B.Com Ist Year Indian Business Environment Concept Components & Importance Notes

B.Com Ist Year Indian Business Environment Concept Components & Importance Notes :- hii friends this post is very useful for all the student B.com, In this post you will find Business Environment Topic Wise chapter wise all the content Question Answer Notes Model Paper Examination Paper Sample Practice Paper PDF Download Hindi & English For Free.

Indian Business Environment : Concept, Components and Importance

Q.1. What do you understand by ‘Business Environment Also explain the nature of business environment.

(Meerut, 2012; Rohilkhand, 2013; Avadh, 2014)


What is meant by Business Environment. Explain why it is necessary to study the business environment. (Meerut, 2013)

Ans. The term ‘Business Environment is a combination of two words Business and Environment. Hence, it becoines necessary to understand the meaning of these two terms separately:

Business : Business may be defined as an organised effort by an individual or group of individuals engaged in production and supply of goods and services for the profit.

According to Urwick and Hunt, “Business is any enterprise which makes, distributes, or provides any article or service which other members of the community need and are able and willing to pay for.”

Environment: It is the system in which human beings live and they have to adjust themselves according to it. It is a mixture of social, economic, legal and technological factors. This environment imposes several constraints on the enterprises and has considerable impact and influence on the scope and direction of its activities.

Business Environment : Business environment refers to those aspects of the surroundings of business enterprise which affects its operation and determine its effectiveness. It is a mixture of complex, dynamic and uncontrollable external factors within which a business is to be operated. Economists have defined business environment in different ways:

According to Reinecke & Schoell, “The environment of business consists of all those external things to which it is exposed and by which it may be influenced, directly or indirectly.”

According to Arthur M. Weimer, “Business environment is the climate or set of conditions : economic, social, political or institutional in which business operations are conducted.”

Thus, it becomes clear from the above definitions that business environment comprises to all external factors which affects the functioning of business. Since, these factors are uncontrollable, the business firms have to formulate improve or modify their policies to suit to the changed business environment.


(1) Internal and External Environment: Every business is surrounded with internal and external factors which influence its strategy and decisions. A business firm can control its internal environment to some extent but it has no control over the external environment. Therefore, business firms have to adjust themselves according to its external environment.

(2) Dynamic Factors: The environment of business is created by several dynamic factors such as economic, social, political, technical, religious etc. All these factors are dynamic and beyond the control of a firm.

(3) Environmental Factors are Interdependent : The different factors of business environment are not self reliant, but are interdependent. For Example, political-legal environment influence economic environment and economic environment thus influence the social environment,

(4) Uncontrollable Factors : The factors of external environment are uncontrollable and affect the firm’s operations to a large extent. The firm has no control over the government policies, political conditions, change in technology, research and development etc.

(5) Basis of Long-term Planning : Business environment affects the profitability and growth of a business enterprise. Therefore to make the long-term planning it is necessary to know the uncertain and complex information about the external environment.

(6) Uncertain : Business environment is influenced by many factors, therefore it becomes uncertain in nature. It is very difficult to make estimation about the changes in the various factors of

environment. Therefore, business enterprise has to face challanges and problems for satisfying the expectations of environment.

(7) Responsible for all Factors : A business firms fully responsible for all environmental factors, such as, consumers, society, employees, government etc.

(8) Changes in the Business Environment does not affect all the Firms in a same Manner : Changes in the business environment does not affect all the firms in a same manner. These changes may prove helpful in the growth of a firm and the same may create hardles in the growth of the other firm.

For the Need and Importance of Business Environment see page Number 6 and 7.

Q.2. Define the main constitutents of Business Environment. Explain why it is necessary to study business environment?


What do you understand by business environment ? Why do we need the study of business environment?

(Meerut, 2013)


Describe the main constitutents of micro and macro


Ans. Every business enterprise is influenced by both internal and external factors, therefore business environment can be divided into two categories:

(1) Internal Environment, (2) External Environment.

Internal Environment : Internal environment reflects the internal organisation of a business firm through which it operates its activities. Yet changes in the internal environment affects the working system of a business firm, though these are generally regarded as controllable factors. The company can alter or modify these factors according to its objectives. Main factors of internal environment are as follows:

(ii) Business and managerial policies of the firm;

(iii) Production capacity, technology and effeciency of the productive apparatus;

(iv) Organisational and management structure;

(v) Management information system;

 (vi) Labour management relations;

 (vii) Availability of resources;

 (vii) Prospect of business development.

External Environment : External environment in those external factors that create opportunities and threats business. These factors are dynamic and uncontrollable which a business is to be operated. The external environ consists of a microenvironment and macro environment.

Micro Environment : Micro environment includes all +2 factors which have a direct bearing on the operation of the These factors linked intimately with the company than the me factors. The micro forces need not necessarily affect all the firms in particular industry in the same way. This environment includes + following factors:

 (1) Suppliers : Suppliers are an important force in the mim environment of a company. They supply the inputs like raw materials and components to the company. Suppliers play an important role in the smooth functioning of the business. Uncertainty in the supply compel the companies to maintain high stock level which increase the cost of production.

(2) Customers : A business exists only because of its customers. Therefore it is a major task of a business to create and sustain customers. A firm may have different categories of customers such as households, industries, individuals and government etc. The firm has to make choice among them by considering many factors i.e., relative profitability, stability of demand, extent of competition and so on.

(3) Competitors: A firm has to face many type of competitors in the market. Now the competition is not only from the other firms which are producing the same product but also all those who compete for the discretionary income of the consumers. The competition may be in the form of desire competition, generic competition, brand competition etc.

 (4) Marketing Intermediaries : It include middlemen such as agents, merchants, distribution firms, marketing service agencies etc. which help the firm in promoting, selling and distributing its goods to final buyers. Marketing intermediaries are vital links between the company and the final customers. Any disturbance of the link may cause heavy loss to the firm.

(5) Public:A publicis any group that has an actual or potentias interest in or impact on an organisation. It includes media public, citizens and local public etc. Some of the actions of the publics may cause problems and some creates an opportunity for the business.

Macro Environment: Macro environment includes all those factors which affect the business firm indirectly. The firm has no control over these factors. This environment includes the following factors:

(1) Economie Environment : Scope and nature of the activities of a business firm largly depends upon the level of economic development of a country. In nderdeveloped countries where the level of income is low, any ommodity cannot be sold unless its price is low. A manufacturer producting high cost goods cannot get success in the market of underdeveloped country. Hence business strategy must take such economic factors into account. In the same way industrial policy, monetary and fiscal policy and other government policies have a great bearing on what a business enterprise can do to promote its interests. A business friendly government creats a congenial business environment.

(2) Demographic Environment : Demographic factors ie.expectancy, age composition, population growth rate, life employment pattern, family size etc. affects the demand for goods and services. The demand for many goods rises with increase in population.

(3) Socio-cultural Factors : Socio-cultural factors includes social behaviour, social customs, social interest, social values and level of education. This environment differs from country to country. A business enterprise would do well by considering such differences while designing the product and devising the market strategy. A business cannot built up its image in the society without considering the social values.

(4) Natural Environment: Natural factors such as natural resources and its allocation, fertility of land, air, water, minerals, rain, forest etc. influence the structure and operating of a business firm. In the hilly areas tourism, cattle rearing and forest industries can be developed easily whereas in the plains agriculture and industries can be flourished easily. Geographical condition also create difference in the demand of the commodities. For Example, Gypsi is preferred more in place of maruti cars in the hilly areas.

(5) Technological Environment : Technological factors plays an important role in the development and success of business. Inventions and technological advances also render existing plants and products obsolete. Such changes pose threats to the survival of an enterprise.

(6) Political Factors : Political environment of the country °. affects the functioning of a business firm. Political ministrative system, constitution of state, political stability in the Country, security etc. have a great influence on the business firm. Fiscal, tariff and industrial policies of the government hinder or help the functions of a business firm.

(7) International Environment : The international environment is of great importance for the business which rely primarily on exports and imports. As a result of accelerating globalisation, interdependence among nations has also grown considerably. Openness to the rest of world exposes a country to great risk as well as creates opportunities for growth.


To carry out his business successfuly and profitably, business firm needs to understand the internal strength and weaknesses in terms of capital, technology and manpower etc. on one hand and on the other the external opportunities and threats regarding government policies conditions of global market, availability of resources etc. Study of business environment helps business firms in formulating his plans and strategies to face the possible threats and to avail the opportunities. The significance of business environment can be explained with the help of the following points:

(1) To Understand the Internal Environment : It is essential for business enterprise to understand its internal environment, such as, technology, man power, capital, business policy etc. Keeping them in view, a business firm can formulate his strategy in such a manner which gives maximum return.

(2) To formulate Long-term Planning : Strategy and objectives of long-term planning can only be determined by studying the environmental factors. In order to formulate long-term planning analysis of present environment and forecasting of future environment is essential.

(3) For the Success and Progress of Business Firm : It is essential for the success and progress of a business firm that he should keep eyes on the changing internal and external factors. No firm can get success without the knowledge of its environment. Ifa firm is not familiar with its environment, it cannot succeed.

(4) To Get Knowledge of Opportunities, Challanges and Limitations : The study of business environment provides the

knowledge of opportunities, challanges and limitations to the firm, Keeping in view these limitations and challanges long-term plans and policies can be formulated. Some factors such as consumer’s income, development of technology ete, provide new opportunities and challanges to the firm. Knowledge of these factors helps the firm to face challanges and to avail the benefit of opportunities.

(5). Helpful in Effective Decision Making: The study of business environment helps the business firm to take effective decisions. Keeping in view the internal and external factors, executives are able to adjust to the prevailing conditions and to take effective and firm decisions.

(6) To Get the Knowledge of Changes : For the success of business it is essential to familiar with the changing factors of the environment. Study of business environment provides the knowledge about the changes in consumer’s habit, fashion, technology, availability of new product and quality of products etc. Knowledge about changing environment keep a business firm dynamic in its approach.

(7) To Establish Co-ordination with Environment : In order to achieve its targets, business firms have to establish co-ordination with the different factors of the environment. The firm has to adjust itself according to the changed environment.

(8) For the Technological Upgradation : Study of Business Environment enables organisation to have knowledge about the product being manufactured by the competitor and technology used by them, also the modern technology available, organisation can take advantage of such study and upgrade their own technology.

(9) For the Evaluation of Objectives and Planning : In order to make success of business, planning is essential. It should be framed according to business environment. It should be evaluated time to time so that the management can modify plans and its objectives according to the changing environment.

(10) For the Better Productivity : Study of Business Environment enables organisation to have knowledge about better suppliers, workers, raw materials etc. this increases the productivity of the organisation.

(11) Measurement of Uncertainty or Risk : Uncertainty and risk is involved in the dynamic world of business. In order to measure the business risk and uncertainty, the study of business environment is useful. It helps in collecting business information, by which risk can he minimised.

Q.3. Write an essay on Business Environment of India.

(Meerut, 2014)

Ans. Since July 1991, the Government of India has taken many policy measures with the objective of pulling the country out of economic crisis and accelerating the rate of economic growth. Main features of current Indian business environment are as follows:

(1) Liberalisation : Liberalisation means to reduce unnecessary restrictions and controls on business units imposed by government. It means procedural simplification, relaxing trade and industry from unnecessary bureaucratic hurdles. Prior to 1991, government had imposed several types of controls on Indian economy, e.g., industrial licensing system; price control, import licence, foreign exchange control, restrictions on investment by big business houses, etc. These controls had dampened the enthusiasm of the entrepreneurs to establish new industries. These controls had given rise to corruption, undue delays and inefficiency. Rate of economic growth of the economy fell sharply. Economic reforms made an attempt to reduce restrictions imposed on the economy. Liberalisation was based on the assumption that market forces could guide the economy in a more effective manner than government control. Examples of other underdeveloped countries like Korea, Thailand, Singapore, etc., that had achieved rapid economic development as a result of liberalisation, were worth praising.

(2) Privatisation : In the context of economic reforms, privatisation means allowing the private sector to set up more and more of such industries as were previously reserved for public sector. Under it, existing enterprises of the public sector are either wholly or partially sold to private sector. Privatisation of Industries means opening the gates of public sector to private sector. It enhances the importance of private sector because private sector comes to pay significant role in the economic development of the country. Thus, transferring of public sector industries to private sector is called privatisation. At present government is giving more emphasis to private sector. Now except two areas (railways and atomic energy), all other areas are opened for the private sector. Indian private sector is growing very rapidly and people working in this sector are generally more hard working, dedicated, efficient and have better work culture.

(3) Globalisation : Globalisation means linking the economy of a country with the economies of other countries by means of free trade, free mobility of capital and labour, etc. It also means inviting multinational corporations (MNCs) to invest in the nation. Economic Reforms assume that Indian economy should have close link with the world economy. As a result, there will be unrestricted flow of goods and services, technology and expertise, capital and people among different countries of the world. There will be increased cooperation of Indian economy with different economies across the world. Capital and technology will flow from the developed countries towards India. At present Indian economy has been opened for the MNCs and foreign enterprises. Now many MNCs have entered in our economy and many of them have set up their production units in India. Now India is emerging as a global manufacturing hub for foreign enterprises because of lower labour cost and availability of skilled human resource in India. The ultimate aim of globalisation is to look upon the world as a global village.

(4) Increase in Competition : Indian business markets have become extremely competitive. Both domestic as well as foreign competition has increased. As a result of free entry of multinational corporations, domestic business units are facing acute competition from foreign business units. Our business environment is changing with opening of big shopping malls and with entry of big retail chain stores. Small business units are facing tough competition from large scale domestic and foreign enterprises.

(5) Increase in Foreign Investment : Foreign investment refers to investment by foreign investors in shares, debentures, bonds of the nation. With the liberal approach of Indian government towards foreign investment, its inflow has increased in recent years. There has been significant increase in both Foreign Direct Investment and Portfolio Investment. This foreign investment is supplementing domestic capital formation. It has also helped to improve our balance of payments position.

(6) Fast Growth in Service Sector: In recent years, service sector is dominating and growing at a very fast rate. Presently, more than half of national income is contributed by service sector. This sector includes banking, insurance, communication, transportation, warehousing, tourism, health, education, consultancy, business process outsourcing etc. Fast growth in service sector has improved the image of Indian economy in other nations also.

(7) Increase in Foreign Trade : In recent years, India’s foreign trade is growing at a very fast rate. As a member of World Trade Organisation, India is committed to reducing tariff and non-tariffbarriers to foreign trade.

(8) Increasing Standard of Living: In India, middle incom group segment is increasing at a fast rate. Now, people living in rural areas also have become very conscious about their standard od living. It has led to increase in demand for consumer durables like! television, refrigerator, airconditioner, computers, mobile phones cars, etc. As a result, many domestic and foreign business units ar engaged in producing and trading these consumer durables.

(9) Reduction in Foreign Debt: Foreign exchange reserved of our economy are increasing. Now our government does not raised. fresh foreign loans. It is rather redeeming earlier loans.

(10) Recovery in the Indian Economy after Slowdown due to Global Recession: In year 2008-09 and 2009-10, growth in major advanced economies has come down due to widespread financial crisis raising fears about stability of banks and financial institutions. The recent slow down in the world economy is worst since the great depression of year 1929. This slowdown adversel affected India’s export sector, reduced inflow of foreign investment weakened the employment prospects, adversely affected our capital markets and resulted in reduction in domestic demand of both capital and consumer goods. All this has adversely affected the business units. But now global economy is slowly coming out of global recession and Indian economy too, is coming out of the effect of global recession. In 2010-11, GDP growth of 8.6% in India has put the economy back to its pre-recession high growth situation. In India, GDP growth projection for 2011-12 is also 9%.


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