ECO 13 Solved Assignment 2022 – 23 (IGNOU)

ECO 13 Solved Assignment 2022 – 23

IGNOU B.Com Free Solved Assignment 2022 – 23

Business Environment ECO 13 Solved Assignment 2022 – 23

COURSE TITLE: Business Environment


COVERAGE: ALL BLOCKS (Maximum Marks: 100)

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Eco 13 Solved Assignment

Attempt all the questions.         

1. What are the three components of business environment? Discuss.         (20)

Ans: Components of Business Environment

On the basis of extent of intimacy with the firm, the environmental factors may be classified into different levels or types. There are broadly two types of environment, the internal environment, i.e. factors internal to the firm and the external environment i.e. factors external to the firm which have relevance to it.

The internal factors are generally regarded as controllable factors because the company has control over these factors; it can alter or modify such factors as its personnel, physical facilities, organisation and functional means such as marketing mix to suit the environment.

The external factors on the other hand are, by and large, beyond the control of a company. The external or environmental factors such as the economic factors, socio-cultural factors, government and legal factors, demographic factors etc., are therefore generally regarded as uncontrollable factors.

Some of the external factors have a direct and intimate impact on the firm (like the suppliers and distributors of the firm). These factors are classified as micro environment, also known as task environment and operating environment. There are other external factors which affect an industry very generally (such as industrial policy, demographic factors etc.). They constitute what is called macro environment, general environment or remote environment. We may therefore consider the business environment at three levels:

1. Internal environment

2. Micro environment/ task environment/ operating environment

3. Macro environment/ general environment/ remote environment

Although business environment consists of both internal and external environments, many people often confine the term to the external environment of business.

1. Internal Environment:The factors in internal environment of business are to a certain extent controllable because the firm can change or modify these factors to improve its efficiency. However, the firm may not be able to change all the factors. The various internal factors are:

a) Value system: The value system of an organisation means the ethical beliefs that guide the organisation in achieving its mission and objectives.  It is a widely acknowledged fact that the extent to which the value system is shared by all in the organisation is an important factor contributing to its success.

b) Mission and objectives: The business domain of the company, direction of development, business philosophy, business policy etc. are guided by the mission and objectives of the company.  The objective of all firms is assumed to be maximisation of profit.  Mission is defined as the overall purpose or reason for its existence which guides and influences its business decision and economic activities.

c) Organisation structure: The organisational structure, the composition of the board of directors, the professionalism of management etc. are important factors influencing business decisions. The nature of the organisational structure has a significant influence over the decision making process in an organisation.  An efficient working of a business organisation requires that the organisation structure should be conducive for quick decision making. 

d) Corporate culture: Corporate culture is an important factor for determining the internal environment of any company.  In a closed and threatening type of corporate culture the business decisions are taken by top level managers while the middle level and lower level managers have no say in business decision-making.  This leads to lack of trust and confidence among subordinate officials of the company and secrecy pervades throughout the organisation.  This results in a sense of alienation among the lower level managers and workers of the company. In an open and participating culture, business decisions are taken by the lower level managers and top management has a high degree of confidence in the subordinates.

e) Quality of human resources:  Quality of employees that is of human resources of a firm is an important factor of internal environment of a firm.  The characteristics of the human resources like skill, quality, capabilities, attitude and commitment of its employees etc. could contribute to the strength and weaknesses of an organisation.  Some organisations find it difficult to carry out restructuring or modernisation plans because of resistance by its employees. 

f) Labour unions: Labour unions collectively bargains with the managers for better wages and better working conditions of the different categories of workers. For the smooth working of a business firm, good relations between management and labour unions are required.

g) Physical resources and technological capabilities: Physical resources such as, plant and equipment and technological capabilities of a firm determine its competitive strength which is an important factor for determining its efficiency and unit cost of production.  Research and development capabilities of a company determine its ability to introduce innovations which enhances productivity of workers. It is, however, important to note that the rapid technological growth and the growth of information technology in recent years have increased the relative importance of intellectual capital and human resources as compared to physical resources of a company. 

2. External Environment: The external environment is made up of micro and macro environment.

Micro Environment: This refers to the factors which influence the prospects of a particular firm; the firm can influence them with certain efforts. They are as follows:

a) Customers: The type and the nature of the customers influence the rate of growth of any firm. The firm has to be very particular about choosing the inputs and transforming them in to the output. The cost factor is subsidiary if the firm is dealing with such customers. If the customers are more commoners the quality of the commodity if less important than the cost of production. The customers want the commodity at a lower price so the firm will have to conscious about the cost in purchasing the inputs, in employment of labour, in packing and such other factors influencing the cost.

b) Competitors:  In modern age an absolute monopoly is a very rare thing. Most of the FIRMS have to work in some type of competition such as Monopolistic Competition or Oligopoly. A Firm has to be particular about the intensity of the competition. If the competition is severe the firm will have to be very particular about keeping the costs at the lowest level so that it can sell the commodity at a competitive price.

c) Suppliers:  The quality of the commodity and the cost of production are considerably influenced by the supplies of the inputs. If the inputs are supplied at economical prices, are of standard quality and if the supply is uninterrupted and timely the firm can produce a standard quality of a commodity and sell it at reasonable prices. Often the firms employ more than one supplier so as to ensure an uninterrupted supply of inputs. If the supplies of inputs are regular, consistent and reliable there is no need to keep a larger quantity in stock.

d) Channel Intermediaries: They refer to the different levels in the chain from the production unit to the final customer. The chain incorporates the stockists, the wholesalers, the distributors, the retailer etc. If there is a high level of efficiency maintained at every part of the chain the commodity can reach the final consumer in good condition and at a reasonable price. So the Firm has to select and maintain efficient intermediaries. The firm has to offer them proper terms

e) Society: The prospects of a firm depend upon the society in which it has to work and sell its products. In a homogenous society the job of the firm is easy. The people have almost the same habits likes and dislikes, values and ethical norms. In a heterogeneous society the job of the firm is difficult. A particular product may be acceptable to a particular section of the society but not acceptable to some other sections. In a country like India a firm has to into consideration all types of sections of the community such as the religious sections, the caste, the sect, language, region etc.

Conclusion: All these forces influence the chances available to a firm to survive and develop.

Macro Environment: The macro environment comprises of those forces which influence all business firms operating in an economy. They can be studied under the following categories: economic environment, political and regulatory environment, social/ cultural environment, demographic environment and technological. The components of these environments are discussed as below:

a) Economic Environment:The survival and success of each and every business enterprise depend fully on its economic environment. The main factors that affect the economic environment are:

(i) Economic Conditions: The economic conditions of a nation refer to a set of economic factors that have great influence on business organisations and their operations. These include gross domestic product, per capita income, markets for goods and services, availability of capital, foreign exchange reserve, growth of foreign trade, strength of capital market etc. All these help in improving the pace of economic growth.

(ii) Economic Policies: All business activities and operations are directly influenced by the economic policies framed by the government from time to time. Some of the important economic policies are: Industrial policy, Fiscal policy, monetary policy, foreign investment policy and Export –Import policy. The government keeps on changing these policies from time to time in view of the developments taking place in the economic scenario.

(ii) Economic System: The world economy is primarily governed by three types of economic systems, viz. Capitalist economy; Socialist economy; and Mixed economy. India has adopted the mixed economy system which implies co-existence of public sector and private sector.

b) Political Environment:This includes the political system, the government policies and attitude towards the business community and the unionism. All these aspects have a bearing on the strategies adopted by the business firms. The stability of the government also influences business and related activities to a great extent. It sends a signal of strength, confidence to various interest groups and investors.

c) Legal Environment:This refers to set of laws, regulations, which influence the business organisations and their operations. Every business organisation has to obey, and work within the framework of the law. The important legislation that concern the business enterprises include: Companies Act, 1956, Foreign Exchange Management Act, 1999, The Factories Act, 1948, Industrial Disputes Act, 19112, Payment of Gratuity Act, 19112, Industries (Development and Regulation) Act, 1951 etc. Besides, the above legislation, the following are also form part of the legal environment of business:

(i) Provisions of the Constitution

(ii) Judicial Decisions.

d)  Social Environment:The social environment of business includes social factors like customs, traditions, values, beliefs, poverty, literacy, life expectancy rate etc. The social structure and the values that a society cherishes have a considerable influence on the functioning of business firms. For example, during festive seasons there is an increase in the demand for new clothes, sweets, fruits, flower, etc.

e) Technological Environment: Technological environment include the methods, techniques and approaches adopted for production of goods and services and its distribution. The varying technological environments of different countries affect the designing of products. In the modern competitive age, the pace of technological changes is very fast. Hence, in order to survive and grow in the market, a business has to adopt the technological changes from time to time.

f) Demographic Environment:This refers to the size, density, distribution and growth rate of population. All these factors have a direct bearing on the demand for various goods and services.

g) Natural Environment:The natural environment includes geographical and ecological factors that influence the business operations. These factors include the availability of natural resources, weather and climatic condition, location aspect, topographical factors, etc. Business is greatly influenced by the nature of natural environment. For example, sugar factories are set up only at those places where sugarcane can be grown. It is always considered better to establish manufacturing unit near the sources of input.

2. Explain the nature and implications of regulatory role of the government.     (20)

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3. Critically evaluate the government policy towards small scale industries.       (20)

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4. Distinguish between the following:                   (10+10)

(a) Foreign Direct Investment and Portfolio Investment.

Ans: FDI- Foreign Direct Investment refers to international investment in which the investor obtains a lasting interest in an enterprise in another country. Most concretely, it may take the form of buying or constructing a factory in a foreign country or adding improvements to such a facility, in the form of property, plants, or equipment.

FDI is calculated to include all kinds of capital contributions, such as the purchases of stocks, as well as the reinvestment of earnings by a wholly owned company incorporated abroad (subsidiary), and the lending of funds to a foreign subsidiary or branch. The reinvestment of earnings and transfer of assets between a parent company and its subsidiary often constitutes a significant part of FDI calculations. FDI is more difficult to pull out or sell off. Consequently, direct investors may be more committed to managing their international investments, and less likely to pull out at the first sign of trouble.

On the other hand, FPI (Foreign Portfolio Investment) represents passive holdings of securities such as foreign stocks, bonds, or other financial assets, none of which entails active management or control of the securities’ issuer by the investor.

Unlike FDI, it is very easy to sell off the securities and pull out the foreign portfolio investment. Hence, FPI can be much more volatile than FDI. For a country on the rise, FPI can bring about rapid development, helping an emerging economy move quickly to take advantage of economic opportunity, creating many new jobs and significant wealth. However, when a country’s economic situation takes a downturn, sometimes just by failing to meet the expectations of international investors, the large flow of money into a country can turn into a stampede away from it.

Difference between FDI and FPI




Involvement –

direct or indirect

Involved in management and ownership control; long-term interest.

No active involvement in management. Investment instruments that are more easily traded less permanent and do not represent a controlling stake in an enterprise.

Sell off

It is more difficult to sell off or pull out.

It is fairly easy to sell securities and pull out because they are liquid.

Comes from

Tends to be undertaken by Multinational organisations

Comes from more diverse sources e.g. a small company’s pension fund or through mutual funds held by individuals; investment via equity instruments (stocks) or debt (bonds) of a foreign enterprise.

What is invested

Involves the transfer of non-financial assets e.g. technology and intellectual capital, in addition to financial assets.

Only investment of financial assets.

Stands for

Foreign Direct Investment

Foreign Portfolio Investment


Having smaller in net inflows

Having larger net inflows


Projects are efficiently managed

Projects are less efficiently managed

 (b) Direction of Exports and Direction of Imports.

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5. Write short notes on the following:           (4×5)

(a) Changing Value System.

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(b) Economic development.

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(c) Indication of Sickness.

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(d) Joint Ventures.

Ans: A joint venture is the combination of two or more persons into a specific single activity. It is a form of partnership which is limited to a specific venture. It is exactly the same as partnership, with the exception that it is one of a business that is to be terminated after completion of venture for which it is started. Since the business is to be terminated after completion of the venture, a firm name is not generally used. Thus the joint venture is like a temporary partnership with or without a firm name. It can also be said a particular partnership or partnership for a particular object.

Features of a Joint Venture:

a) It is a partnership for specific purpose only.

b) The business is dissolved after the completion of venture.

c) Going concern concept is not applicable in case of joint venture.

d) Provisions of Indian Partnership Act are also applicable in case of joint venture.

e) It does not use a firm name generally.

Merits of Joint Venture:

a) Sharing of risks and liability.

b) Low or no risk opportunities and massive leverage.

c) Access to new and modern technology.

d) It helps in expansion of business.

e) High profitability.

Demerits of Joint Venture:            

a) It is a Short term partnership

b) While preparing accounts, many accounting concepts are not applicable such as the going concern concept.

c) Chances of loss of reputation if venture associated with wrong people.

d) The level of expertise, investment and technology of both the parties are not equally matched.

e) Objective of joint venture in some cases is undefined.

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