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Chapter 3- Business Environment Interview Questions Answers

Question 1 :
Which of the following does not characterise the business environment?

Answer 1 :

(a) Uncertainty
(b) Employees
(c) Relativity
(d) Complexity


Among the options given above, employees does not characterise business environment. Business environment refers to the external forces such as individuals, enterprises, situations, and other such forces that affect the performance of the organisation. Employees are integral to an organisation and does not characterise its environment. 

Question 2 :
Which of the following best indicates the importance of the business environment?

Answer 2 :

 (a) Identification
(b) Improvement in performance
(c) Coping with rapid changes
(d) All of them


All the options given above indicate the importance of business environment. Study of business environment helps in identifying the positive changes as well as threats or hindrances that affects the performance of an organisation. Thereby, it helps them in taking appropriate measures for improving the performance. In addition, a careful study of the continuously changing environment helps the organisation in coping with it in a better manner. 

Question 3 :
Which of the following is an example of social environment?

Answer 3 :

(a) Money supply in the economy
(b) Consumer Protection Act
(c) The constitution of the country
(d) Composition of family


Social environment refers to the social forces such as customs, traditions, social values, social trend etc. that affect the business opportunities and performance. Among the options given in the question, composition of family represents an example of social environment. If the composition of family is such that it comprises of more of children than elderly persons then, this implies greater business opportunity for baby product companies.

Question 4 :
Liberalisation means

Answer 4 :

(a) Integration among the economies
(b) Reduced government controls and restrictions
(c) Policy of planned disinvestment
(d) None of them


Liberalisation means reduced government controls and restrictions such as licenses and quotas.

Question 5 :
Which of the following does not explain the impact of government policy changes on business and industry?

Answer 5 :

(a) More demanding customers
(b) Increasing competition
(c) Change in agricultural prices
(d) Market orientation


Among the options given above, change in agriculture prices does not explain the impact of government policy changes on business and industry. Government policy changes such as liberalisation, privatisation and globalisation affect the working of business organisations. More demanding customers, increasing competition and market orientation all explain the impact of such policy changes. On the other hand, change in agricultural prices is independent of the government policy changes and takes place due to change in the demand and supply of agricultural products. 

Question 6 :
What do you understand by business environment?

Answer 6 :

Business environment refers to all the external forces that affect the performance of a business organisation. Such forces can be economic, social, political, technological or legal. Thus, individuals, consumers, government, legal matters all compose business environment. For example, change in taste and preferences of the consumers, change in government policies, change in political scenario, change in legal polices, all make up business environment. An organisation cannot control such forces but they affect its performance either positively or adversely. For example, a change in consumer’s tastes in favour of a firms product, increases demand for its product. Similarly, an introduction of a new technology leaves the technology used by the firm obsolete and its products comparatively inferior. Thus, it can be said that everything that is outside the purview of an organisation but affects its performance composes business environment. 

Question 7 :
Why it is important for business enterprises to understand their environment? Explain briefly.

Answer 7 :

Understanding of business environment is of vital importance for successful functioning of an organisation. Any organisation cannot function independently. It’s functioning and performance depends on several external forces as well. A continuous evaluation and understanding of the business environment helps a firm to take account of these forces in a better manner and thereby, improve its functioning. The following points highlight the importance of understanding of environment for business enterprises. 

i. Identification of Opportunities: With a careful analysis of the business environment an enterprise can identify the positive opportunities for business. An early identification of the opportunities helps it in taking first hand advantage in competition.

ii. Identification of Threats: Besides positive opportunities, a study of business environment helps an enterprise in the identification of threats or negative signals that may adversely affects its functioning. Thereby, it enables it to take appropriate preventive measures. 

iii. Accumulating Useful Resources: Environment provides a business various resources or inputs for its functioning such as raw material, machinery, labour, etc. On the other hand, enterprises provide the environment with output in the form of goods and services. That is, environment acts both as a source of resources as well as a source of demand for the products of the enterprises. Thus, it becomes logical for the enterprises to take up those resources from the environment that can be converted into the desired output. This is possible only if the enterprises have an understanding of what the environment desires and what it can offer. 

iv. Adjusting to Changes: Business environment is dynamic in nature. Changes in technology, consumers taste and preference, government policies take place continuously. A careful analysis and understanding of the environment helps an enterprise in dealing with these changes in a better manner and thereby, take appropriate actions. 

v. Formulating Plans and Policies: A continuous study of environment helps an organisation in the identification of the opportunities and threats. Thereby, it guides the organisation in framing suitable plans and policies in view of the current scenario. 

vi. Improving Performance: A continuous analysis of the environment helps the enterprises in framing suitable policies and plans and thereby, improves their performance. 

Question 8 :
Mention the various dimensions of business environment.

Answer 8 :

The following are the dimensions of business environment.

i. Economic Environment: It comprises of the economic variables such as interest rates, income, stock market indices that affect the functioning of the enterprises. For example, an increase in income affects the demand for goods and services of the enterprises.

ii. Social Environment: Social environment refers to the social forces such as customs, traditions, social values, social trend etc. For example, religious celebrations provide business opportunities to many enterprises such as those producing sweets, decoration items, etc. 

iii. Technological Environment: Technological environment includes technological changes and improvements. For example, introduction of computers, internet, new telecommunication facilities, etc. all affect the business enterprises. An improvement in the technology used in the manufacturing of a product provides new business opportunities for the enterprises while on the other hand, is a threat for the enterprises using obsolete technology.

iv. Legal Environment: It comprises of the legislation and rules passed by the government such as the Companies Act, Trade union Act, etc. These legislation govern how an enterprise functions and behaves. Knowledge of these legislation is essential for enterprises as their non-compliance can lead to legal trouble for them. 

v. Political Environment: Political conditions such as peace and stability, law and order compose political business environment. It directly affects the functioning of enterprises. For example, a situation of political unrest erodes confidence of the investors and thereby, makes it difficult for the enterprises to function smoothly.

Question 9 :
Briefly explain the following:

Answer 9 :

(a) Liberalisation
(b) Privatisation
(c) Globalisation


(a) Liberalisation: Liberalisation refers to the removal of unnecessary controls and restrictions of the government in the form of licenses, permits and quotas. India initiated liberalisation of industries in 1991. Liberalisation of industries in India took the following form.

  1. License required for the establishment of industries were abolished.
  2. Enterprises became free in deciding the scale and size of production and the price of the products
  3. Restrictions were removed on the movement of goods and services
  4. Procedures regarding exports and imports were relaxed
(b) Privatisation: Privatisation implies according greater role to the private sector and reducing the involvement of public sector. Privatisation was followed in India in the following manner.

  1. Disinvestment of the public sector enterprises
  2. Establishing Board of Industrial and Financial Reconstruction for the revival of the sick and loss making enterprises.
  3. Diluting the stake of government in the public sector enterprises.
(c) Globalisation: Globalisation refers to the process of integration of various economies of the world. It implies reducing the restrictions on the import and export such as licensing and tariffs. In India the following policies were followed with regard to globalisation.

  1. Removal on restriction on imports
  2. Abolishing the export duty
  3. Reducing import duty

Question 10 :
Briefly discuss the impact of government policy changes on the business and industry.

Answer 10 :

The policies of liberalisation, privatisation and globalisation by the government affect the functioning of the business enterprises. The following points highlight the impact of government policy changes on the business and industry.

i. Increased Competition: As a result of the policies such as relaxation of the licensing policy and reduction of import duties, the competition faced by the domestic firms increases. India companies experienced competition in service industry such as telecommunication, banking, insurance, etc. 

ii. Increased Demand: As competition increases, the choice of goods and services for the consumers also increases. Thus, consumers also gain from quality products and greater variety.

iii. Change in Business Policies: The government policies directly impact the functioning of the business enterprises. As a result, they have to alter their policies appropriately.

iv. Technological Changes: As competition increases firms tend to find new and innovative ways to survive in the market. In such a scenario, technological improvements become imperative.

v. Need for Trained Personnel: Innovations and improvement in product, application of improved technologies requires skilled and trained personnel. Thus, there arises a need for the development of human resources.

vi. Greater Market Orientation: With increased competition, the production has become market oriented. That is, the enterprises produce as per the demand market. 

vii. Less Reliance on Budgetary Support by Public Sector Enterprises: To survive the increased competition, the public sector enterprises must improve efficiency and productivity rather than relying on budgetary support to cover their losses.



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