Question

“Why is it important for a firm to study and understand the external environment?”

Answer 1

In business context:

Business cannot survive without interacting the environmental factors. It shall react to every environmental factors,which influence the conduct of business.

Important reasons for studying and understanding external environment:

1. Business shall know,what are the opportunities available and threats pose it.

2. While doing business one should know who are the competitors of the business.

3. One should also know about who are customer's or final consumer's.

If we ignore any of the above factors one should pay heavy penalties or may go into bankruptcy.