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What is the Importance of the Business Environment?

What is the Importance of the Business Environment?

Importance of the Business Environment

Importance of the Business Environment – The word “business environment” refers to the total of all the people, organizations, and other forces outside the industry’s power. But that can influence its production. According to an anonymous author: “Like the universe, remove the subset that describes the system and the rest is the environment”.  Therefore, the financial, cultural, governmental, technological, and other forces that operate outside a company are part of its environment. Its environment is composed of individual clients or opposing companies and management, client groups, opponents, the media, courts, and other institutions that operate outside of a company.

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Also Read: All to Know About Indian Financial Structure 

Discuss in Detail About Importance of the Business Environment

Like us, they are doing business doesn’t survive in captivity. Every company is not an island in itself; it exists, lasts, and develops under the circumstances of the part and the forces of its situation. While a single company can change or manage these forces, it has no choice but to respond or modify accordingly. Good environmental knowledge of farm managers allows them to recognize and evaluate forces external to their company and react to them. The status of the business environment and its insight by executives can be understood if we consider the following points:

(A) Helps Identify Opportunities and Reap the Benefits of Pioneering

  • There are many opportunities in the environment, and it is necessary to identify opportunities to improve a company’s performance.
  • Early detection enables a business to identify opportunities first rather than losing them to the competition. Example: “Airtel” recognized the need for fast Internet and took the first step by providing its users with 4G speed, followed by Vodafone and Idea.
  • Asian paints lost market share to Nerolac because they couldn’t keep up with its technology.

(B) Helps the Company Identify Threats and early Warning Signs.

  • The business environment helps to understand the threats that may arise in the future.
  • Environmental awareness can help managers identify various threats early and serve as an early warning signal. Example: Patanjali products have become a red flag for the rest of the FMCG
  • The sector to develop similar products. Also, if an Indian company discovers that a foreign multinational is entering the Indian market with new substitutes, you must prepare accordingly.
  • Chinese mobile phones have become a threat to Indian mobile phone manufacturers.

(C) Help Unlock Useful Resources

  • The economy and industry use the resources (inputs) of the environment, convert them into usable products (outputs), and make them available to society.
  • The environment offers various inputs (resources) such as finances, machines, raw materials, electricity and water, labor, etc.
  • The business enterprise provides its customers with goods and services, pays taxes to the government, investors, etc.

For example: With the call for the latest technology, manufacturers will use environmental resources to make LED TVs and intelligent TVs instead of collecting resources for color or black and white TVs.

(D) Helps Cope with Rapid Changes

  • The business environment changes very rapidly, and the industry is affected by changing market conditions.
  • Turbulent market conditions, lower brand loyalty, market split, changes in fashion, more demanding customers, and global competition are examples of the business environment’s change.

Example: Jack Ma founded Alibaba because he saw the potential for interest in e-commerce.

(E) Help in Planning and Formulating Guidelines.

  • The business environment poses both threats and opportunities for a company.
  • Knowing the business environment helps to make decisions about future planning or decision making.

Example: Various Chinese phone inputs like VIVO, Gionee, OPPO, etc., have threatened local players like Micromax, Karbonn, Lava, etc., to reconsider how to deal with the situation.

(F) Helps Improve Performance.

  • Environmental studies show that the success of any company is closely link to changes in the environment.
  • Companies that monitor and apply sound business practices improve their performance and become industry leaders.

Example: Apple has managed to maintain its market share due to its adequate knowledge of the environment. And appropriate innovations in its products.

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