MCO-04
Important Questions and Answers
Unit-1: Dimensions of Business Environment
What is business environment?
Business Environment is the sum or collection of all internal and external factors that affect the
function of a business enterprise directly or indirectly.
Significance of Business Environment
1. Identifies opportunities
2. Identifies threats
3. Proper utilization of resources.
4. Adaptability with rapid changes.
5. Helps in framing policies hand strategies.
Helps in Identifying Opportunities The environment provides numerous opportunities,
and it is necessary to identify the opportunities to improve the performance of a business.
Early identification gives an opportunity to an enterprise be the first to identify
opportunity instead of losing them to competitors.
Helps the Firm Identify Threats and Early Warning Signals The business environment
helps in understanding the threats which are likely to happen in the future.
Helps in Tapping Useful Resources Business and industry avail the resources from the
environment and convert them into usable products. The environment provides various
resources like finance, machines, raw materials, power and water, labour, etc.
Helps in Coping with Rapid Changes The business environment is changing very rapidly,
and the industry is getting affected by changing market conditions.
Helps in Assisting in Planning and Policy Formulation The business environment brings
both threats and opportunities to a business. Awareness of business environment helps
in deciding future planning or decision making.
Features or characteristics of Business Environment.
The following are the important characteristics of business environment:
1. Sum of internal and external forces.
2. Specific and general forces.
3. Inter relatedness.
4. Dynamic
5. Uncertain
SANTOSH SHARMA 1
, 6. Complex
7. Relative
1.The totality of External Forces
Business environment includes everything which is outside the organisation. If we add all these
forces, they will form a business environment. Example: When Pepsi and Coca-Cola got
permission to set up their business in India, it was an opportunity for them and threat for local
manufacturers like gold spot, camp-cola etc.
2.Specific and General Forces Specific forces are those forces which directly affect the
operational activities of the business enterprise. Example: Suppliers, Customers, Investors,
Competitors, Financers etc. General forces are those forces which indirectly affect the
functioning of business enterprises. Example: Economic, Social, Political, Legal and
Technological conditions.
3.Inter-relatedness Different forces of business environment are interrelated to each other. One
component of the business environment affects the functioning of other components.
4.Dynamic Nature The business environment is dynamic in nature and keeps on changing in
terms of Technological improvement, Shifts in consumer preferences, The entry of new
competition in the market.
5.Uncertainty The changes in the business environment cannot be predicted accurately because
of future uncertainties. It is very difficult to predict the changes in the economic and social
environment.
6.Complexity All forces of the Business environment are interrelated and dynamic, which makes
it difficult to understand. Complex nature of Business environment can be understood if we
study it in parts.
7.Relativity Business Environment differs from place to place, region to region and country to
country.
Identify the components of micro and macro business environment.
Micro environment
The important components of micro environment are
1. Customers
2. Competitors
3. Suppliers
4. Workers
5. Public
1.Customers It is very important for the success of a business to understand and monitor the
tastes and preferences of the consumers. There are various categories of customers like
individuals, households, business firms, government and other institutions.
SANTOSH SHARMA 2
,2.Competitors In this world of competition, no business firm enjoys monopoly in the market.
Therefore, to sustain in the market it is very important for a firm to know its competitors’
strengths and weaknesses.
3.Suppliers those individuals and firms which provide inputs like raw materials are called
suppliers. Therefore, it is very important for a company to know the available suppliers so that
its production process goes on smoothly.
4.Workers a successful business firm has to build good relationship with the workers and unions.
Every firm should take care of the welfare of the workers so that there are no chances of strikes
and lockouts.
5.Public Is any group that has an actual interest or impact on the working of a company for
example media groups, consumer protection groups etc.
Macro environment
A business firm cannot control the macro environment. It affects the operations of a business
enterprise indirectly. The important components of macro environment are as follows
1. Economic environment
2. Political and legal environment
3. Socio-cultural environment
4. Demographic environment
5. Technological environment
1.Economic environment
It consists of the economic conditions; economic system add economic policies followed
by a country.
Economic conditions include the nature of economy, economic resources, level of income,
distribution of income and wealth etc.
Economic system includes whether the country follows capitalism, socialism or mixed
economy system.
The infrastructure available in a country such as transportation, communication, power
supply etc.
The important economic indices are national income, per capita income, GDP, rate of
savings, investments, exports, balance of trade, balance of payment, poverty rates etc.
2.Political and legal environment
In every country, the government plays an important role in the development of a
business firm.
SANTOSH SHARMA 3
, The ideology of the government shapes the political environment of the country.
Political stability influences the economic activities. if there are frequent elections and
political instability, it has an adverse effect on the operations of the companies.
The government also repairs legal framework within which the business operates.
The legal framework includes the constitutional framework such as different contracts,
acts, rules and regulations, laws etc.
3.Socio-cultural environment
Every society has its own culture like customs, traditions, habits, languages etc.
The culture of a society influences the functioning of a business enterprise.
The business firm must know the consumption patterns, the dressing and living styles of
the people belonging to different cultures.
All these factors must be considered before designing the product.
4.Demographic environment
It deals with the size and composition of population living in a country.
Demographic factors include size, growth rate of population, life expectancy, age
composition, sex composition, ethnic composition, educational levels, family size,
occupation, nationality, rural urban distribution of population.
A complete understanding of the demographic features of the society helps the firms in
designing their business strategies properly.
5.Technological environment
As we know technology is changing very fast these days. It is very important for a company
to adopt these new technological changes in order to survive in this modern world.
The technological development creates demand for several new products.
Therefore, a company should keep its technology up to date.
Distinguish between economic and non-economic environment
Economic environment leads to creation of wealth, economic growth and development.
On the other hand, non-economic environment directly affects economic growth and
development.
Economic environment includes economic conditions, economic policies and economic
systems. Whereas, non-economic environment includes political, sociocultural,
technological and legal environment.
Economic environment depends on non-economic environment for its smooth operation.
On the other hand, non-economic environment is a broad concept.
Describe the emerging scenario of business environment in India.
SANTOSH SHARMA 4
Important Questions and Answers
Unit-1: Dimensions of Business Environment
What is business environment?
Business Environment is the sum or collection of all internal and external factors that affect the
function of a business enterprise directly or indirectly.
Significance of Business Environment
1. Identifies opportunities
2. Identifies threats
3. Proper utilization of resources.
4. Adaptability with rapid changes.
5. Helps in framing policies hand strategies.
Helps in Identifying Opportunities The environment provides numerous opportunities,
and it is necessary to identify the opportunities to improve the performance of a business.
Early identification gives an opportunity to an enterprise be the first to identify
opportunity instead of losing them to competitors.
Helps the Firm Identify Threats and Early Warning Signals The business environment
helps in understanding the threats which are likely to happen in the future.
Helps in Tapping Useful Resources Business and industry avail the resources from the
environment and convert them into usable products. The environment provides various
resources like finance, machines, raw materials, power and water, labour, etc.
Helps in Coping with Rapid Changes The business environment is changing very rapidly,
and the industry is getting affected by changing market conditions.
Helps in Assisting in Planning and Policy Formulation The business environment brings
both threats and opportunities to a business. Awareness of business environment helps
in deciding future planning or decision making.
Features or characteristics of Business Environment.
The following are the important characteristics of business environment:
1. Sum of internal and external forces.
2. Specific and general forces.
3. Inter relatedness.
4. Dynamic
5. Uncertain
SANTOSH SHARMA 1
, 6. Complex
7. Relative
1.The totality of External Forces
Business environment includes everything which is outside the organisation. If we add all these
forces, they will form a business environment. Example: When Pepsi and Coca-Cola got
permission to set up their business in India, it was an opportunity for them and threat for local
manufacturers like gold spot, camp-cola etc.
2.Specific and General Forces Specific forces are those forces which directly affect the
operational activities of the business enterprise. Example: Suppliers, Customers, Investors,
Competitors, Financers etc. General forces are those forces which indirectly affect the
functioning of business enterprises. Example: Economic, Social, Political, Legal and
Technological conditions.
3.Inter-relatedness Different forces of business environment are interrelated to each other. One
component of the business environment affects the functioning of other components.
4.Dynamic Nature The business environment is dynamic in nature and keeps on changing in
terms of Technological improvement, Shifts in consumer preferences, The entry of new
competition in the market.
5.Uncertainty The changes in the business environment cannot be predicted accurately because
of future uncertainties. It is very difficult to predict the changes in the economic and social
environment.
6.Complexity All forces of the Business environment are interrelated and dynamic, which makes
it difficult to understand. Complex nature of Business environment can be understood if we
study it in parts.
7.Relativity Business Environment differs from place to place, region to region and country to
country.
Identify the components of micro and macro business environment.
Micro environment
The important components of micro environment are
1. Customers
2. Competitors
3. Suppliers
4. Workers
5. Public
1.Customers It is very important for the success of a business to understand and monitor the
tastes and preferences of the consumers. There are various categories of customers like
individuals, households, business firms, government and other institutions.
SANTOSH SHARMA 2
,2.Competitors In this world of competition, no business firm enjoys monopoly in the market.
Therefore, to sustain in the market it is very important for a firm to know its competitors’
strengths and weaknesses.
3.Suppliers those individuals and firms which provide inputs like raw materials are called
suppliers. Therefore, it is very important for a company to know the available suppliers so that
its production process goes on smoothly.
4.Workers a successful business firm has to build good relationship with the workers and unions.
Every firm should take care of the welfare of the workers so that there are no chances of strikes
and lockouts.
5.Public Is any group that has an actual interest or impact on the working of a company for
example media groups, consumer protection groups etc.
Macro environment
A business firm cannot control the macro environment. It affects the operations of a business
enterprise indirectly. The important components of macro environment are as follows
1. Economic environment
2. Political and legal environment
3. Socio-cultural environment
4. Demographic environment
5. Technological environment
1.Economic environment
It consists of the economic conditions; economic system add economic policies followed
by a country.
Economic conditions include the nature of economy, economic resources, level of income,
distribution of income and wealth etc.
Economic system includes whether the country follows capitalism, socialism or mixed
economy system.
The infrastructure available in a country such as transportation, communication, power
supply etc.
The important economic indices are national income, per capita income, GDP, rate of
savings, investments, exports, balance of trade, balance of payment, poverty rates etc.
2.Political and legal environment
In every country, the government plays an important role in the development of a
business firm.
SANTOSH SHARMA 3
, The ideology of the government shapes the political environment of the country.
Political stability influences the economic activities. if there are frequent elections and
political instability, it has an adverse effect on the operations of the companies.
The government also repairs legal framework within which the business operates.
The legal framework includes the constitutional framework such as different contracts,
acts, rules and regulations, laws etc.
3.Socio-cultural environment
Every society has its own culture like customs, traditions, habits, languages etc.
The culture of a society influences the functioning of a business enterprise.
The business firm must know the consumption patterns, the dressing and living styles of
the people belonging to different cultures.
All these factors must be considered before designing the product.
4.Demographic environment
It deals with the size and composition of population living in a country.
Demographic factors include size, growth rate of population, life expectancy, age
composition, sex composition, ethnic composition, educational levels, family size,
occupation, nationality, rural urban distribution of population.
A complete understanding of the demographic features of the society helps the firms in
designing their business strategies properly.
5.Technological environment
As we know technology is changing very fast these days. It is very important for a company
to adopt these new technological changes in order to survive in this modern world.
The technological development creates demand for several new products.
Therefore, a company should keep its technology up to date.
Distinguish between economic and non-economic environment
Economic environment leads to creation of wealth, economic growth and development.
On the other hand, non-economic environment directly affects economic growth and
development.
Economic environment includes economic conditions, economic policies and economic
systems. Whereas, non-economic environment includes political, sociocultural,
technological and legal environment.
Economic environment depends on non-economic environment for its smooth operation.
On the other hand, non-economic environment is a broad concept.
Describe the emerging scenario of business environment in India.
SANTOSH SHARMA 4
