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Describe the importance of business environment in management.

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IMPORTANCE OF BUSINESS ENVIRONMENT: The complete awareness and understanding of business environment is known as ‘Environment Scanning’. 

Signification of understanding environment in shaping the future of business can be appreciated if we consider the following facts.

1. It enables the firm to identify opportunities and getting the first mover advantage : ’Opportunities’ refer to the positive external environment trends and changes that will help a firm to improve its performance. By keeping in touch with the changes in the external environment, an enterprise can identify opportunities and find strategies to capitalise on the opportunities at the earliest. For example, Maruti Udyog became the leader in the small car market because it was the first to recognise the need for small cars in an environment of rising petroleum prices and a large middle-class population in India 

2. It helps the firm to identify threats and early warning signals: ‘Threats’ refer to the external environment trends and changes that will hamper a firm’s performance. Environmental scanning helps to identify possible threats in future. For example if an Indian firm finds that an MNC is entering the Indian market with new substitutes, this should work as a warning signal for the Indian firm. Based on this information, the Indian firm can improve the quality of its products, reduce cost of production, engage in aggressive advertisements, etc. 

3. It helps in assisting in planning and policy formulation: Environment analysis helps in identifying threats and opportunities in the market. These can serve as the basis for deciding the future course of action (planning) or training guidelines for decision-making (policy).

4. It helps in tapping useful resources: A business firm is an open system which gets resources such as capital, labour, machines and equipment, materials, etc. from the environment, converts them into goods and services desired by the customers and then supplies its output to the environment. 

5. It helps in coping with rapid changes: Managers must understand and examine the business environment and develop suitable courses of action to cope with turbulent market conditions, rapid changes in technology, intense global competition, etc. 

6. It helps in improving performance: The enterprises which continuously monitor their environment and adopt suitable business practices not only improve their present performance, but also continue to succeed in the market for a longer period. For example, if a firm is sensitive to the external environment, it will come out with new products and services to meet the future requirements of the customers. 

7. Image building: If a firm is sensitive to the external environment, it will come out with new products and services to meet the requirements of the customers. This would build the image or reputation of the firm in the eyes of the customers and the general public. Because of sensitivity to Indian consumers’ requirements, LG was able to enhance its brand image in the Indian market in a short span of time.

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