11th OCM Chapter 7 Exercise (Business Environment) Maharashtra Board – Free Resource

11th OCM Chapter 7 Exercise

Chapter 7 – Business Environment

Q.1 (A) Select the correct option and rewrite the sentences.

1) Business environment has tremendous impact on ……………
a) business
b) government
c) Society

2) The new Industrial policy was formulated in ……………
a) 1947
b) 1951
c) 1991

3) Changes in ruling government is an aspect of ………… environment.
a) political
b) technological
c) economic

4) Literacy level is an aspect of …………..environment.
a) social
b) legal
c) political

5) Privatization implies reduction in the role of ……….. sector.
a) public
b) private
c) foreign

6) Globalization is concerned with ……………. market.
a) global
b) local
c) rural

7) ……….… means linking national economy to the world economy.
a) Globalization
b) Privatization
c) Liberalization

8) Environment awareness provides …………… signal.
a) warning
b) alarming
c) soft

Q.1 (B) Match the following.

Group A	Group B
A) Globalization	1) Profit motive
B) Privatization	2) 2006
C) Liberalization	3) Borderless economy
D) New economic policy	4) Service Motive
E) Social Environment	5) Internal factor
	6) Disinvestment
	7) Social Values
	8) 1991
	9) Abolishing license policy
	10) GATT

Answers.
a. 3) Borderless economy
b. 6) Disinvestment
c. 9) Abolishing license policy
d. 8) 1991
e. 7) Social Values

2)

Group A	Group B
A) Internal environment	1) Knowledge of law
B) Political environment	2) Taxation policy
C) Legal environment	3) Technology
D) Economic environment	4) Traditions
	5) WTO
	6) Controlled by business
	7) High cost
	8) Ideology of political party

Answers.
a. 6) Controlled by business
b. 8) Ideology of political party
c. 1) Knowledge of law
d. 2) Taxation policy

Q.1 (C) Give one word/phrase/term for the following statements.

1) Uncontrollable factors of the business environment.
Answer: External Business environment

2) The environment of business that includes customs and traditions, values, social trends.
Answer: Social environment

3) The process of transferring ownership of business enterprise, agency or public service from the public sector to private sector.
Answer: Privatization

4) A boundary less world where there would be free flow of goods, services, information, capital and people across nation.
Answer: Globalization

Solution of other subjects
Solution of all Chapters of OCM
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8

Q.1 (D) State True or False.

1) External factors of business environment are controllable factors. (False)

2) Business is the product of different environmental factors. (True)

3) Business and environment are inseparable parts. (True)

4) There is no benefit of globalization to Indian economy. (False)

5) New economic policy promoted the liberal economic policy. (True)

6) There is no benefit of privatization to Indian economy. (False)

7) There is no need of consideration of the business environment factors in business. (False)

Q.1 (E) Complete the sentences.

1) The term of Business Environment generally refers to External Environment.

2) Business Environment helps business enterprises for overcoming challenges successfully.

3) Geographical and Ecological factors are included in Natural Environment.

4) Literacy is an important part of Social Environment.

5) Stability and peace in the country include in Political Environment.

6) Indian political system comprises three vital institutions.

7) Limited involvement of government in public sector refers to Privatization.

8) Integration of economy and society through cross country is called as Globalization.

Q.1 (F) Select the correct option

1) In how many types environmental factors can be classified?
(Two / Three / Four)
Answer: Two

2) Which factors of Business Environment regards as controllable?
(Internal / External)
Answer: Internal

3) Who frames the economic policy of the business?
(Government / Business/citizen)
Answer: Government

4) Which economic system in known as free market economy?
(Socialist / Mixed / Capitalist)
Answer: Capitalist

Q.1(G) Correct the underlined word and rewrite the following sentences.

1) External factors of business environment are controllable.
Answer: Internal factors

2) Internal factors of business are beyond control.
Answer: External factors

3) Natural resources are related to political environment.
Answer: Natural environment

4) Privatization helps for global village.
Answer: Globalization

Q.1 (H) Answer in one sentence.

1) Which factors are included in internal environment?
Answer: Value system, vision, mission and objective management structure, internal power relationship, Human resources, Physical facilities, Marketing resources, etc. are the factors included in internal environment.

2) What are the powers of legislature?
Answer: The powers of legislature includes policy making, law making, budget approving, executing control, etc. are in the hands of the legislature.

3) Which factors influence the economic condition of the Nation?
Answer: Economic condition of the nation is based on the gross domestic product, per capita income, availability of capital, growth of foreign trade, and strength of capital market.

4) Who possess the factors of production in socialist economy?
Answer: In this economic system factors of production are organized, managed, and owned by the government.

5) In which environment are the methods and techniques of production included?
Answer: Technological environment consist of the method and techniques of production.

6) When did Indian government launch New Economic Policy?
Answer: Indian government launched New Economic Policy on 24th July 1991.

7) What is useful to reduce political interference in industry?
Answer: Privatisation is useful to reduce political interference in Industry.

8) How is the boundary-less world possible?
Answer: A boundary-less world is possible through Globalization.

Q.2 Explain the following terms/concepts.

1) Business environment.
Answer:
a) Business environment comprises of such factors which can affect business, such as the
strength, weaknesses, internal power, relationship and orientations of the organization, government policies and regulations, nature of the economy and economic conditions, socio cultural factors, demographic trends, natural factors, and global trends.
b) The term business environment generally refers to the external environment which includes factors outside the business leading to opportunities or threats to the business.
c) According to Bayard O. Wheeler: “The total of all things external to firm and industries which affect their organization and operations is called as Business Environment.”

2) Liberalization.
Answer:
a) Liberalization refers to the process of eliminating unnecessary controls and restrictions for
smooth functioning of business.
b) Liberalization helps in achieving a high growth rate, easy availability of goods at competitive rates, high foreign exchange reserve, strong rupee, and good industrial relation etc.

3) Privatization.
Answer:
a) Privatisation refers to reduce the involvement of state or public sectors by involving of private sector in economic activities.
b) Privatization implies many government sectors to be sold or given to private individual hands to run them.

4) Globalization.
Answer:
a) Globalisation means integration of national economy and societies through cross country flows of information, ideas, technologies, goods, services, capital, finance and people.
b) In other words globalization means a ‘boundary less world’. All nations would be interdependent leading to better interactions regarding improvements in the global economy.

5) Social environment.
Answer:
a) The modern business is a social system in itself, and it is also a part of the larger social system represented by society in general.
b) Another feature which affects the business is the class structure of the society which tells about the social role and organizations and the development of social institutions.

6) Economic environment.
Answer:
a) The Economic environment comprises of economic condition, economic policies and economic system, basic economic philosophy, infrastructure, national income, money supply, saving stages in economic development and trade cycles are also the major factors which make up the total economic environment.

7) Political environment.
Answer:
a) All business firms are affected by the government and its policies. Political forces decide the nature of business, programmes and projects to be undertaken for development of the country.
b) India is the democratic country, Indian political system comprises three vital institutions like Legislature, Government and Judiciary.

8) Internal environment.
Answer:
a) The policies decided by shareholders, managers, labour unions, and employees are known as Internal Environmental factors which can be controlled.
b) Value system, vision, mission and objective management structure, internal power relationship, Human resources, Physical facilities, Marketing resources, etc. are the factors included in internal environment.

Solution of other subjects
Solution of all Chapters of OCM
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8

Q.3 Study the following case/situation and express your opinion.

1) a) The court passes an order to ban polythene bags as the bags are creating many environmental problems which affects the life of people in general.

b) Society in general is more concerned about quality of life. The government decided to give subsidy to jute industry to promote this business.

i) Identify the different dimensions of the business environment.
ii) Comment on it.

Solution:
i) Following are the domensions of Business Environment.
a) Legal Environment
b) Natural Environment
c) Social Environment
d) Political Environment
e) Economic Environment

ii)
(a) Legal Environment: Court passes an order to ban polythene bags.
(b) Natural Environment: The Court order will solve environmental problems which affect the life of people in general.
(c) Social Environment: Society is concerned about the quality of life and a better standard of living.
(d) Political Environment: The government framed a policy to give subsidies to the jute industry.
(e) Economic Environment: Subsidy to the Jute industry will promote the business of the Jute industry and this will help in economic development.

2) Just after the declaration of the Lok Sabha 2014 result, the Bombay Stock Exchange Sensex rose by 1000 points in a day.

i) Identify the environmental factor which led to this rise giving a reason.
ii) Explain any two other dimensions of the environment.

Solution:
i) The rise in the stock market (Sensex) is the economic environment. But it affected due to the political environment (Lok Sabha Election Results)
ii) Two other dimensions of the environment are Legal environment and Technological environment.

3) Anchor company manufacturing light tubes increased expenditure on Scientific Research and Development and discovered a technology that made it possible to produce energy efficient light tubes that lasts at least twenty times as long as standard tubes. It resulted in growth and profitability of the company.

i) Identify the dimension of business environment.
ii) State importance of the business environment.

Solution:
i) Technological Environment.
ii) There is an intimate interaction between business and environment which helps in strengthening the business firm and using its resources more effectively. To be more specific, a proper understanding of various dimensions of business environment helps the business.

4) Make in India is an initiative launched by the government of India. It focuses on job creation and skill development and it is in twenty-five sectors of the economy. Under the initiative, brochures on these sectors and web portal were released. The initiative aims at high quality standards and minimizing the impact on environment. It also seeks to attract foreign capital investment in India.

i) Identify dimensions of business environment.
ii) Comment on it.

Solution:
i) Following are the dimensions of the business environment.
(a) Political environment
(b) Technological environment
(c) Economic environment
ii) Make in India is the policy of the government based on its vision. This initiative focuses on job creation and skill development across 25 economic sectors, it communicates two values i.e high standards and environmental awareness. Additionally, it seeks to increase international investment in India.

5) The government of India is seriously thinking to allow oil marketing under the public sector, by fixing their own price for petroleum products.

i) Name the economic reform related to this decision.
ii) Name the other two reforms recommended in the new economic policy.

Solution:
i) Privatization is the economic reform related to this decision.
ii) Liberalization and Globalization are the other two reforms recommended in the new economic policy.

Q.4 Distinguish between.

1) Social environment and Economic environment

Sr. No.	Points	Social environment	Economic environment
1	Meaning	The social environment includes customs, traditions, values, buying habits, tastes, etc.	The economic environment comprises of economic conditions, economic policies, and economic systems.
2	Factors	It includes factors such as social aspects, social trends, social values, and traditions.	It includes factors like economic conditions, economic policies, and economic systems.
3	Supplement of	It is supplemented by cultural environment like cultural factors, values, beliefs, etc.	It is supplemented by the political environment as it is influenced by political decisions or events taken by Government.
4	Impact on business	It helps to analyze the changing social trends, tastes of different social groups which helps businessmen to know the opportunities and threats.	Changes in economic policies like agricultural policy, monetary policy, etc. lead to changes in economic system and planning which helps businessmen to make changes on a timely basis.
5	Purpose	It helps to know the needs of customers and satisfy the demand E. g. Today health and fitness trend has created a demand for products like gym, organic foods, etc.	It helps in forecasting market situations and thereby making suitable business plans E.g. Stock market fluctuations affect management practices in a Business Enterprise.
6	Nature	It is dynamic n nature. Changes in trends, and values; growing awareness among different social groups affects the social environment.	It is multi-dimensional in character. Agriculture, infrastructure, national, per capita income, price level, etc. affects the economic environment of in a country.

2) Political environment and Legal environment

Sr. No.	Points	Political environment	Legal environment
1	Meaning	In a country, the political system, constitutional provision, party system, and events taking place from time to time determine the political environment.	In a Country, a business can be started, regulated, controlled, and expanded within the legal framework of a country determines the legal environment.
2	Factors	Political stability, peace in the country, specific attitudes of an elected representative, etc. are the factors that affect the political environment.	Various laws are implemented from time to time with amendments in order to control and direct the business.
3	Interrelation between environment	The political environment and economic environment are closely connected with each other.	The legal environment and regulatory environment go together hand-in-hand in the modern business environment.
4	Impact on business	The ideology of the political parties influences the business organization.	Provides control, direction, and expansion to the business organization.
5	Purpose	Political stability creates strength and confidence in various interest groups and investors in long-term projects.	Separate laws are implemented from time to time to safeguard and protect the interest of various groups such as business organizations, workers, consumers, etc.
6	Effect of changes in the environment	Political instability affects the business organization adversely. Business policies are amended due to political issues, events, etc. prevailing in the country.	Excessive controls, implementation of laws, rules, and regulations may create problems in overall development of business organizations.

3) Liberalization and Privatization

Sr. No.	Points	Liberalization	Privatization
1	Meaning	It refers to the process of eliminating unnecessary controls and restrictions for the smooth functioning of the business.	It refers to reducing the involvement of state or public sectors by involving of the private sector in economic activities.
2	Aim	It aims to bring flexibility to business operations by creating an environment for growth and expansion.	It aims at promoting efficiency, increasing productivity, and profitability.
3	Need	To reduce taxation, controls on foreign exchange, attracting foreign investment, etc. thereby competing with other companies at the international level.	To achieve quick and logical business decisions aimed at the commercial success of an organization.
4	Measures adopted	Reduction in tariffs, reformation of the financial system, abolishing the industrial licensing system, etc.	Reduction in a number of industries reserved for the public sector, disinvestment of shares, and improvement in performance through MOU.
5	Benefits to host company	It results in, a high growth rate, easy availability of goods at competitive rates, good industrial relations, etc.	It results in profitability, production of superior quality products and services, self-motivation, etc.
6	Benefits to consumers/ traders	Optimum use of resources available at a global level, easy availability of goods at competitive rates.	The entry of the private sector results in competition thereby providing high-quality goods and services at lower prices.
7	Positive effect	Removing the restriction on taxation, abolishing the industrial licensing system leads to the expansion and growth of new business opportunities.	Improved performance, high-quality goods, and services in the market. Timely prompt decisions with more efficiency.
8	Adverse effect	It leads to social problems like urbanization and industrialization, closure of domestic firms due to liberalized imported products, etc.	Growth of monopoly, inequality of income, lack of social responsibility, etc. will hamper the social order of the economy.
9	Interrelationship	Liberalization leads to privatization and globalization.	Privatization is a part of the process of globalization.

4) Globalization and Liberalization

Sr. No.	Points	Globalization	Liberalization
1	Meaning	It refers to the integration of the national economy and societies through cross country flows of information, ideas technologies, goods, services capital, finance, and people.	It refers to the process of eliminating unnecessary controls and restrictions for the smooth functioning of the business.
2	Aim	It aims at promoting world trade and economic growth by integrating technologies, goods, services, people, etc.	It aims to bring flexibility in business operations by creating an environment for growth and expansion.
3	Need	To overcome the problem of declining domestic demand and to ensure free trade.	To reduce taxation, controls on foreign exchange, attracting foreign investment, etc. thereby competing with other companies at the international level.
4	Measures adopted	Allowing Foreign Direct Investment, approving foreign technology, amendment of patent laws, etc.	Reduction in tariffs, reformation of the financial system, abolishing the industrial licensing system, etc.
5	Benefits to host company	It results is the expansion of investment. It promotes foreign trade and brings foreign exchange.	It results in, a high growth rate, easy availability of goods at competitive rates, good industrial relations, etc.
6	Benefits to consumers/ traders	Consumers get a variety of goods as an option to be purchased foreign technology is adopted by traders thereby increasing the growth of production.	Optimum use of resources available at a global level, easy availability of goods at competitive rates.
7	Positive effect	It results in an increase in foreign trade, the inflow of foreign trade, the inflow of foreign technology, and capital, which increases employment opportunities, business growth, etc.	Removing the restriction on taxation, and abolishing the industrial licensing system leads to the expansion and growth of new business opportunities.
8	Adverse effect	It leads to the exploitation of the home market by foreign companies. Capital-intensive techniques lead to a reduction in job opportunities.	It leads to social problems like urbanization and industrialization, closure of domestic firms due to liberalized imported products, etc
9	Interrelationship	Globalization includes liberalization and privatization.	Liberalization leads to privatization and globalization.

5) Privatization and Globalization

Sr. No.	Points	Privatization	Globalization
1	Meaning	It refers to reducing the involvement of state or public sectors by involving the private sector in economic activities.	It refers to the integration of the national economy and societies through cross country flows of information, ideas technologies, goods, services capital, finance, and people.
2	Aim	It aims at promoting efficiency, increasing productivity, and profitability.	It aims at promoting world trade and economic growth by integrating technologies, goods, services, people, etc.
3	Need	To achieve quick and logical business decisions aimed at the commercial success of an organization.	To overcome the problem of declining domestic demand and to ensure free trade.
4	Measures adopted	Reduction in a number of industries reserved for the public sector, disinvestment of shares, and improvement in performance through MOU.	Allowing Foreign Direct Investment, approving foreign technology, amendment of patent laws, etc.
5	Benefits to host company	It results in profitability, production of superior quality products and services, self-motivation, etc.	It results in the expansion of investment. It promotes foreign trade and brings foreign exchange.
6	Benefits to consumers/ traders	The entry of the private sector results in competition thereby providing high-quality goods and services at lower prices.	Consumers get a variety of goods as an option to be purchased foreign technology is adopted by traders thereby increasing the growth of production.
7	Positive effect	Improved performance, high-quality goods, and services in the market. Timely prompt decisions with more efficiency.	It results in an increase in foreign trade, the inflow of foreign trade, the inflow of foreign technology, and capital, which increases employment opportunities, business growth, etc.
8	Adverse effect	Growth of monopoly; inequality of income, lack of social responsibility, etc. will hamper the social order of the economy.	It leads to the exploitation of the home market by foreign companies. Capital-intensive techniques lead to a reduction in job opportunities.
9	Interrelationship	Privatization is a part of the process of globalization.	Globalization includes liberalization and privatization.

Q.5 Answer in brief.

1) State any four factors of social environment.

Answer:
Following are the four factors of the social environment.

a) Social aspect

Important aspects of social environment are literacy level, educational system, cultural heritage, standard of living and mobility of labour etc.

b) Social trends

In India, social trends are changing very fast. The urban population is becoming more health and fitness conscious. People in large numbers are going for fast food items and gyms. In view of these trends, fast food outlets and gyms are coming up in the urban and semi-urban areas.

c) Social values

Social Values based on customs, ethics, and beliefs help business to meet the demand as per customer need. For example, Home Budget System will never be accepted in rural area due to customs.

d) Traditions

Celebrations of Diwali, Eid, Christmas, and other festivals also affect the business.

2) Describe any two factors of economic environment.

Answer:
The following are the factors of the economic environment.

a) Economic Condition

The economic condition of the nation refers to the present state of economy in the country or region. The economic condition of the nation is based on the gross domestic product, per capita income, availability of capital, growth of foreign trade and strength of capital market.

b) Economic policies

All business activities are directly influenced by the economic policies which are framed by the government from time to time. The government keeps on changing these policies keeping the development in view. Industrial policy, monetary policy, foreign investment policy, export-import policy, agricultural policy, education policy and public expenditure policy are
important economic policies.

c) Economic system

The scope of private business and the extent of government regulation of economic activities depend on the nature of economic system i.e. capitalist, socialist and mixed.

3) State any four features of globalization.

Answer:
Features of globalization:

1) Freedom to set up and operate a business anywhere in the world.
2) Buying and selling goods from/ to any country of the world.
3) To lessen the distance between the local and international markets.
4) Direct foreign participation.
5) Exchange of new ideas and technology across the world.

4) State any four reasons of need for privatization.

Answer:
There is a need for privatization because of the following reasons:
1) More Efficiency
2) Less Political Interference
3) Reduction in labor problem
4) Ensuring accountability
5) Capital Market discipline

Solution of other subjects
Solution of all Chapters of OCM
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8

Q.6 Justify the following statements.

1) External factors of business environment are beyond control.

Answer:
a) There are internal and external factors that can affect an organization’s business policy.
b) Internal factors are within the business unit’s control, and changes can be made to plans, policies, etc.
c) External forces are outside the control of the business. These are the factors that provide the organization with opportunities or threats.
d) Political, social, economic, legal, and technological business decisions are caused by factors like social customs, values, economic policies, technological advancement, political ups and downs, and legislation.
e) As a result, External factors of business environment are beyond control.

2) Business firm should be aware of the changes in society.

Answer:
a) Every firm must adjust to the environment in which it operates if it wants to succeed.
b) It is right to describe modern business as a socio-economic activity.
c) Business and society are mutually dependent on each other.
d) The social class system in a society has an impact on business and is influenced by things like occupation, culture, and income.

e) Every society depends on its own culture, traditions, customs, values, ethics, and so on. The social climate is also changing fast. For example, a lot of individuals eat fast food and go to the gym.
f) Business is impacted by social values and customs like Diwali, Eid, and Christmas.
g) Thus, a Business firm should be aware of the changes in society.

3) Political stability builds up confidence among business people.

Answer:
a) All business firms are affected by the government and its policies.
b) Political forces decide the nature of business, programmes, and projects to be undertaken for the development of the country.
c) Political environment includes stability and peace in the country and specific attitudes of elected representatives.
d) Political stability gives a signal of strength and confidence to various interest groups and investors in long-term projects.
e) Similarly, the ideology of the political parties influences the business organization, and attitudes of government officials towards business have an impact on business.
f) Thus, Political stability builds up confidence among business people.

4) Economic environment has direct influence on business.

Answer:
a) The survival and success of a business firm fully depend on the economic environment.
b) The Economic environment comprises of economic conditions, economic policies, and economic systems, basic economic philosophy, infrastructure, national income, money supply, etc.
c) Economic condition of the nation is based on the gross domestic product, per capita income, availability of capital, growth of foreign trade, and strength of capital market.
d) The government keeps on changing these policies keeping the development in view.
e) Every business must function strictly within the policy framework and respond to the change therein.
e) Thus, the Economic environment has direct influence on business.

5) Social trends provide business opportunities.

Answer:
a) Businesses and society are interdependent.
b) Business decisions are influenced by factors in the class structure, such as occupation, education, income level, social position, and other factors.
c) Any sort of behaviour that is prevalent throughout society is referred to as a social trend.
d) Trends can last for a short time or be permanent. The changes in social patterns do change as tech improves.
e) Businesses take advantage of opportunities by forecasting social change as part of their marketing strategies.
f) Thus, Social trends provide business opportunities.

6) An adequate knowledge of rules and regulations is essential for better business performance.

Answer:
a) Business in a country can be started, regulated, controlled and expanded only within the legal framework of a country.
b) In this connection all countries of the world have a separate set of laws for the control and direction of business.
c) All business managers should have the knowledge of law for taking decision.
d) Various laws are implemented for influencing the business, protect and safeguard the business, as well as the consumers.

Solution of other subjects
Solution of all Chapters of OCM
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8

Q.7 Attempt the following.

1) Importance of business environment.

Answer:
For answer refer to Q No. 8 (1)

2) Social environment.

Answer:
The social attitude is important for business practices to cope with it. The modern business is a social system in itself, and it is also a part of the larger social system represented by society in general.

Another feature which affects the business is the class structure of the society. Class structure depends upon the various factors like occupation of the people, their education, income level, social status, attitude towards living, work and social relationship and above all, their attitude towards business.

Every society develops its own culture. In addition to this other remarkable factors, includes aspects like customs, traditions, values, ethics, beliefs, social trends, poverty, literacy, life expectancy rate and other accepted behavior patterns which are as follows:

a) Social aspect: Important aspect of social environment are literacy level, educational system, cultural heritage, standard of living and mobility of labour etc.

b) Social trends: In India social trends are changing very fast. Urban population is becoming more health and fitness conscious. People in large numbers are going for fast food items and gyms.

c) Social values: Social Values based on customs, ethics, beliefs help business to meet the demand as per customer need. For example, Home Budget System will never be accepted in rural area due to the customs.

d) Traditions: Celebration of Diwali, Eid, Christmas and other festivals also affect the business.

3) Economic environment.

Answer:
The survival and success of business firm fully depends on economic environment. The Economic environment comprises of economic condition, economic policies and economic system, basic economic philosophy, infrastructure, national income, money supply, saving stages in economic development and trade cycles are also the major factors which make up the total economic environment. Some important factors are as follows:

a) Economic Condition: The economic condition of the nation refers to the present state of economy in the country or region. Economic condition of the nation is based on the gross domestic product, per capita income, availability of capital, growth of foreign trade and strength of capital market.

b) Economic policies: All business activities are directly influenced by the economic policies which are framed by the government from time to time. Industrial policy, monetary policy, foreign investment policy, export-import policy, agricultural policy, education policy and public expenditure policy are important economic policies.

c) Economic system: The scope of private business and the extent of government regulation of economic activities depend on the nature of economic system i.e. capitalist, socialist and mixed.

4) Political environment.

Answer:
All business firms are affected by the government and its policies. Political forces decide the nature of business, programmes and projects to be undertaken for development of the country.

Political environment includes stability and peace in the country, specific attitudes of elected representative. Political stability gives the signal of strength, confidence to various interest groups and investors in the long term projects.

India is the democratic country, Indian political system comprises three vital institutions like
Legislature, Government and Judiciary.

a) Legislature: Legislature is very powerful because powers such as policy making, law making, budget approving, executing control etc. are in the hands of legislature.

b) Government: For business consideration, we should know what are government’s
responsibilities towards business. Government policies does affect business organization.
Therefore government should frame policies for business organization.

c) Judiciary: Judiciary is the third important institution in political system. It determines the
method of working of goverment and defines the relationship between government and
citizens .

5) Impact of new economic policy on business and industry.

Answer:
India’s post independence industrial development policy failed, so the government introduced the New Economic Policy on 24th July, 1991 known as liberalization, privatization and globalization (LPG policy).

Following are Impact of new economic policy on business and industry:

1. Increase in the competition in various firms.
2. More demanding customers.
3. Tremendous changes in the technological environment.
4. Necessity for change.
5. Need for developing human resource.
6. The customer oriented market.
7. Discontinuation budget support by the government.
8. Business organizations must work hard in order to survive.
9. Necessity of expertise in various fields.

Q.8 Answer the following.

1) What is business environment? Explain the importance of business environment.

Answer:
The business environment comprises of such factors which can affect business, such as the
strength, weaknesses, internal power, relationship and orientations of the organization, government policies and regulations, nature of the economy and economic conditions, socio cultural factors, demographic trends, natural factors, and global trends.

The term business environment generally refers to the external environment which includes
factors outside the business leading to opportunities or threats to the business.

Bayard O. Wheeler: “The total of all things external to firm and industries which affect their organization and operations is called as Business Environment.”

Importance of Business Environment:

1) Determining opportunities and threats

The interaction between business and its environment identifies opportunities and threats to business. It helps business enterprises for overcoming challenges successfully.

2) Identifying firm’s strength and weakness

The business environment helps to identify individual strengths and weaknesses in view of technological and global development.

3) Continuous learning

The environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding of the skill to meet the predicted changes in realm of business.

4) Image Building

Environmental understanding helps the business organization in improving their images by showing their sensitivity to the environment within which they are working. It also includes meeting the expectations of consumers, government, employees etc.

5) Meeting Competition

It helps the firm to analyze the strategies of the competitors and formulate their own strategies accordingly.

6) Giving Direction for growth

The interaction with the environment leads to opening up new frontiers of growth to business firms. It enables the business to identify the areas of growth and expansion of their activities.

2) Explain the new economic policy in details.

Answer:
India’s post-independence industrial development policy failed, so the government introduced the New Economic Policy on 24th July 1991 known as liberalization, privatization, and globalization (LPG policy).

a) Liberalization

The government of India adopted the policy of liberalization while facing a severe crisis. Liberalization refers to the process of eliminating unnecessary controls and restrictions for smooth functioning of business. Through the liberalization process, Indian economy has opened up and started interacting with the world in a large way. This has resulted into easy entry of foreign business in India, tough competition and efficiency.

Indian economic liberalization includes the following:

1. Abolishing Industrial Licensing System.
2. Reduction in physical restrictions on import and import duties.
3. Reformation of financial system.
4. Reduction in taxation.
5. Reduction in controls on foreign exchange.
6. Changing the approach towards industrial sickness.
7. Freedom to decide the scale of business activities.
8. Attracting foreign investment.
9. Freedom in fixing prices of goods and services.
10. Opening of basic telecommunication sectors.

Liberalization helps in achieving a high growth rate, easy availability of goods at competitive rates, high foreign exchange reserve, strong rupee, and good industrial relation, etc.

b) Privatisation

Privatization refers to reduce the involvement of state or public sectors by involving of private sector in economic activities. Privatization implies many government sectors to be sold or given to private individual hands to run them.

Need for privatization:

1. More Efficiency
2. Less political Interference
3. Reduction in labor problem
4. Ensuring accountability
5. Capital Market discipline

Privatization includes the following:

1. Reduction in number of industries reserved for the public sector and introduction of selective competition in the reserved area.
2. Disinvestment of shares of selected public sector in order to raise resources and to encourage wider participation of general public and workers in the ownership of business.
3. Improvement in performance through MOU (Memorandum of Understanding) system.

c) Globalisation

Globalization means integration of national economy and societies through cross-country flows of information, ideas, technologies, goods, services, capital, finance and people.

In other words globalization means a ‘boundary less world’. All nations would be interdependent leading to better interactions regarding improvements in the global economy.

Globalization has serious implications on the socio-economic and political sphere of life.

Globalization includes the following:

1. Removing anti export biasness.
2. Minimization of very high import tariffs.
3. Placing lesser reliance on quantitative restrictions on imports.

Features of globalization:

1. Freedom to set and operate business anywhere in the world.
2. Buying and selling goods from/ to any country of the world.
3. To lessen the distance between the local and international market.
4. Direct foreign participation.
5. Exchange of the new ideas and technology across the world.

Positive Impact of Globalization:

1. Global agreement in trade.
2. Spreading the market and economic policies around the world.
3. Physical and geographical boundaries are diminished and world become a global village.
4. Customers are only concerned about the product quality, price, design, value and appeal.
5. Globalization has created an economically interdependent international environment.
6. Increased the trend towards privatization of manufacturing and service sector.

Solution of other subjects
Solution of all Chapters of OCM
1 – 2 – 3 – 4 – 5 – 6 – 7 – 8

11th OCM Textbook Solutions

Chapter Name	Solution Link
1) Introduction of Commerce and Business	Click Here
2) Trade	Click Here
3) Small Scale Industry and Business	Click Here
4) Forms of Business Organisation – I	Click Here
5) Forms of Business Organisation – II	Click Here
6) Institutes Supporting Business	Click Here
7) Business Environment	Click Here
8) Introduction to Management	Click Here

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