What Is Business Environment?
A business enterprise has to operate in a given environment. The environment outside the enterprise is not in the control of the organisation but it directly influences its plans and policies. The enfironment has both opportunituies and chalanges. A visionary management will use the opportunities to its advantage and prepare itself to make best use of challanges also. The New Industrial Policy, 1991 encourage liberalisation, globalisation and privatisation. The intense competition from multinationals forced incefficient enterprise to close down but many managements benefited by introducing new technology and better methods of production by collaborating with industrial leaders from developed countries. The Indian industry which was in the habbit of operating in a controlled economic system faced difficulties in copying with the new leberated business environment. The privatisation of public sector undertakings brought new opportuniteis for private sector by offering new investment avenues.
A business has to face ever changing economic, social, technological, political and legal environment and make plans to use new opportunities to its advange.
The business environment provides opportunities and direction for the future course of action for the business. A businessman should understand the environment properly and take advantage of the prevailing situation. Proper assessment of the environment can help the business in many ways.
The business environment is important for the following reasons:
1. Identifying Opportunities and Getting First Make Advantage.
A businessman who is aware of the coming opportunities may benefit from his early moves. It requires proper scanning and understanding of the business environment and grabbing the opportunities coming in their way. For example, with the entry of Suzuki Company in India for the manufacture of small cars there was a chance for automobile parts manufacturers, pint companies, etc. Those who shifted to serve the needs of Suzuki in the earlier periods were the maximum gainers. Narolac Company became the first to supply car paint to Maruti Suzuki and was able to expand its business just by understanding the environment at an early stage.
2. Benefitting from Rapid Changes.
The environment creates newer and better opportunities for different types of businesses. There may be competition or downward trends in a particular business whereas there may be a better scope in others. An entrepreneur should move with time and grab the available opportunities. Reliance has entered oil refining, communication, power sectors in order to take advantage of new opportunities offered by the environment. An enterprise should analyze the business trends and adjust the business accordingly so that it takes the advantage of available opportunities.
3. Helpful in Long-term Planning.
With the help of the prevailing business environment, strategic (long-term) planning should be undertaken by forecasting the likely changes in it. Management should devise ways and methods for taking advantage. of likely changes in a business environment. For example, in order to capture more markets, an enterprise may decide on price reduction in the future or enter unexplored markets. Such decisions are possible after studying the prevailing business environment and its likely changes in the future.
4. Helpful in Preparing Strategies.
The business environment helps in understanding the changes in business structure. One has to assess the impending situation and plan accordingly. Business strategies and counter strategies are essential to face the likely changes. The liberalisation of Indian economy in the last twenty years has forced many units out of business since they did not plan their strategies for facing competition from international business. Those who were able to plan their strategies well in time have been able to survive and grow. Business environment help in planning business stratergies.
5. Matching Technological Needs.
Business environment helps in bringing latest technology in industry. An enterprise should assess its needs and uupdate its techonlogy to survive in the market. Technological changes are rapid in the last some years, to cope with this change is essential for every enterprise. Business environmen forewarns about the impending changes in methods of work and the likely changes in business. An enterprise should make changes as per the requirements of the situation and take advantage from the situation.
6. Improving Market Share.
A proper study of business environment helps an enterprise to improve its market share. The needs and perfernces of the consumers should be taken into account while deciding about future plans. An enterprise ignoring market environment may lose business. For example, Hindustan Motors Ltd. manufacturing Ambassador cars had a monopoly position in car segment. It did not realise that consumer wants fuel efficient and cheap car. Maruti Udyog grabbed this opportunity and controlled this market.
7. Encouragng Research and Development.
Environmental changes throw new challenges before the business. In order tomeet new challenges there may be need to undertake research for finding new products or modifying the existing ones. Research will help in finding solutions to various problems. Environmental changes will also help n undertaking more and more development in various fields.
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