What is meant by 'business environment '? State any three points of its importance.

Explanation

Business environment:
It is the sum total of all individuals, institutions and other forces that are outside the control of business enterprise but may affect its performance. Importance:
(i) It enables the firm to identify opportunities and getting the first mover advantage:
Analysis of business environment helps to identify opportunities i.e., positive external changes to be exploited first instead of losing them to competitors.
(ii) It helps the firms to identify threats and early warning signals:
A study of business environment helps an enterprise to identify threats i.e ., negative signals that hinders business performance and take appropriate preventive measures on time.
(iii) It helps in tapping useful resources:
A business enterprise depends on environment as a source of input like raw materials, labour etc and as an outlet for outlet i.e., goods of services, taxes, etc. Analysis helps to get resources that it needs to convert into outputs which an environment desires.
(iv) It helps in coping with rapid changes:
It helps management to become more sensitive to ever changing needs of the customers. As a result, they are able to respond to such changes effectively.
(v) It helps in assisting in planning and policy formulation: Environmental scanning provides the basis for deciding future course of action (planning) and guidelines for decision making (policy).
(vi) It helps in improving performance:
The continuous monitoring of environment and adopting suitable business practices not only improve their present performance but also continue to succeed in the market for a longer period.