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
(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 Firm’s Strength and Weakness: Business environment helps to identify
the individual strengths and weaknesses in view of the technological and global