INTERNATIONAL INDIAN SCHOOL,RIYADH

CLASS:XI
UNIT-2 SUB:BUSINESS ADMINISTRATION
BUSINESS ENVIRONMENT

1.What is Business Environment?

or
Meaning of Business Environment
The term Business Environment means the sum total of all individuals or organiza ons and other forces
that are controllable or outside the control of business enterprise but may affect its performances. The
economic, social, poli cal technological and other forces which operate outside a business enterprise are
part of its environment. Business Environment consists of both specific and general forces.
Specific forces: refer to those forces which are having direct effect on day to day working of the business
i.e. customers, compe tors, investors etc.

General forces: refer to social, poli cal, legal and other forces which have indirect effect on business
opera ons.

2.Defini on of Business Environment

In the words of Keith Davis “Business Environment is the aggregate of all condi ons, events and influences
that surround and affect it.”

3.What are the different features of features of business environment.

1. Aggrega ve - Business Environment is the totality of all the external forces which influence the working
and decision making of an enterprise.
2. Inter–related - Different elements of business environment are closely interrelated and interdependent.
A change in one element affects the other element for example : Social pressure against pollu on (social
environment), led to the enactment of an -pollu on laws (poli cal environment).
3. Rela vity - Business Environment is a rela ve concept. It differs from country to country and region to
region for example : Countries like USA and UK have different kind of educa on system from India.
4. Uncertainty - Business Environment is legally uncertain because it is very difficult to forecast future
uncertain es. Changes are taking place very frequently. For e.g. Advancement in mobile technology.

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5. Complex - Business Environment is very complex. It’s difficult to know the impact of social, economic,
poli cal and technological factors on change in demand of a product.

4.Write a short note about internal and external environment

Business Environment is a combina on of both internal and external environment
Business is surrounded by an internal environment which is in control of the business.
external environment which is not in control of business.

5.Explain in detail – internal and external factors

Internal environment includes components like:

1. Capital
2. Human resources
3. Work environment
4. Brand image
5. Management policies
6. Promo onal strategies
a) Capital - Finance is the life blood of the business. The management has to skillfully u lize the financial
resources for growth of the organiza on. Op mum u liza on of financial resources is one of the
controllable factors.
b) Human resources - Efficient human resource of the business takes the business to greater heights. The
quality of goods and services provided by the business also depends upon the people employed in the
business. Therefore, it is an internal factor which is in control of the business.

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c) Management Policies - The board of directors should foresee the changes in external environment and
form business strategies and policies accordingly. The business owner should also keep in mind business
ethics and values so as to survive in the economy.
d) Brand Image - Promo ng the brand of the business is completely in the control of the entrepreneur. If
the business succeeds in providing quality goods and services to the customer’s then business builds the
best brand image.
e) Promo onal strategies - It is in the control of the business to formulate the policies and strategies of
promo ng their business in this compe ve world. They should work towards healthy compe on and
fulfill their business objec ves.
f) Internal work environment - Business should promote healthier and happier environment inside the
organiza on and provide good working condi ons for the employees.
External environment includes components like:

1. Economic environment
2. Social environment
3. Poli cal environment
4. Technological environment
5.Legal environment
1. Economic environment - The economic environment exercises most significant influence on business
because business itself is an economic ins tu on. Totality of Economic Factors, such as employment,
income, infla on, value of rupee, interest rate, produc vity, wealth, that influences the buying, behavior of
the consumers and firms comprises Economic Environment.
Since 1991 the government has announced several measures which are popularly known as economic
reforms. It consists of liberaliza on, priva za on and globaliza on (LPG).
LIBERALISATION means removal of restric on on the entry and growth of private Sector firms.
PRIVATISATION means giving greater role to private sector and reducing role of public sector.
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GLOBALISATION means integra on of our economy with world economy to promote imports, exports and
mobilizing exchange movement.
Examples of impact of economic environment on business are as follows
a. A rise in income of people has created increasing demand for products.
b. Globaliza on has resulted in entry of several mul na onals into India.
c. Rapid growth of Indian economy has been causing infla on.
d. Stock markets in India have become more sensi ve to change in interna onal stock markets.
2. Social Environment - Social environment refers to characteris cs of the society in which a business firms
exists. It consists of social ins tu ons and groups, educa onal system and literacy rates, custom beliefs,
values and life styles, tastes and preferences of people. Demographic forces- size, popula on, occupa onal
structure. Examples of impact of social environment on business are as follows : —
a. Changing a tude of Indians towards food and clothing have led to growth of fast food joints and
readymade clothing.
b. Be er educa on facili es for girls are crea ng greater demand for school dress, books and sta onery. c.
NGO’s and courts are making business firms more responsible towards consumers and environment
protec on.

3. Poli cal environment - Poli cal environment comprises the elements rela ng to government affairs. It
serves as regulatory framework of business. The main cons tuents of poli cal environment are as follows –

 Cons tu onal framework

 Poli cal ideology

 Philosophy of poli cal par es

 Poli cal stability

 Image of country and it leaders

 Defense and military policy

 Nature and extent of bureaucracy

Examples of impact of poli cal environment on business are as follow

a) Coali on government at center has reduced poli cal stability increasing risks for business.
b) Reserva on for ST, SC AND OBC’s etc in educa onal ins tu ons.
c) Crea on of new states of Chha sgarh, Jharkhand, and U aranchal is affec ng transport, tourism and
mining industries.

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4. Legal environment - Legal environment consist of laws, rules and regula on, framed by the parliament
under which the business must operate. To exist and grow the business has to follow all the law that
cons tutes this environment. Non compliance of laws can pose threats for business enterprises. The main
cons tuents of legal environment are –
1. Laws governing business- economic, commercial and labour laws.
2. Flexibility and adaptability of laws.
3. Implementa on and effec veness of laws, court decisions for protec on of consumers.
4. Decision rendered by various agencies at center, states or local level.
Examples of impact of legal environment on business
a) Chambers of commerce and industry try to influence the policies and rules through lobbying and public
opinion.
b) Restric on on sale of arms ammuni ons, Explosive, dangerous drugs.
c) Protect employee against unfair dismissal.
d) Legislature for health and safety and workers.
5. Technological environment- It includes new approaches, new products and new equipments to
transform inputs into outputs. It also facilitates an organiza on efficiency and effec veness so that it can
try to remain at par with best in the world. Technology changes provide opportuni es and become threat
for others. Example of impact of Technical Environment on business
1. Mobile phones have taken over from landline phone.
2. E- cke ng for railways and airways.
3. Informa on technology and telecommunica on have given rise to a global market which requires be er
system of produc on and distribu on (Internet marke ng).

6. Write a note about SWOT Analysis:

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 The organiza ons have to face challenges and adapt to changes that are taking place in the industry &
market. For this good planning strategy is required by any business. Business opera ons have to be smooth
for achieving its success.
In 1960’s a team of researchers developed a new method to analyze corporate strategy. This method is
known as SWOT Analysis. SWOT is basically a business tool that deals with the internal and external factors
of the business. It’s an acronym which stands for Strength, Weakness, Opportuni es & Threats. It uses basic
data of the business to iden fy what strength & weaknesses that a business has and then spot the
opportuni es that arise & threats likely to face.

Strengths and weaknesses :Strengths describe the posi ve factors of the business. Weaknesses are the
ac vi es which nega vely impact the business. They are completely under the control of business. It is an
internal factor which can be used as a basis for developing a compe ve advantage. The internal factors
include mostly the resources & experiences.
General areas to consider are:

 Human resource – staff, board members, target customers

 Physical resources – loca on, building, equipments

 Financial resources – Grants, funds, credits  Ac vi es & Processes – Programs the business run, systems
they employ.

 Past experience – Reputa on of the co. brand name, patents.

Opportuni es & Threats: Opportuni es are ac vi es that the business does not currently have or do but
that could posi vely impact the business if undertaken. Threats are factors that nega vely affect the
business, if proper steps are not taken to mi gate them. The business has no control over the external
factors which give rise to opportunity & threats.

General areas to consider are –

 Future trends

 The economy – Local, na onal, interna onal  Funding sources – donors, legislature

 Demographics – change in age, race, gender, popula on shi s, culture of the society

 Economic Boom & Depression.

7.What are the advantages and disadvantages of SWOT Analysis?

1. It understands the business & organiza on be er.
2. It helps in addressing the weaknesses of the business.
3. It helps in capitalizing the opportuni es in the economy.
4. It helps in taking advantage of strengths of the business.

5. SWOT Analysis priori zes business goals & strategies.

6. SWOT analysis also lays down the path for achieving the goals of the organiza on. Disadvantage
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