions on business.
lt involves removal of entry and growth restrictions on the private sector
enterprises and end
of licence, pemit and quota. The
purpose was to unlock the economic potential of the
by encouraging private sector and MNCs to invest and expand. country
The Indian industry has been liberalised in the following manner:
1. Aboition of licensing requirement in most of the industries.
2. Norestriction on expansion or contraction of business activities.
3. Removal of restrictions on the movement of goods and
services.
4. Freedom in fixing the prices of goods and services.
5. Reduction in tax rates and lifting of unnecessary controls
over the economy.
6. Simplifying procedures for imports and exports.
7. Liberal process to attract foreign capital and technology to India.
Privatisation
Privatisation means giving greater role to the private sector in the nation building process antd
areduced role to the public sector. This was a reversal of the
development strategy pursued
so far by ndian planners.
For privatisation, Government initiated the following measures:
1, Disinvestment: Disinvestnment refers to selling apart or the whole of shares of
public sector
undertakings (PSUs), i.e. transter of public sector enterprise to private sector. It diluteste
stake of Government in the PSU. If prvate sector acquires more than 51 percent shares,
then
Pnould result in transfer of ownership a2nd management of PSU to the private
sector.
Management and Business Environment 3.11

2. Seting up of Board of Industrial and Finanial Reconstruction (BIFR); BIFR was set up
to revive or close loss making and sick PSUs.
Globalisaion
Globalisation means integrating the various economies of the world leading towards the
emergence of acohesive (or wellintegrated) global economy.
"It involves integrating the national economy with the world economy through removal of
barriers on international trade and capital movements.
"Till 1991, the Indian Government strictly regulated imports through licensing of imports,
tariff restrictions and quantitative restrictions.
However, the New Economic Policy aimed to liberalise foreign trade (by importliberalisation
and export promotion) through rationalisation of the tariff structure and reforms with respect
to foreign exchange, so that the country does not remain isolated from the rest of the world.
" Globalisation increased the level of interaction and interdependence among the various
nations ofglobal economy. Business enterprises can now easily serve customers in adistant
geographical market. This has been made possible by the rapid advancement in technology
and liberal trade policies by the Government.
Which Economy is Truly Globalised?
An economy is truly global,when there is:
1. Free flowof goods and services across nations;
2. Free flow of capital across nations;
3. Free flowof information and technology;
4. Free movement of people across borders:
5. Acommon acceptable mechanism for the settlement of disputes;
6. Aglobal governance perspective.

3.7 DEMONETISATION

Concept
On the 8th of November, 2016, the Government of India made an announcement with profound
implications for the Indian economy. It was decided to demonetise high value currency notes
of denomination of ? 500 and 1,000 with immediate effect, ceasing to be legal tender, except
for a few specified purposes. Demonetisation is the act of removing acurrency unit of its status as
Legal Tender.
These notes accounted for almost 86% of the country's cash supply. As per the scheme, people
had to deposit the invalid currency in the banks and restrictions were also placed on cash
withdrawals. In other words, restrictions were placed on the convertibility of domestic money
and bank deposits.
 Business
3.12 Studies for
Clasn
The aimof counterfeitingthe use of high
demonetisation
notes for illegal wasito
t curb corruption,
lactivities and especiallythe accumulation of 'black
that has not been declared to the tax authorities.
money generated bv
denominInactoinme
Features of Demonetisation
Cash holdings
1.
Demonetisationis viewed as a"Tax Administration Measure'. arising from
declared income was readily deposited in banks and exchanged for new otes.
people holding black money had to declare their
penalty rate.
unaccounted wealth and
Howeve,
pay taxes ata
2.
Demonetisation is also interpreted as ashift onthe part of government indícating that Tox
Eoasion will no longer be tolerated or accepted.
Demonetisation also led to channelizing savings into the formal financial
3. system.
much of the cash deposited in the banking system is bound to be withdrawn. ButThough,
,
of the new deposits schemes offered by the banks will continue to provide a base some
at lower interest rates. loans,
4. Denonetisation also aims to create aless-cash or cash-lite economy, ie., channeling More
savings through the formal financial system and inmproving tax Compliance.
"However, digital transactions require internet connectivity as they need cell phones
for customers and Point-of-Sale (PoS) machines for merchants.
"On the contrary, these disadvantages are counterbalanced by an understanding thatit
helps people into the formal economy, thereby increasing financial saving and reducing
tax evasion.

Impact of Demonetisation
1. Money/Interest rates i. Decline in cash transactions.
ii, Bank deposits increased.
i. Increase in financial savings.
2. Private wealth Declined since some high demonetised notes were not returned and real estale
prices fell,
3. Public sector wealth No effect.
4. Digitisation Digital transactions amongst new users and use of RuPay Cards and Aadhar
Enabled Payment System (AEPS) increased.
5.Real estate Prices declined
6. Tax collection Rise in income tax collection because of increased disclosure

3.8 IMPACT OF ECONOMIC REFORMS ON THE BUSINESS

The policy of liberalisation,privatisation and globalisation (LPG policy) made a significant
impact on the working of enterprises in business and industry.
The impact of changes in government yolicy may be analysed as folows:
1. Increasing Competition: After the economic reforms, delicensing and liberalised entry
of foreign firms have increased the competition for Indian firms, especially in service
Management and Business Environment 3.13

industries, liketelecommunications, IMPACT OF ECONOMICREFOAMS ON THE BUSINESS

airlines, banking, Insurance, ete.,
which were earlier reserved for the Increasing Competition
public sector.
Moro Domanding
For example, bankingroloms Incroasod Customors
the compotition for natlonallsod banks Rapldly changing
Technological Environment
like SBl fromdomostlc banks lko ICICI
and MNCs banks liko HSBC. Nocessity for Chango
Need for developing
2. More Demanding Customers: human resource

Today, customers have become Markot Orlentation

more demanding because they are Loss of Budgetary Support
well-informed and manufacturers to the public sector

take pains in satisfying their ex

pectations. Increased competition
better quality of goods and
in the market gives the customers wider choice in purchasing
services. This has created buyer'smarket in the courntry.
Rapidly changing Technological Environment: Increased competition made it compulsory
3. and grow in the market. Use of advanced
for Indian firms to develop new ways to survive
machines, process, products
technology provides acompetitive edge and helps to improvetough challenges for smaller
technology creates
and services. However, rapidly changing
firms due to shortage of funds. development of Nano' car, so that it can
research and
For oxample, Tata spent huge amount on
environment.
withstand ovor changing tochnologlcal
Before the economic reforms, the business environment was quite
4. Necessity for Change: continue for a longperiod of time. However,
business plans and policies used to
stable and turbulent and enterprises have to continuously
market forces have become
after reforms, the
modify their operations and policies. on making changes in their products, so that their
Samsung, Baja), keep
For example, flrms like LG,
products can face competitlon.
human resource: Indian firms have suffered a lot due to shortage of
5. Need for developing require people with higher competence and
new market conditions
trained personnel. The have realised the need to develop human
resources.
greater commitment. Hence, the firms
rogularly arrange on-the-job and of-the-job training for their employees, so as to
For oxample, firms
update thoir knowledge.
firms used to follow production oriented approach, i.e.
6. Market Orientation: Earlier,
market for sale. However, with increase in competition and
produce first and then go to oriented approach, i.e. study and analyse the
consumerism, the firms have shifted to market
produce goods to satisfy buyers in an effective manner.
needs of the market first and then
3.14 Business h
7. Loss of Budgetary Support to the public sector: After the econornic
ret
public sector has declined. As a esult, Government has also reduced theo rm s, the
finartocia)
tothe public sector undertakings(PSU'S). PSUs have realised that in order
growin the competitive world,they will havetoinprovetheir r performance ara
their owT eSouces.
Finally, it can ibe concuded that economic reforms have positively affected the
and industry. Indian enterprisesshave developedstrategiesand adopted business;
procedures to meet the challenge of competition. Indian enterprises have become Indipraoncebss tesa
oriented and h°ne adoptei mensures to improre customer relationship and satisfaction.
impacts ofglobalisation and liberalisation on business
For Postve andINegative
Refer HOTS.
N
andindustry inlda,
Managerial Response to Changes in Business Environment
Abusiness enterprisecan survivesuccessfuly only when it can cope up with the
uncertainties Some of the means which indicate managerial response to changes in bus
environment are outlined below:
environnert
1 Diversification: Many Indian Companies are gong for diversification by
introduáng
new range of products and services in which they have no prior experience. For exam
Reliance Industries entered into mobile communication. Several other companies h
alsodiversified into both related and unrelated fields of busirness.
2. Joint Ventures with MNCs: Many Indian Comparnies are adopting this sort of business
combinations to make themselves stronger and to enable them to face environmental
pressures and uncertainties with more strength and confidence. For example, Joint Venture
between Jaguar and Tata Motors, Mahindra and Mahindra with Ford, etc.
3. Acquisitions and Mergers: There has been an increase in the acquisitions and mergers in
the Indian industry since the economic reforms. Examples: (i) Vodafone India and làea
Cellular are merging operations in the country to create an entity that will be equal
owned by UK's Vodafone Group and India's diversified Aditya Birla Group: (i) Fliplat
acquired its fashion-focused rival Myntra.
4. Use of Modern Technology: Most of the business firms are trying to adopt the latest
technology to upgrade quality and reduce costs. Upgradation to the modern technology
is very crucial for all the companies. For example, Cellular Companies are continuousy
developing new models of Mobiles with the latest processor.
5. Brand Building: Companies are now making substantial investment in building and
popularising brands. For this, they are spending huge amount on various promotional
activities. For example, companies engaged in consumer durable products, like Sanmsung
and LG do lots of advertisement for brand building.
6. Customer Orientation: Companies now pay more attention towards the needs and
convenience of customers. They have started manufacturing products as per customers
needs and stresses on customers' satisfaction. Toll free customer care numbers havebeen
Management and Business Environment 3.15

introduced by most of the companies to sort out queries and grievances of customers as
early as possible.
7. Higher Level of Compensation: In order to compete with the salaries in MNCs, there is
aconsiderable increase in the pay package offered by Indian Companies in managerial as
wellas technical jobs. The starting pay of engineering and management graduates have also
increased significantly. Companies are following performance linked incentive schemes
such as Employees Stock Option Plan (ESOP).

QUICK REVISION
Business Environment means the sum totalof all individuals, institutions and other forces that are
outside the control of a business enterprise, but that may affect its performance.
Features of Business Environment:
1. Sum total of all the external forces
2. Includes both specific as wellas general forces
3. Different elements are inter-related
4. Dynamic in nature
5. Uncertain
6. Complex
7. Relative Concept
" Importance of Business Environment: Study of business environment is important due to following
reasonS:

1. It enables the firm to identify opportunities and getting the first mover advantage.
2. Helps the firm to identify threats and early warning signals.
3. Helps in tapping useful resources.
4. Helps incoping with rapidchanges.
5. Helps in assisting in planning and policy formulation.
6. Helps in improving performance.
" Dimensions of Business Environment: The various dimensions of business environment, in terms
of general environment are:
1. EconomicEnvironment: It refers to all those forces that have economic impact on the business
activities.
2. Social Environment: It represents the customs and traditions, values, culture, social trends, beliefs,
norms and ethics of a society in which business enterprises operate.
3. Technological Environment: It refers to the broad characteristics of technology in which the business
enterprise operates.
4. Political Environment: It includes political conditions such as general stability and peace in the
cOuntry and specific attitudes that elected government representatives hold towards business.
 3.16 Business Studies for
legislatlons within
5. LelEnironment: trefers totheframework oflaws and various
transactions are to take place. whicth buite
" Features of New Industrial Pollcy: The main features are:
1. Delicensing
2. Decrease in role of Public Sector
3. Disinvestment
4. Liberalisation of Foreign Capital
5. Liberal policy for technical collaboration
6. Setting up of Foreign Investment Promotion Board (FIPE)
7. De-reservation under smal-scale industries
" Liberalisation, Privatisation and Globallsation: The Newlndustrlal Policy emphasised on lhre
elements:
restrictions onnbusiness.
1.2. Liberalisation means removal of unnecessary controls and
Privatisation means giving greater role to the private sector in the nation building process anda

reduced role to the public sector.

sintegratingthe various economies ofthe worldleading towards the emergenca
3. Globalisation meansi
of a cohesive global economy.
unit of its status as Legal Tender.
" Demonetisationis the act of removing acurrency
"Features of Demonetisation
1. It is viewed as a Tax Administration Measure.
2. It has indicated that Tax Evasion will no longer be
tolerated.
3. It led to channelizing savings into the formal financial system.
4. It aims to create a less-cash or cash-lite economy.
economic reforms on the businessae
Impact of Economic Reforms on the Business: The impact of
foreign firms increased the competion
1. Increasing Competition: Delicensing and liberalised entry of
for Indian firms.
well-informed and increasedcompetition
2. More Dermanding Customers: As the customers are now
in the market has created buyer's market.
made it compulsory fr
3. Rapidly changing Technological Environment: Increased competition has
Indian firms to adopt the latest technology.
continuously modify thei
4. Necessity for Change: After economic reforms, enterprises have to
operations as market forces have become turbulent.
5. Need for Developing Human Resource: As new market conditions require people with higher
competence and greater commitment.
6. Market Orientation: With increase in competition and consumerism,firms have shifted to markel
oriented approach.
7. Loss of Budgetary Support to the Public Sector: Due to decrease in role of public seca.
Government has also reduced the financial support to them,