Karnataka 2nd PUC Business Studies Question Bank Chapter 3 Business Environment
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2nd PUC Business Studies Business Environment Text Book Exercises
2nd PUC Business Studies Business Environment Multiple Choice Questions With Answers
Question 1.
Which of the following does not characterise the business environment?
(a) Uncertainty
(b) Employees
(c) Relativity
(d) Complexity
Answer:
(b) Employees does not characterise the business environment
Question 2.
Which of the following best indicates the importance of business environment?
(a) Identification
(b) Improvement in performance
(c) Coping with rapid changes
(d) All of these
Answer:
(d) Identification, Improvement In performance, coping with rapid changes all are the indicators of importance of business environment.
Question 3.
Which of the following is an example of social environment?
(a) Money supply in the economy
(b) Consumer Protection Act
(c) The Constitution of the country
(d) Composition of family
Answer:
(d) Social environment includes social forces thus, composition of families is the example of social environment
Question 4.
Liberalisation means
(a) integrating among economies
(b) reduced Government controls and restrictions.
(c) policy of planned disinvestments
(d) None of the above
Answer:
(b) Liberalisation means end of license, quota and reduction of government controls and restrictions
Question 5.
Which of the following does not explain the impact of Government policy changes on business and industry?
(a) More demanding customers.
(b) Increasing competition
(c) Change in agricultural prices
(d) Market orientation
Answer:
(c) Change in agricultural prices does not explain the impact of Government policy changes on business and industry.
2nd PUC Business Studies Business Environment Short Answer Type Questions With Answers
Question 1.
What do you understand by business environment?
Answer:
The term ‘Business environment’ means the sum total of all Individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance. The economic, social political, technological and other forces which operate outside the business enterprise are part of its environment.
Question 2.
Why it is important for business enterprises to understand their environment? Explain briefly.
Answer:
It is important for business organisations to understand their environment because of the following reasons
1. It enables the Firm to identify opportunities and getting the first Mover advantage: Environment provides numerous opportunities for business. Early identification of opportunities helps an enterprise to use it before instead of losing them to competitors.
2. It helps the Firm to identify threats and early Warning Signals. Environmental awareness can help managers to identify various threats on time and serve as an early warning signals.
3. It helps in tapping useful Resources Environment is a source for the various resources for running a business. To engage in any type of activity, a business enterprise assembles various resources called inputs. This can be done better by understanding what the environment has to offer.
4. It helps in coping with rapid changes. All types of enterprises are facing increasingly dynamic environment. In order to effectively cope with these significant changes, managers must understand and examine the environment and develop suitable courses of action.
5. It helps in assisting in Planning and Policy formulation. Since environment is the source of opportunities and threats, it’s understanding and analysis becomes the base for various policies to be framed and strategies to be made.
6. It helps in improving performance The enterprises that continuously monitor their environment and adopt suitable business practices are the ones which not only improve their present performance but also continue to succeed in the market for a longer period.
Question 3.
Mention the various dimensions of business environment.
Answer:
- Economic Environment
- Social Environment
- Technological Environment
- Political Environment.
Question 4.
Briefly explain the following
(a) Liberalisation
(b) Privatisation
(c) Globalisation
Answer:
The three important features of New Economic Policy, 1991.
(a) Liberalisation: Under the new economic policy of 1991, the economic reforms that were introduced aimed at liberalising the Indian business and industry’ from all unnecessary controls and restrictions. They signalled the end of the licence-permit quota Raj.
(b) Privatisation: The new set of economic reforms that aim at giving greater role to the private sector in the nation building process and a reduced role to the public sector.
(c) Globalisation: Globalisation means the integration of the various economies of the world leading towards the emergence of a cohesive global economy. Till 1991, Indiahad a policy which strictly regulated imports in value and volume terms. After 1991, the reforms aimed at Import liberalisation.
Question 5.
Briefly discuss the impact of Government policy changes on business and industry.
Answer:
Impact of Government policy changes on business and Industry
1. Increasing Competition : As a result of liberalisation, privatisation and globalisation the number of players increased in all sectors and increased the competition for eveiyone.
2. More demanding Customers: Increased competition in the market gives the customer wider choices in purchasing better quality of goods and services, which makes them more demanding.
3. Rapidly changing Technological Environment: New technologies help to improve machines, process products and services. The rapidly changing technological environment creates tough challenges for the smaller firms.
4. Necessity for Change: After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.
5. Need for developing Human Resource: The new market conditions require people with higher competence and greater commitment: Hence, the need for developing human resources has emerged.
6. Market Orientation: Earlier, production was taken up first and then selling was done. Now, due to increasing competition and more demanding customers, firms have to study and analyse the market first and produce goods accordingly.
7. Loss of Budgetary Support to the Public Sector: Public sector have less of budgetary support from the Central Government. Now, they have to generate their own resources and be more efficient in order to survive and grow.
2nd PUC Business Studies Business Environment Long Answer Type Questions With Answers
Question 1.
How would you characterise business environment? Explain with examples, the difference between general and specific environment.
Answer:
Features of business environment:
1. Totality of External Forces: Business environment is aggregative in nature as it is the sum total of all things external to business firms.
2. Inter-relatedness: Different elements of business environment are closely related to each other, e.g., increased awareness of health care have increased the demand for many health products.
3. Dynamic Nature: The business environment is highly dynamic. It keeps on changing. Sometimes there is a change in technology, tastes and preference of consumer etc
4. Uncertainty: The environment cannot be predicted. It is highly uncertain and unpredictable.
5. Complexity: Since there are many elements of Business Environment and they are inter-related and dynamic in nature, it becomes very difficult to understand them as a whole.
Difference between Specific and General Environment There are two types of forces operating in Business Environment, Specific and General Specific forces affect the individual enterprises directly and immediately, e.g., customers, suppliers. General forces affect the firms and only indirectly e g, social conditions or political conditions.
Question 2.
How would you argue that the success of a business enterprise is significantly influenced by its environment?
Answer:
Importance of business environment
1. It enables the firm to identify opportunities and getting the first mover advantage Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors, e g., Eureka Forbes introduced Aquaguard and took away the cream of demand.
2. It helps the Firm to identify threats and early Wamirng Signals . Environment happens to be the source of many threats. Environmental awareness can help managers to identity various threats’ in time and serve as an early warning signals e.g.-Lakme took serious steps to improve the quality and types of products as foreign multinational cosmetics companies started coming to India after 1991.
3. It helps in tapping useful resources : Environment offers various resources for running a business. In return, the business enterprise supplies the environment with its outputs such as goods and services for customers and taxes for Government. In order to arrange for the best possible resources, better understanding of the environment becomes important.
4. It helps in coping with rapid changes. It is not the fact of change itself that is so important as the pace of change. There are many changes taking place in the environment and at a fast speed. In order to effectively cope with these changes, managers must understand and examine the environment and develop suitable courses of action
5. It helps in assisting in Planning and Policy Formulation : Since environment is a source of both opportunities and threats, it’s understanding and analysis only helps in formulating the best possible policies to handle the future properly.
6. It helps in improving performance. Continuous monitoring and adopting changes in an enterprise will help in improving not only their present performance, but also continue to succeed in the market in long run.
Question 3.
Explain with examples, the various dimensions of business environment.
Answer:
Dimensions of business environment
1. Economic Environment: It includes the changes in the system due to economic policies made by the Government. Reserve Bank of India is the key regulator of county’s economic environment since it
(a) influences the Interest rates
(b) controls the flow of money in the economy
(c) regulates the working of banks
Example: When the banks reduce the interest rates on long term loans, automobiles and construction industries get a boost to the business as more spending is made on the purchase of homes and cars through loans.
2. Social Environment: The social environment of business includes the social forces like customs and traditions, values social trends, society’s expectations from business etc. In business terms, these values translate into freedom of choice in the market. Major elements of social environment are
(a) life expectancy
(b) shifts in the presence of women in the workforce
(c) consumer habits
Example: Due to the shift in the presence of women in the workforce the demand for readymade ladies formal wear, cosmetics, packed/processed food and electronic gadgets have gone up.
3. Technological Environment: Technological environment includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.
Example: Because of technological advancement, it has become possible to book railway tickets through internet from home, office etc.
4. Political Environment: Political environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business. It is only of use when a business enterprise can predict its business activities under stable political conditions. Major elements of political environment are
(a) The constitution of the country
(b) The nature and profile of political leadership and thinking of political personalities (cj Political ideology and practices of the ruling party.
Example: After the NEP of 1991, due to globalisation the foreign companies started coming to India, but due to the bureaucratic red tape, it became difficult for them to cut through it to do business here. As a result, these companies were discouraged in our country regarding investments. The situation has improved over time.
5. Legal Environment: Legal environment includes various legislations passed by the Government, administrative orders issued by government authorities, court judgements as well as the decisions rendered by various commissions and agencies. It is imperative for the management of every enterprise to obey the law of the land. Therefore, an adequate knowledge of rules and regulations framed by the government is a pre- requisite for better business performance.
Example: There is a government regulation to protect consumer’s interest e.g.. the advertisements of alcoholic beverages is prohibited.
Question 4.
What economic changes were initiated by the Government under the Industrial Policy, 1991? What impact have these changes made on business and industry?
Answer:
Economic changes initiated by the government under the Industrial Policy. 1991
- The government reduced the number of industries under compulsory licensing to six.
- The role of public sector was reduced. It was now limited only to four industries of strategic importance.
- Disinvestment was carried out in case of many public sector industrial enterprises.
- Foreign Direct Investment was permitted.
- Automatic permission was now granted for technology agreements with foreign companies.
- Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India.
The Indian corporate sector has come face-to-face with several challenges due to government policy changes. Some of them are as given below.
1. Increasing competition: The competition has increased due to entry of new players (privatisation and globalisation).
2. More demanding Customers: Customers today have become more demanding because they are well-informed. Increased competition in the market gives the customers wider choice in purchasing better quality goods and services.
3. Rapid Changes in Technological Environment: The rapidly changing technological environment creates tough challenges before smaller firms.
4. Necessity for Change: After 1991, the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.
5. Need for Developing Human Resources: Earlier. Indian enterprises worked with inadequately trained personnel. The new market conditions require people with higher competence and greater commitment. Hence, the need for developing human resources.
6. Market Orientation: Before 1991, all firms worked with production oriented marketing operations. In a fast changing world, there was a shift to market orientation. The firms had to study and analyse the market first and then produce goods accordingly.
7. Loss of Budgetary support to the Public Sector: The public sector undertakings have realised that in order to survive and grow, they will have to be more efficient and generate their own resources for the purpose.
Question 5.
What are the essential features of
(a) Liberalisation
(b) Privatisation and
(c) Globalisation
Answer:
Essential features of
(a) Liberalisation
- Abolishing licensing requirements in most of the industries a short list, except
- No restriction on expansion or contraction of business.
- Free movement of goods and services
- Freedom in fixing the prices of goods and services.
- Reduction in tax rates.
- Simplifying procedures for imports and exports.
- Making it easier to attract foreign capital and technology to India.
(b) Privatisation
- The Government redefined the role of public sector.
- Policy of planned disinvestments of the public sector
- Refining of sick enterprises to the Board of Industrial and Financial Reconstruction.
(c) Globalisation
- Import liberalisation
- Export promotion
- Foreign exchange reforms.
2nd PUC Business Studies Business Environment Case Problems
Lately many companies have planned for significant investment in organised retailing in India. Several factors have prompted their decision in this regard.
Customers income is rising. People have developed a taste for better quality products even though they may have to pay more. The aspiration levels have increased. The government has also liberalised its economic policies in this regard and permitted even cent percent foreign direct investment in some sectors of retailing.
Question 1.
Identify changes in business environment under different heads – economic, social, technological, political and legal that have facilitated the companies decisions to plan significant investments in organised retailing.
Answer:
Changes which have taken place in the following areas are as follows
1. Economic: Availability of more money because of employment opportunities increasing.
2. Social: Tastes of customers are changing. As they are getting more exposure to the outside world, their tastes are changing.
3. Technological: Technological advancements have led to advanced ways of counting, checking, coding, billing and discounts which are convenient for the customer and also retailer.
4. Political: Government policies are encouraging developers to go for mass construction in real estate. As MNCs are coming to India, they have to be provided an Internationally based infrastructure to operate from.
5. Legal: As the Government is providing more rights to the consumers, organised retailing outlets would be more particular in taking care as compared to a small retailer.
Question 2.
What has been the impact of these changes with regard to globalistion and privatistion?
Answer:
Due to globalisation and privation, more retailers from India and abroad are encouraged to make investment in organised retailing. The competition has increased, the consumers are more demanding and experts working force is required in order to cope up with the changes, which have taken place and are further changing.
2nd PUC Business Studies Business Environment Additional Questions
2nd PUC Business Studies Business Environment Two Marks Questions and Answers
Question 1.
Define Business Environment.
Answer:
The term ‘business environment’ means the sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance.
Question 2.
Mention the external forces of Business Environment.
Answer:
The economic, social, political, technological and other forces which operate outside a business enterprise are part of its environment.
Question 3.
What do you understand by business environment?
Answer:
The term ‘Business environment’ means the sum total of all Individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance. The economic, social political, technological and other forces which operate outside the business enterprise are part of its environment.
Question 4.
What has been the impact of these changes with regard to globalisation and privatisation?
Answer:
Due to globalisation and privatisation, more retailers from India and abroad are encouraged to make investments in organised retailing The competition has increased, the consumers are more demanding and expert working force is required in order to cope up with the changes, which have taken place and are further changing.
Question 5.
Mention any two features of Business Environment.
Answer:
- Totality of external forces
- Inter-relatedness
Question 6.
Mention any two important of Business Environment.
Answer:
- It enables the firm to identify opportunities and getting the first mover advantage
- It helps the firm to identify threats and early warning signals.
Question 7.
What do you mean by liberalization?
Answer:
- Liberalization refers to laws or rules being liberalized, or relaxed by a government.
- The removal or loosening of restrictions on something, typically an economic polictical system.
Question 8.
What do you mean by privatisation?
Answer:
Privatisation is the process of transferring an enterprise or industry from the public sector to the private sector.
Question 9.
What do you mean by globalisation?
Answer:
Globalisation implies the opening of local and nationalistic perspectives to a broader outlook of an interconnected and interdepended world with free transfer of capital, goods and services across national frontiers.
Question 10.
List out any two Indian industrial policy features.
Answer:
(a) The Government reduced the number of industries under compulsory licensing to six.
(b) Disinvestment was carried out in case of many public sector industrial enterprises.
2nd PUC Business Studies Business Environment Four Marks Questions and Answers
Question 1.
Explain the features of Business Environment.
Answer:
Business environment, has the following features:
1. Totality of external forces: Business environment is the sum total of all things external to business firms and, as such, is aggregative in nature.
2. Specific and general forces: Business environment includes both specific and general forces. Specific forces (such as investors, customers, competitors and suppliers) affect individual enterprises directly and immediately in their day-to-day working. General forces (such as social, political, legal and technological conditions) have impact on all business enterprises and thus may affect an individual firm only indirvectly.
3. Inter-relatedness: Different elements or parts of business environment are closely inter-related.
4. Dynamic nature: Business environment is dynamic in that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences or entry of new competition in the market.
5. Uncertainty: Business environment is largely uncertain as it is very difficult to predict future happenings.
6. Complexity: Since business environment consists of numerous interrelated and dynamic conditions or forces which arise from different sources, it becomes difficult to comprehend at once what exactly constitutes a given environment.
7. Relativity: Business environment is a relative concept since it differs from country to country and even region to region. Political conditions.
Question 2.
Explain the importance of Business Environment.
Answer:
Importance of Business Environment
A good understanding of environment by business managers enables them not only to identify and evaluate, but also to react to the forces external to their firms. The importance of business environment and its understanding.
1. It enables the firm to identify opportunities and getting the first mover advantage: Opportunities refer to the positive external trends or changes that will help a firm to improve its performance. Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors.
2. It helps the firm to identify threats and early warning signals: Threats refer to the external environment trends and changes that will hinder a firm’s performance. awareness can help managers to identify various threats on time and serve as an early warning signal.
3. It helps in tapping useful resources: Environment is a source of various resources for running a business. To engage in any type of activity, a business enterprise assembles various resources called inputs like finance, machines, raw materials, power and water, labour, etc., from its environment including financiers, government and suppliers.
4. It helps in coping with rapid changes: Today’s business environment is getting \ increasingly dynamic where changes are taking place at a fast pace.
5. It helps in assisting in planning and policy formulation: Since environment is a source of both opportunities and threats for a business enterprise, its understanding and analysis can be the basis for deciding the future course of action (planning) or training guidelines for decision making (policy).
6. It helps in improving performance: The final reason for understanding business environment relates to whether or not it really makes a difference in the performance of an enterprise.
Question 3.
Write a note on Economic Environment in India.
Answer:
Economic Environment in India.
The economic environment in India consists of various macro-level factors related to the means of production and distribution of wealth which have an impact on business and industry.
These include:
(a) Stage of economic development of the country.
(b) The economic structure in the form of mixed economy which recognises the role of both public and private sectors.
(c) Economic policies of the Government, including industrial, monetary and fiscal policies.
(d) Economic planning, including five year plans, annual budgets, and so on.
(e) Economic indices, like national income, distribution of income, rate and growth of GNP, per capita income, disposal personal income, rate of savings and investments, value of exports and imports, balance of payments, and so on.
(f) Infrastructural factors, such as, financial institutions, banks, modes of transportation communication facilities, and so on.
Question 4.
Mention of the objectives of Economic Environment towards India’s development.
Answer:
The main objectives of India’s development plans were:
(a) Initiate rapid economic growth to raise the standard of living, reduce unemployment and poverty;
(b) Become self-reliant and set up a strong industrial base with emphasis on heavy and basic industries;
(c) Reduce inequalities of income and wealth;
(d) Adopt a socialist pattern of development based on equality and prevent exploitation of man by man.
Question 5.
List out the features of new Indsutrial Policy of 1991.
Answer:
As a part of economic reforms, the Government of India announced a new industrial policy in July 1991.
The broad features of this policy were as follows:
(a) The Government reduced the number of industries under compulsory licensing to six.
(b) Many of the industries reserved for the public sector under the earlier policy, were dereserved. The role of the public sector was limited only to four industries of strategic importance.
(c) Disinvestment was carried out in case of many public sector industrial enterprises.
(d) Policy towards foreign capital was liberalised. The share of foreign equity participation was increased and in many activities 100 per cent Foreign Direct Investment (FDI) was permitted.
(e) Automatic permission was now granted for technology agreements with foreign companies.
(f) Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India.
Question 6.
Hightlights the impact of liberalisation for the economic reforms in India.
Answer:
Liberalisation: The economic reforms that were introduced were aimed at liberalising the Indian business and industry from all unnecessary’ controls and restrictions. They signalled the end of the licence-pemit-quota raj. Liberalisation of the Indian industry lias taken place with respect to:
- abolishing licensing requirement in most of the industries except a short list,
- freedom in deciding the scale of business activities i.e., no restrictions on expansion or contraction of business activities
- removal of restrictions on the movement of goods and services,
- freedom in fixing the prices of goods services
- reduction in tax rates and lifting of unnecessary controls over the economy,
- simplifying procedures for imports and experts, and
- making it easier to attract foreign capital and technology to India.
Question 7.
Hightlights the impact of Privatisation for the economic reforms in India.
Answer:
Privatisation: The new set of economic reforms aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector. This was a reversal of the development strategy pursued so far by Indian planners. To achieve this, the government redefined the role of the public sector in the New Industrial Policy of 1991, adopted the policy of planned disinvestments of the public sector and decided to refer the loss making and sick enterprises to the Board of Industrial and Financial Reconstruction.
The term disinvestments used here means transfer in the public sector enterprises to the private sector. It results in dilution of stake of the Government in the public enterprise. If there is dilution of Government ownership beyond 51 percent, it would result in transfer of ownership and management of the enterprise to the private sector.
Question 8.
Hightlights the regulations of industeral policy of 1991 towards Globalisation.
Answer:
Globalisation: Globalisation means the integration of the various economies of the world leading towards the emergence of a cohesive global economy. Till 1991, the Government of India had followed a policy of strictly regulating imports in value and volume terms. These regulations were with respect to (a) licensing of imports, (b) tariff restrictions and (c) quantitative restrictions. The new economic reforms aimed at trade liberalisation were directed towards import liberalisation, export promotion through rationalisation of the tariff structure and reforms with respect to foreign exchange so that the country does not remain isolated from the rest of the world.
Globalisation involves an increased level of interaction and interdependence among the various nations of the global economy. Physical geographical gap or political boundaries no longer remain barriers for a business enterprise to serve a customer in a distant geographical market.
Question 9.
Explain the various dimensions of business environment.
Answer:
1. Economic Environment: Interest rates, Inflation rates value of rupee and many more are the economic factors that can affect management practices in a business enterprise.
2. Social Environment: The social environment of business includes the social forces like customs and traditions, values, social trends etc.
3. Technological Environment: This includes forces relating to scientific improvements and Innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.
4. Political Environment: This includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business.
5. Legal Environment: This includes various legislations passed by Government authorities and Court Judgements It is important for the management of every enterprise to obey the law of land and for this, enough of knowledge of rules and regulations framed by the Government is a pre-requisite for better performance.
2nd PUC Business Studies Business Environment Eight Marks Questions and Answers
Question 1.
Explain the impact of Government Policy Changes on Business and Industry.
Answer:
Impact of Government Policy Changes on Business and Industry
The policy of liberalisation, privatisation and globalisation of the Government has made a significant impact on the working of enterprises in business and industry. The Indian corporate sector has come face-to-face with several challenges due to government policy changes.
These challenges can be explained as follows:
1. Increasing competition: As a result of changes in the rules of industrial licensing and entry of foreign firms, competition for Indian firms has increased especially in service industries like telecommunications, airlines, banking, insurance, etc. which were earlier in the public sector.
2. More demanding customers: Customers today have become more demanding because they are well-informed.
3. Rapidly changing technological environment: Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies make it possible to improve machines, process, products and services.
4. Necessity for change: In a regulated environment of pre-1991 era, the firms could have relatively stable policies and practices.
5. Need for developing human resource: Indian enterprises have suffered for long with inadequately trained personnel. The new market conditions require people with higher competence and greater commitment.
6. Market orientation: Earlier firms used to produce first and go to the market for sale later. In other words, they had production oriented marketing operations. the firms have to study and analyse the market first and produce goods accordingly.
7.) Loss of budgetary support to the public sector: The central government’s budgetary support for financing the public sector outlays has declined over the years. The public sector undertakings have realised that, in order to survive and grow, they will have to be more efficient and generate their own resources for the purpose.
On the whole, the impact of Government policy changes particularly in respect of liberalisation, privatisation and globalisation has been positive as the Indian business and industry has shown great resilience in dealing with the new economic order.
Question 2.
Explain the different Dimensions of Business Environment.
Answer:
Dimensions of Business Environment
Dimensions of, or the factors constituting the business environment include economic, social, technological, political and legal conditions which are considered relevant for decision-making and improving the performance of an enterprise.
However, management of every enterprise can benefit from being aware of these dimensions instead of being disinterested in them.
The various factors constituting the general environment of business is given below:
1. Economic Environment: The economic environment includes interest rates, inflation rates, changes in disposable income of people,
2. Social Environment: The social environment of business include the social forces like customs and traditions, values, social trends, society’s expectations from business, etc. Values refer to concepts that a society holds in high esteem. Social trends present various opportunities and threats to business enterprises.
3. Technological Environment: It includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business.
4. Political Environment: Political environment includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business. The significance of political conditions in business success lies in the predictability of business activities under stable political conditions. Political stability, thus, builds up confidence among business people to invest in the long term projects for the growth of the economy.
5. Legal Environment: Legal environment includes various legislations passed by the Government administrative orders issued by government authorities, court judgments as well as the decisions rendered by various commissions and agencies at every level of the government centre, state or local.
an adequate knowledge of rules and regulations framed by the Government is a pre-requisite for better business performance. Non-compliance of laws can land the business enterprise into legal problems.