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

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A business's external environment is very important to its success. Companies can adjust their plans according to changes in the external environment. For example, lower interest rates may lead a business to take on more debt in order to expand operations. Falling real estate values may also lead a company to build more stores.

The public mood is also important to a company's success. Given the new emphasis on environmentally sound practices, many companies now tout their sustainability efforts and attempts to become more eco-friendly. This is an attempt to bring in socially conscious consumers and to make people feel better about buying the products in the store. Many companies now claim to be switching to green sources of energy and reducing their plastic bag use for this reason.

The weather can also play a role in a business's success. Many grocery stores in the South order extra milk and bread whenever snow is in the forecast because they know that customers will rush to the store to...

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