IMPORTANCE OF BUSINESS ENVIRONMENT There are several reasons why the business environment is of great importance.

The first of these is that if the heads of businesses keep a firm eye on potential economic or technological changes then they can swiftly adapt their business to capitalize on such changes. This can get a business ahead of its competitors, as any business will testify, speed and adaptation are crucial for success. Another reason the business environment is crucial to the success of a business is that if a company does not successfully predict an upcoming trend or danger such as the recent recession then they will not be able to survive. Banks and independent and private investors which would freely lend to companies can suddenly withdraw existing funds or offers of credit which can lead a business to cut staff or close down all together. There is a close and continuous interaction between the business and its environment. This interaction helps in strengthening the business firm and using its resources more effectively. As stated above, the business environment is multifaceted, complex, and dynamic in nature and has a far-reaching impact on the survival and growth of the business. To be more specific, proper understanding of the social, political, legal and economic environment helps the business in the following ways: (a) Determining Opportunities and Threats: The interaction between the business and its environment would identify opportunities for and threats to the business. It helps the business enterprises for meeting the challenges successfully. (b) Giving Direction for Growth: The interaction with the environment leads to opening up new frontiers of growth for the business firms. It enables the business to identify the areas for growth and expansion of their activities. (c) Continuous Learning: Environmental analysis makes the task of managers easier in dealing with business challenges. The managers are motivated to continuously update their knowledge, understanding and skills to meet the predicted changes in realm of business. (d) Image Building: Environmental understanding helps the business organizations in improving their image by showing their sensitivity to the environment within which they are working. For example, in view of the shortage of power, many companies have set up Captive Power Plants (CPP) in their factories to meet their own requirement of power. (e) Meeting Competition: It helps the firms to analysis the competitors strategies and formulate their own strategies accordingly. (f) Identifying Firms Strength and Weakness: Business environment helps to identify the individual strengths and weaknesses in view of the technological and global developments. 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.