NATIONAL ELIGIBILITY TEST

COMMERCE
PAPER II

Mr.T.SOMASUNDARAM.
M.B.A., UGC – NET & JRF, M.S.W., M.A.
UNIT I
 BUSINESS ENVIRONMENT
 Business Environment consists of two words –
a) Business (human activities like production, extraction,
purchase, sales of goods and services in terms of economic
sense).
b) Environment (sum total of all surroundings of a living
organism including natural forces and other living things).
“Business Environment refers to the sum total of internal
and external forces operating in an organization.
i) External forces (uncontrollable and provide opportunities
and pose threats for business growth).
ii) Internal forces (controllable and exhibit strengths and
weakness).
Importance of Business Environment:
1. Flexible Environment.
2. State of Competition.
3. Finance also restricts the business activity.
4. Business environment should be clean.
5. Clean business environment.
Features of Business Environment:
1. Compound in nature & driven by internal and external
factors.
2. Constantly changing process.
3. Different for different business units.
4. Both long term and short term impact.
5. Uncertain and inter – related components.
Dimension of Business Environment:
1. External Environment:
a) Micro factors (Suppliers, Marketing intermediaries,
Customers and Public).
b) Macro factors – Uncontrollable factors.
(Economic, political & regulatory, social / cultural,
demographic, technological, global and natural environment).
2. Internal Environment:
Controllable factors –
(values, vision and mission, organizational structure,
power and authority flow, physical assets and other factors).
Micro Environment:
1. Market – Market type.
2. Suppliers – certainty of supplies, Own supply, Alliances.
3. Marketing Intermediaries – Distribution, Transport,
Promotion, Finance and Insurance.
4. Competitors. (Porter’s Five forces Model – a) Intensity of
rivalry, b) Threat of new entrants, c) Bargaining power of
Suppliers, d) Bargaining Power of Buyers and e) Threat of
Substitutes).
5. Customers – Customer loyalty & Assorted customers.
Other Micro factors – Financiers, Public, NGOs, etc.
Macro Environment:
1. Social Environment:
People who live in a society consisting of –
Business organizations.
Families.
Institutions – Non-business
Different religions.
Different gender.
Occupational pattern.
Culture – a Social Environment factor:
History.
Physical environment.
Culture – dimensions.
Status symbols.
 ECONOMIC ENVIRONMENT
Economic Environment includes –
1. Economic System.
2. Economic Condition.
3. Economic Legislation.
4. Economic Policies.
5. International Economic Environment.
1. Economic System:
“Economic system require a set of rules, an ideology to
justify them and concise in the individual which makes him
strive to carry it out.”
2. Economic Conditions;
The following are vital aspects of economic conditions of
country –
a) Trends of business cycle.
b) National income.
c) Rate of capital formation.
d) Market trends.
e) Growth rate of industrial sectors.
f) Growth of primary and secondary capital markets.
g) Impact of interest rates on economy.
h) Efficiency of public and private sectors.
i) Role of financial institutions.
3. Economic Legislations:
Legislation regarding entry covers –
a) Reservation of industries to small and tertiary sector, co-
operative sector and public sector.
b) Import controls.
c) Control of foreign investment and technology.
Legislation are also enacted regarding the conduct of business
–
a) Control of product mix.
b) Level of production.
c) Distribution of goods and services.
d) Pricing of goods.
e) Promotion of goods by advertising and through salesmanship,
etc.
4. Economic Policies:
Economic policies of the government comprise of the
following major sub – policies –
a) Monetary policy.
b) Fiscal policy.
c) Industrial policy.
d) Foreign investment policy.
e) EXIM policy (Export – Import policy or Foreign
Trade policy).
 LEGAL ENVIRONMENT
Legal environment is a non economic environment, which is
based on the State Policy. Governments – central and state
play two types of roles –
a) Promotional – development of infrastructural facilities,
developing economic and societal institutions. Long term and
short term projects.
b) Regulatory – controlling of every activity of state both
private and public.
Legislations such as Indian Penal Code (IPC), Criminal
Procedure Code (CPC) are enacted to control law and order of
society.
Objectives:
i) To include protection of business houses from unfair
competition, protection of consumers from unfair business
practices and protection of interests of society from unbridled
business behaviour.
Some of the acts listed here –
a) Indian partnership act, 1932.
b) The Factories Act, 1948.
c) Industries Act, 1951.
d) Prevention of Food Adulteration Act, 1954.
e) Standards of Weights and Measures Act, 1956.
f) Indian Companies Act.
g) Industrial Disputes Act, 1972.
h) Payment of gratuity Act, 1972.
i) Bureau of Indian Standards Act, 1986.
j) Consumer Protection Act, 2002.
k) Foreign Exchange Management.
l) Trademarks Act, 1999.
m) Competition Act, 2002.
n) Essential Commodities Act, 2002.
o) Environment Protection Act.
p) Alternative Dispute Resolution – ADR Mechanism.
q) Indian Contract Act.
r) Sale of Goods Act.
Important bodies are as follows:
a) IMF (International Monetary Fund) and GATT
(General Agreement on Trade and Tariff).
b) UNCITRAL (United Nation Convention on
contracts for the International sale of Goods).
c) ISO (International Standards Organization).
d) PCT (Patent Corporation Treaty).
e) IATA (International Air Transport Authority), ICA
(International Civil Aviation Authority) and ITU
(International Telecommunication Company).
f) International Chamber of Commerce.
 POLICY ENVIRONMENT
1. Globalization:
“It refers to process of depending economic integration,
increasing economic openness and growing economic
interdependence between countries in the world economy.”
Features:
a) Free flow of goods and services between nations.
b) Capital freely moves between nation as per needs and
agreements.
c) Free flow of information, technology and movement of
people without violating national laws.
Globalization –
At world level –
- growing economic interdependence among countries
in world.
- cross border flow of goods, services, knowledge, etc.
- globalization of production and finance.
At national level –
- interlinking country’s economy with rest of world.
- extent of inter linkages.
At level of specific industry –
- company’s competitive position in one country.
Al level of specific company –
- expansion of revenue and asset base across countries.
Liberalization:
Liberalization is to make a thing or person free from clutches
of another individual.
It means withdrawal of direct discretionary controls by the
government in favour of market forces.
The policy of Economic Liberalization contained the
following aspects:
a) Liberalization of imports.
b) Reduction in controls on foreign investment.
c) Doing away with domestic industrial licensing system.
d) Liberal license policy.
e) Privatization of public sector undertakings.
f) Liberalization of financial sector.
g) Considerable withdrawal of state from economic activity.
Privatization:
Privatization means transferring government business to
private ownership or to outsource the government service
activities to private people.
It establishing more government enterprises called Public
Sector Undertakings (PSUs).
It is a policy decision of the government of India to deregulate
the business activities and allow private sector to operate in
bigger way in manufacturing and trade activities.
Four stages of Privatization –
a) Deregulation.
b) Dereservation.
c) Privatization policy.
 SAMPLE SOLVED QUESTIONS
1. Any country consistently facing balance of payment deficiency can
approach:
a) World Bankb) Smithsonian Institute
c) IMF d) IMF & IBRD Ans: C

2. Which among the following is not a correct sequential combination?

a) Macro Environment – Economic Environment – National Income –
Pattern of Income distribution.
b) Business Environment – Internal Environment – Business Ethics –
Payment of fair wages.
c) Business Environment – External Environment – Micro Environment
– Suppliers.
d) Macro Environment – External Environment – Customers – Prospects
of Business Development. Ans:
D
3. Statement – I: The industrial policy of the Government of India
is aimed at increasing the tempo of industrial development.
Statement – II: After the New Industrial policy – 1991, the
Balance of Trade for India has always been positive.
Code:
(a) Statement I is correct, but II is incorrect.
(b) Statement II is correct, but I is incorrect.
(c) Both Statements I & II are correct.
(d) Both Statements I & II are incorrect.
Ans: A
4. Internal Environment of a business includes:
i) Business ethics and moral standards.
ii) Business and Managerial policies.
iii) Prospects of business development.
iv) Industrial relations.
Codes:
a) (i), (ii), (iv) and (v).
b) (ii), (iii), (iv) and (v).
c) (i), (ii), (iii) and (iv).
d) (i), (ii), (iii) and (v). Ans: D