What do you mean by Business Environment ? Mention any two points on the importance of Business Environment.

Answer – Business environment consists of external individuals, institutions and forces that influence enterprise performance but generally lie outside its direct control.

Features: totality of external forces; specific forces such as customers, competitors, investors and suppliers and general forces such as economic or legal conditions; interrelatedness; dynamic nature; uncertainty; complexity; and relativity across countries, regions and circumstances.

Importance

• Identify opportunities and gain first-mover advantage: an emerging need can become a new product or service.
• Identify threats and receive early warning: new competitors or substitutes call for timely action.
• Tap useful resources: firms obtain finance, people, materials and knowledge from their surroundings and return goods and services to them.
• Cope with rapid change: scanning helps businesses adapt products, technology and skills.
• Assist planning and policy formulation: realistic plans reflect constraints and opportunities.
• Improve performance: continuous awareness supports better decisions and long-term competitiveness.

An opportunity is a favourable external condition; a threat is an unfavourable one. The same change can be an opportunity for one business and a threat to another.