Business Environment And Its Importance

Business as we know is an economic activity of generation income through buying and selling, manufacturing and rendering auxiliary services to trade. Thus, business in a system made up of all environmental which require the business to adopt new strategy. Business environment refers to these surroundings of business enterprise which affect its operation and determines its effectiveness. Now-a-days modern business is not independent. It cannot work in isolation. It is the economic and social organ of the society. So it must achieve its economic goal. It cannot ignore the interest of the society. The government of the country has also the interest in business affairs. It enacts legislation, formulates business policies and controls business in the best interest of people.


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According to M. Weimer, “Business environment is the climate or set of conditions -i.e., economic, social, legal, technological and political situations in which business activities are conducted. In the words of Keith Davis, ‘Business environment is the aggregate of all conditions, events and influences that surround and affect it.” In the words of Reicre and Schoell, ‘the environment of business consists of those external things to which it is exposed and by which it may be influenced directly or indirectly. From the above discussion, we conclude that business environment is a wide term as it has got two dimensional relationship with the environment. On the one hand it affects the social, political and economic environment and on the other hand it is affected by country’s social, political, economic and legal environment. The business environment these days consists of internal, operational and general environment.

Importance of Business Environment


The competent and successful management must be capable of adapting to the environment. The knowledge of the environment helps in:

  • Capitalizing emerging opportunities
  • Activating management
  • Image building
  • Basis of strategy
  • Intellectual stimulation
  • Continuous learning

Capitalizing early opportunities: Environment friendly enterprise are the first movers to avail of the existing opportunities of resources to grab the market. These enterprises do not loose emerging opportunities to their competitors. For example: Asian pains have been loosing their market to Good lass Nerolac because of their failure to match their technology with Cathodic Electro Deposition (CED) technology, which helped the competitor to grab the opportunity of meeting 90% paint requirement of Maruti Udyog.

Activating management to changing needs: The knowledge of environmental changes sensitizes the management to make strategy to cope with the emerging problems. For example: The turmoil in the USSR resulted in the loss of market to many companies like Hoechst. In order to meet the situation Hoechst divested its manufacturing facility in favors of IPCA Laboratories Ltd.

Image building: Environmental understanding by the management builds image of the company in the minds of the people. They feel that the company is sensitive and responsive to their needs and problems. For example: G. E is said to be image conscious. It divested its computer and air-conditioning business because they could not attain 1st or 2nd position in the business as per their policy. Now they are snickering to out sourcing in India, aircraft engineering, plastic etc.


Basis of strategy: Strategists can gather qualitative information regarding business environment and utilizing them in formulating effective plants. For example: ITC Hotels foresaw bright opportunities in the travel and tourism industry and started building hotels in India and abroad.

Intellectual stimulation: Knowledge of environment changes provides intellectual stimulation to planners and decision-making authorities. They can do it by paying more attention to people by listening to their problems and suggestion. They can also eliminate procedure complexities in a visible way. The drastic and dynamic steps will definitely keep the company better placed.

Continuous learning: Environmental scanning provides continuing broad based learning to is executives. Reliance adopted the policy of decentralization and empowered their managers to close the deal themselves even regarding price. In 1993 managers were require to chat with the proprietress on alternate days for 15 minutes. The process made them so competent that now the managers are required to chat only three times in a month. It shows that continuous learning made the managers competent to take independent decision.

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