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Revision Notes for Class 12 Business Studies Chapter 3 Business Environment

Home » CBSE Class 12 Business Studies » Revision Notes for Class 12 Business Studies » Revision Notes for Class 12 Business Studies Chapter 3 Business Environment

Revision Notes for Class 12 Business Studies Chapter 3 Business Environment

Here we are providing Revision Notes for Class 12 Business Studies Chapter 3 Business Environment. These are the important points related to the chapter. Students should remember these points.


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 key features of business environment with highlight its nature are stated below:

(a)         Totality of external forces: Business environment is a holistic concept, as it refers to an aggregate or sum total of all the forces/factors which are external to the business organisations.

(b)         Specific and general forces: The different types of forces which influence the working of a business firm can be broadly classified into two categories; (a) general forces which consist of economic, social, technological, political and legal components (b) specific forces includes the owners, suppliers, creditors, employees and trade union, competitors etc.

(c)          Inter-relatedness: The various components of business environment are very closely interrelated and interdependent.

(d)         Dynamic nature: The business environment is dynamic in nature as it is constantly in the process of transformation.

(e)         Uncertainty: Business environment is considered to be highly volatile as it involves an element of uncertainty. It is very difficult for the business managers to anticipate future events accurately.

(f)          Complexity: The business environment is considered to be complex in nature as is made up of a number of interrelated and dynamic situations and forces.

(g)         Relativity: It is important to appreciate the fact that business environment is relative in nature and may vary from one country to another or one region to another.


The various points which highlights the need of understanding the business environment by the business managers and stated below:

(a)         It enables the firm to identify opportunities and getting the first mover advantage: In

context of business, the term opportunity refers to the positive external trends or changes

that will enable a firm to improve its performance. If a business is able to identify a forth coming opportunity and of use it to the best of its advantage it is said to have made the first mover advantage.

(b)         It helps the firm to identify threats and early warning signals: In the context of business, the term threat refers to those trends and changes in the business environment which are likely to create an adverse effect on the performance of an organisation. Environmental threats may be considered to be an early warning signal which if comprehended on time by the business managers, can help to avert severe consequences.

(c)          It helps in coping with rapid changes: The present day business environment is marked by rampant changes. As a result, it is absolutely vital for the business managers to be able to develop an understanding of different types of changes taking place in its business environment and use it to serve the interest of the business organisation in the best possible manner.

(d) It helps in assisting in planning and policy formulation: If the business managers posses a complete understanding of various aspects related to their business environment, it will provide the basis for successful planning in the organisation.

(e) It helps in improving performance: In the absence of complete understanding of the business environment it will be very difficult for the business managers to achieve the desired goals.


The dimensions of business environment refers to all the forces which lie outside the business but have a capacity to influence its working in many ways. The various dimensions of business environment can be broadly grouped into five categories namely; economic conditions, social conditions, political conditions, legal conditions, and technological conditions.


(a)         Economic environment: The economic environment comprises of all those economic forces which are likely to exert an, influence the functioning of an business enterprise like, the economic system whether it is capitalist, socialist or mixed economy, level of economic development, availability of economic resources, the level of income of people etc.

(b)         Social environment: Social environment includes the social forces like, beliefs, customs and traditions, values, social trends, society’s expectations from business, etc.

(c)          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.

(,d) Political environment: The various aspects relating to the functioning of the government in the country where the business operates also have an important bearing on it smooth working. The main constituents of political environment are general stability and peace in the country, organisation and philosophy of political parties, ideology of the government, the image of the country and its leaders, foreign policies pursued by the government in power, attitude of the government towards various types of business organisations etc.

(e)         Legal environment: The legal environment serves as a regulatory framework of business. It 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 at every level of the government— centre, state or local.


On July 24, 1991, Government of India announced its new industrial policy with an aim to correct the distortion and weakness of the Industrial Structure of the country that had developed in four decades; elevate industrial efficiency to the international level; and speed up industrial growth.

In a nutshell, the policy primarily aimed at realising three goals ;

>             First, to liberate the Indian industries from the restraints of licensing system-Liberalisation

>             Second, to reduce the role of public sector in the economy-Privatisation

>             Third, to promote foreign private participation in industrial development of the country- Globalisation


A few of the important ways which have been adopted by the business firms to ensure their success in the competitive business environment are listed below:

(a)         Acquisitions and mergers

(b)         Diversification

(c)          Brand building

(d) Innovative distribution and selling techniques

(e)         Changes in capital structure if) Customer-oriented approach

(g)         Technological developments

(h)         Better labour relations


Demonetisation refers to the act of scrapping a currency unit of its status as legal tender.

After demonetising bank notes on two previous occasions, i.e., in the year in 1946 and in 1978 the Government of India decided to do so again on 8th November 2016. As a result of announcement, all ₹500 and ₹1000 banknotes of the Mahatma Gandhi Series became an invalid currency with immediate effect. The issuance of new ₹500 and ₹2000 banknotes in exchange for the demonetised currency was also announced.


Demonetization was initiated to serve four basic purposes i.e.

>             to curb corruption,

>             to curtail circulation of counterfeit notes (fake money),

>             to restrain funding of illegal activities such as terrorism and drug trafficking and

>             to contain accumulation of black money


The key features of demonetisation stated below:

1.            Tax administration measure: Demonetisation is perceived as an effective tax administration measure as the people with accumulated black money are left with no other option, but to declare their cash holdings and pay taxes at a penalty rate.

2.           Stringent approach towards tax evasion: Through demonetisation the government seeks to communicate in a stringent manner that the practice of tax evasion will neither be tolerated or allowed any further.

3.           Channelising savings into the formal financial system: One of the initial impact of demonetisation is an increase in the savings in the bank deposits as the people need to deposit their cash holdings in the bank, so as to get it exchanged with new currency.

4.            Development of less-cash economy: Demonetisation is considered to be an important step towards moving India to a less-cash or cash-lite economy.


The implementation of the new economic policy brought about significant changes in the functioning of the business enterprises. Some of the few important challenges are explained below:

(a)         Increasing competition: The implementation of new economic policy due to changes in the rules of industrial licensing and have paved way for the entry of foreign firms leaving to a significant rise in the level of competition within the economy for the Indian firm.

(b)         More demanding customers: With an unprecedent increase in the level of awareness and expectations of consumers, they have more demanding.

(c)          Repidly changing technological environment: The tough competition among the business firms have forced them to focus on developing innovative ways in order to ensure their survival and growth.

(d) Necessity for change: The working of the business firms was more regulated due to existence of relatively stable policies and business practices.

(e) Need for developing human resource: As a result, of implementation of new economic policy the needs of the business enterprises changed significantly in terms of the requirements of manpower.

(/) Market orientation: The implementation of new economic policy, led to a paradigm shift in the approach of the marketers from market oriented to a customer oriented approach.

(g) Loss of budgetary support to the public sector: Over a period of time these disbursement from the government have shown a download trend because it was now believed that in order to operate successfully in a competitive business environment it was essential for these enterprises to enhance their efficiency and generate their own resources.


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