Importance of Understanding Economic Environment, Business Environment | Business Environment - B Com PDF Download

As discussed earlier, we have seen that there are various elements of business environment. The key to success in business is largely dependent on forecasting for the future prospects of business taking into consideration all the different elements of business environment. Business cannot be done in isolation. Therefore, a business has to rely on various factors for the production or procurement of goods and services. Handling businesses and sustaining the same in the contemporary complex business environment needs a continuous evaluation on the various elements of economic environment. Any business that can formulate its strategies considering all the elements of economic environment can have the following advantages:

(i) First Mover Advantage: A thorough assessment of demand of a particular market in a particular region or a particular country would help the firm to get the first mover advantage. A firm can retain the first mover advantage even at turbulent times. This would help the firm to sustain in the market for an unforeseeable period of time. For example, Amazon.com has reaped the advantages of being a first mover in online bookselling.

(ii) Goodwill and Credibility: Any business firm which derives first mover advantage by thoroughly investigating the different elements of economic environment enjoys the privilege of having credibility and goodwill in a long run. The business enterprise, if it can produce/procure quality goods and services at reasonable prices, it would have a positive impact among the customers. 

(iii) Early detection of Threats and Opportunities: A good knowledge on the various elements of economic environment would help business enterprises to detect the threats and opportunities of business at an initial stage. This would help business enterprise to take necessary precautions for any future problems beforehand.

(iv) Profitability and Sustainability: To sustain in the contemporary dynamic business environment is a challenge for all business enterprises. Sustainability is not possible in the absence of profit. Hence, a business enterprise should sustain in the market with a reasonable amount of profitability. Profitability and Sustainability in today‟s volatile world needs a thorough understanding of the economic environment. Business cannot sustain unless it has an ability to overcome the future challenge   

(v) Better Managerial Decisions: An up to date knowledge on the various elements of economic environment would help the managers to make better investment and financial decisions. A business enterprise ability to correctly forecast the future would help the business to grow and lead both in the domestic and the international markets. 

(vi) Strategic Business Decisions: Understanding of economic environment would also help managers to take strategic business decisions. Effective strategic business decisions bring together the right resources for the right markets at the right time. Timing is very crucial for taking any strategic business decisions. For example, Tesco developed its online ordering and delivery service as internet shopping expanded. Virgin sold off its music stores as downloading music became more popular. The quality of company‟s decision helps it to gain an advantage over its competitors.