(b) 'Sensitivity to environmental factors is crucial for an entrepreneur.' In the light of this statement, explain any five benefits of understanding the relevant environment of business.

Question

Accepted Answer

The benefits of understanding the relevant environment of business are:

1. Identification of opportunities to get first mover advantage — keeping in touch with changes in the external environment helps an enterprise identify opportunities and capitalise on them at the earliest; for example, Volvo entered the Indian market early and holds a 74% share of the luxury bus segment.

2. Formulation of strategies and policies — knowledge of threats and opportunities in the market forms the basis for formulating strategies to counter threats and capitalise on opportunities.

3. Tapping useful resources — thorough knowledge of the external environment helps the firm tap raw materials, technology and financial resources at economical prices and at the right time.

4. Better performance — proper understanding of the elements of the external environment enables timely action to deal with threats and avail opportunities, improving the firm's performance.

5. Sensitisation of entrepreneurs to cope with rapid changes — a keen watch on trends keeps the entrepreneur aware of changing technology, competition, government policies and customer needs, as with changing trends in clothing.

6. Image building — sensitivity to the environment leads the firm to introduce new products and services that meet customer requirements, building its image, as with call-radio taxis offering GPS systems and online booking.

Thus, sensitivity to environmental factors is crucial — an entrepreneur who fails to scan the environment is sure to fail.