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Class 12 Business Environment: cheat sheet
CBSE Business Studies. What the business environment is, its features and importance, specific and general forces, and its economic, social, technological and legal dimensions.
Key ideas
- The business environment is the total of all individuals, institutions and forces outside a business that may affect its performance.
- Specific forces (customers, suppliers, competitors, investors) affect a firm directly; general forces (economic, social, technological, legal) affect all firms indirectly.
- Its features: totality of external forces, specific and general forces, inter-relatedness, dynamic nature, uncertainty, complexity and relativity.
- Relativity means one change affects firms differently: dearer tea helps tea growers but hurts tea-stall owners.
- Watching the environment helps a firm spot opportunities (first mover advantage) and threats (early warning signals), tap resources, cope with change, plan, and perform better.
- Economic: interest rates, inflation, incomes; social: customs, values, lifestyles; technological: new methods and inventions; legal: laws, rules and court orders.
Remember
| First mover advantage | the gain from being the first to use an opportunity |
| Early warning signal | an early sign of a threat, so the firm can act in time |
| Economic change | e.g. banks raise their interest rates on loans |
| Social change | e.g. people grow health-conscious and want organic food |
| Technological change | e.g. digital payments replace cash; electric scooters cut demand for petrol ones |
| Legal change | e.g. a law requires the expiry date on every food packet |
| Dynamic vs uncertain | dynamic: it keeps changing; uncertain: the changes are hard to predict |
Watch out
- Calling customers and competitors general forces: they act on the firm directly, so they are specific.
- Mixing up dynamic nature (constant change) with uncertainty (changes that are hard to predict).
- Putting a new labelling law in the social environment: laws and court orders are the legal environment.
Worked example
How might each change affect a business? Name its dimension. (a) Banks raise their rates of interest on loans. (b) Electric scooters reduce demand for petrol scooters.
Working: economic: interest, prices, incomes; social: values and lifestyles; technological: new methods and inventions; legal: laws and court orders
Answer: (a) economic: it changes costs, demand or the cost of borrowing (b) technological: it brings new products and methods and makes old ones obsolete
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