Business Environment Class 12 Notes

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Business Environment Class 12 Notes

In the subject and syllabus of Business Studies of class 12, we have always witnessed that business is always unpredictable and uncertain. So is the case with the business environment. Have you ever thought of what does business environment means in business studies? Or what constitutes a business environment? In this blog, we will be learning everything related to the chapter of Business Environment Class 12. So get ready with your pen and notebook and read this blog till the very end to know more about Business Environment Class 12.

What is Business Environment? 

The business environment is an important part of commerce subjects. It refers to forces and institutions outside the firm with which its members must deal to achieve the organisational purposes where forces are referred to as economical forces, social forces, political forces, technological forces etc and institutions are referred to as suppliers, customers, competitors and etc. 

Features of Business Environment

According to the chapter of Business Environment class 12, these are the following features of a business environment:

  • Totality of external forces: business environment is regarded as the sum total of all the forces or factors external to a business firm. 
  • Specific and general forces: business environment also includes both specific and general focus where specific forces are like investors, customers, who affect the business directly. On the other hand, general forces are the social, political, legal and technological conditions.
  • Inter relatedness: according to the chapter of Business Environment class 12, all the forces and factors that affect the business are interrelated. 
  • Dynamic Nature: it is said that the business environment is dynamic in nature as it keeps on changing and never remains constant. 
  • Uncertainty: we have always referred to this point that uncertainty is always attached to any business. Likewise, the business environment is uncertain too and hence it is difficult to predict.
  • Complexity: apart from being uncertain, the business environment is difficult to understand and analyse and hence it is complex in nature. It can be easily understood in parts but in totality, it is difficult to understand. 

Importance of Business Environment 

As per the syllabus of Business Environment Class 12, the importance of the business environment can be observed with the help of the following points: 

  • Identification of opportunities to get a first-mover advantage: the very first importance of business environment enables us to understand the business environment which in return will help in identifying advantageous opportunities and getting their benefits prior to competitors, thus getting a first-mover advantage before our competitors. 
  • Identification of threats: environmental awareness and understanding of the business environment will help the firm to identify various threats on time which will serve as an early warning signal. 
  • Tapping useful resources: there are many resources which are present in a business environment such as capital, labour, machines, raw materials, etc. in order to know the availability of these resources and in order to make them available on time at the correct economical price, the knowledge of the business environment is required and necessary.
  • Coping with rapid changes: the continuous and rapid study or scanning of the business environment will help in knowing the changes that are taking place in the business environment so that the business is ready in advance to face them effectively. 
  • Assistance in planning and policy formulation:  understanding the business environment also helps in assisting managers in planning and policy formulation as per the future course of action. 
  • Helps in improving performance: a better understanding of the business environment and its continuous study and scanning help businesses and companies to easily monitor and improve their performance. 
Importance of Business Environment
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Dimensions/Components of Business Environment

According to business environment class 12, there are various dimension of a business environment. They are mentioned below. 

Components of Business Environment Class 12
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Economic Environment 

As per the chapter of Business Environment Class 12, the economic environment is one of the dimensions or component of the business environment which includes economic factors like Gross Domestic Product, National Income, Per Capita Income, Inflation, Monetary policies, Fiscal policies, Profit earnings, rate of interests etc. these forces have an immediate and direct economic impact on the business organisation. The economic environment may offer opportunities to a firm or it may put constraints.

Also Read: Business Studies Class 12 Case Studies

Social Environment

This is another component or dimension of the business environment which includes and consists of various social factors or forces like customs, beliefs, literacy rate, education, lifestyle, traditions, ethics, values and etc. it also includes the society as a whole in which the business is existing. Changes in the social environment may or can affect an organization in the long run.

Technological or Technical Environment

The technical or technological environment is that component or dimension of the business environment which closely deals with the continuous changes that are taking place in the techniques, ways or the methods of production. It is important to closely monitor the technical changes that are taking place in the industry which helps the business to improve the quality of its products and competition from others. For example digitalisation. 

Political Environment 

This is another component/dimension of the business environment which constitutes all the factors and forces related to the government affairs and the political affairs such as the type of government, politics in the business environment, power, authority etc. 

Must Read: Nature and Significance of Management Class 12 Notes

The legal environment is the last dimension or a component of business environment class 12 which constitutes all the laws and various other legislations that are passed in the parliament, such as Trade Mark Act, GST Bill, Weights and Measures Act and more.

Economic Environment in India

In economics class 12, students must have studied in detail the economic reforms that India has to adopt after 1991. The government implemented LPG, which is also known as liberalisation, privatisation and globalisation, which was an attempt to expand and open up our economy and integrate it with the world economy, hoping that it will help the Indian economy to be out of the difficulties and speeding up the development of the country. Hence the main features of the New Economic Policies (NEP) of 1991 were as follows: 

  • Only six industries were kept on a permit/license permit or regime.
  • The role of the public sector has been limited to no more than four industries.
  • The divestment took place in numerous public sector companies.
  • Foreign capital/investment policy has been liberalized and in many areas foreign direct investment has been 100% permitted.
  • Technology agreements with foreign companies were automatically allowed to be signed.
  • The Foreign Investment Promotion Board (FIPB) was founded to promote and attract foreign investment into India.
  • A variety of advantages have been offered to small scale industries.


As discussed above also, the Indian Government adopted three main strategies namely Liberalisation, Privatisation and Globalisation popularly came to be known as LPG for the purpose of economic development since 1991. 

  • Liberalisation: as per this policy, the government decided to remove all the unwanted restrictions and barriers in the international trade which made the business environment and economy more liberal, competitive and free. 
  • Privatisation: as per this policy or strategy that was adopted by the government, it removed strict control and restrictions on the private sector and allowed the private sector of the economy to flourish in the economy. It gave the required and much-needed freedom to the private sector of the economy. 
  • Globalisation: according to this strategy or policy which was adopted by the government, it allowed integration of the world or global economy with the national economy and also free interaction among economies of the world in the field of trade, finance, production, technology, investments, education etc. Our new economic policy has helped globalization through:
  • Devaluation of rupee
  • Raising foreign equity participation
  • Long-period trade policy
  • Convertibility of rupee

The Impact of Government Policy Changes

Let us now take this blog on Business Environment class 12 study notes further while discussing the major impacts of the government policy changes on the business and industry:

  • Increase in competition
  • The demand of the customers increased and more demanding customers started gathering in the market
  • Need for world-class and modern technology
  • Need or necessity for change and modifications 
  • Market orientation 
  • Need for developing and training human resource 
  •  Loss of Budgetary Support to Public Sectors 

Explore: Class 12 Forms Of Market And Price Determination

This was all about the chapter on business environment class 12. We hope these notes help you in your upcoming exams. Are you confused about what stream to choose after class 12th commerce? Get in touch with our experts at Leverage Edu who will guide you every step of the way. Sign up for a free session today! 

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