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BUSINESS STUDIES, CHAPTER 3 PRIVATE,PUBLIC AND GLOBAL ENTERPRISES, PRIVATE SECTOR : It includes all those enterprises which are managed and owned by, individuals or group of individuals., •, •, •, •, •, , Sole proprietorship, Joint hindu family business, Partnership, Cooperative society, Joint stock company, , PUBLIC SECTOR : It includes all those enterprises which are managed and owned, partly or wholly by the Central or State Government., • Departmental undertakings, • Statutory corporation, • Government company
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FORMS OF PUBLIC SECTOR ENTERPRISES, 1. DEPARTMENTAL UNDERTAKINGS : It is the oldest and traditional form of public, enterprises.It is controlled by Minister of the department ,who is answerable to govt., through parliament.It is financed by the Government budget., FEATURES OF DEPARTMENTAL UNDERTAKINGS, 1.No Separate Entity : It has no Separate legal entity., 2.Finance : It is financed by annual budget allocation of the govt. and all its earnings, go to government treasury., 3.Accounts &Audit : The govt. rules related to audit & accounting are applicable to it., 4.Appointment of employees : Its employees are govt. employees & are recruited &, appointed as per govt. rules., 5.Accountability : These are accountable to the concerned Minister,who is, responsible to the parliament.
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MERITS OF DEPARTMENTAL UNDERTAKINGS, 1.Complete government control : It is more effective in achieving the objective laid, down by govt. as it is under the direct control of govt., 2.Source of income : It is a source of govt. income as its revenue goes to govt., treasury., 3.Answerable to Parliament : It is accountable to parliament for all its actions which, ensures proper utilization of funds., 4.Suitable for National Security : It is suitable for activities where secrecy and strict, control is required like defence production., 5.Lack of tax burden on public : Earnings of this department are paid into, government treasury, which results less tax burden on public., DEMERITS OF DEPARTMENTAL UNDERTAKINGS, 1.Government interference : It suffers from interference from minister and top, officials in their working.
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2.Lacks flexibility : It lacks flexibility which is essential for smooth operation of, business., 3.Red Tapism : It suffers from red tapism in day to day work because of unnecessary, delays., 4.Indifferent to consumer needs : These organizations are usually insensitive to, consumer needs and do not provide adequate services to them., 5.Lack of experts : Such organization are managed by civil servants and govt. officials, who may not have the necessary expertise and experience in management., 2. STATUTORY CORPORATION : It is a corporate body established under a Special Act, passed in parliament or state legislative assembly. Its objectives, powers and, functions are clearly defined in the special Act. It is financially independent with a, clear control over a specified area., Examples: State bank of India, Life Insurance Corporation,etc.
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FEATURES OF STATUTORY CORPORATION, 1.Formation : It is established under a special act which defines its objects, powers, and functions of the Corporation., 2.Corporate existence : It has a separate legal entity and can enter into contract and, acquire property in its own name., 3.Staffing : It has its own staff, recruited and appointed as per the provisions of act., 4.Financial autonomy : This type of enterprise is usually independently financed. It, obtains funds by borrowing from govt. or from public by selling goods and services., 5.Accounting and audit procedures : It is not subject to same accounting & audit, rules which are applicable to govt. department., MERITS OF STATUTORY CORPORATION, 1. Internal Autonomy: It enjoys a good deal of autonomy in its day to day operations, and is free from government interference.
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2. Quick decisions: It can take decisions and quick actions as it is free from the rules, and restrictions of govt., 3. Parliamentary control: Their performance is subject to discussion in parliament, which ensures proper use of public money., 4. Efficient Management: Their directors and top executives are professionals and, experts of different fields., 5.Financial stability : As they are not financed from central budget,the government, do not interfere in their financial matters., DEMERITS OF STATUTORY CORPORATION, 1.Theoretical Autonomy : In reality, there is not much operational flexibility. It, suffers from lot of political interference., 2.Lack of motivation : Usually they enjoy monopoly in their field and do not have, profit motive due to which their working turns out to be inefficient.
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3.Rigid structure : The objects and powers of public corporations are defined by the, Act and these can be amended only by amending the Act which is a time-consuming, and complicated task., 4.Delay in action : Government often appoints advisors to the Corporation Board.Iy, affects the freedom in entering into contrac ts and other day.In case of any, disagreement,matter is referred to govt.which causes delay in action., 5.Unfair practices: The governing board of a public corporation may indulge in unfair, practices. It may charge an unduly high price to cover up inefficiency., 3.GOVERNMENT COMPANY, According to the Companies Act,2013 ,a government company is a company in which, not less than 51% of the paid up share capital is held by the central govt. or state govt., or jointly by both., Examples: Hindustan Insecticides Ltd., State Trading Corp. of India, Hindustan Cables, Ltd.
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FEATURES OF GOVERNMENT COMPANY, 1.Incorporation : It is registered or Incorporated under companies Act,2013 or any, previous company law., 2.Separate legal entity : It has a separate legal entity can enter into contract and, acquire property in its own name., 3.Management : It is managed by board of directors nominated by the govt.It is, regulated by the provision of Companies Act., 4.Staffing : Employees are recruited and appointed as per the rules and regulations, contained in Memorandum and Articles of association., 5.Finance : At least 51% of the capital of the company is contributed by the state or, central government while the rest can be raised from the capital market., MERITS OF GOVERNMENT COMPANY, 1.Easy Formation : It can be easily formed as per the provision of companies Act. Only, an executive decision of govt. is required.
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2.Flexibility : It enjoys flexibility in day to day working of the management., 3.Prevents unhealthy business practices : These are able to control the market and, curb unhealthy business practices., 4.Independent status : It has a separate legal entity, apart from the govt., 5.Professional management : Professional managers are hired by the govt. to manage, their companies.These companies do not have any financial issue for hiring-top rated, professionals., LIMITATIONS OF GOVERNMENT COMPANY, 1.Freedom only in name : As govt.is the majority shareholder It has to face, interference from govt. officials, ministers and politicians., 2.Lack of initiative : The management of the company always has a fear of public, accountability.As a result,they lack initiative in taking the right decisions at the right, time.
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3.Change in policies and management : The policies and management of these, companies generally keep on changing with the change of government which leads to, an unhealthy situation of business enterprises., 4.Lack of expertise : It’s the govt. who mostly appoints the directors of a, govt.company due to which management is inefficient., 5.Selfish functioning : Government employees work for their own self and not for the, public and societies welfare., DIFFERENCE BETWEEN DEPARTMENTAL UNDERTAKINGS,STATUTORY CORPORATION, & GOVERNMENT COMPANY, BASIS, Formation, , DEPARTMENTAL, UNDERTAKINGS, It is created by order of, the govt. and is attached, to a particular ministry., , STATUTORY, CORPORATION, It is created by a Special, Act of the Parliament., , GOVERNMENT, COMPANY, It is created by, Companies Act.
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Legal status, , No separate legal entity., , Finance, , 100% financed by govt., out of funds allocated in, budget., , Staff, Ownership, , Govt. employees., Govt. is the sole owner., , Accountability It is accountable to the, public,through the, concerned ministry or, dept., Example, Railway ,post and, telegraph., , Separate legal entity., , Separate legal, entity., Funds through, Atleast 51% of, borrowings from govt. or share capital is, through revenue from, provided by the, sale of goods., govt., No govt. employee., No govt. employee., Govt. is the sole owner. Govt. owns atleast, 51% of the, ownership rights., It is accountable to, It is accountable to, parliament and also to, the concerned, the concerned ministry. ministry., Air india, SBI,LIC, , Bharat Heavy, Electrical Ltd.,Steel, Authority of India
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CHANGING ROLE OF PUBLIC SECTOR, Public sector in India was created to achieve two types of objective :, 1.To speed up the economic growth of the country., 2.To achieve equal distribution of income and wealth among people., The role and importance of public sector over a period of time can be summarized as1. Development of Infrastructure: At the time of independence, India suffered from, shortage of heavy industries such as engineering, iron and steel, heavy machinery etc., Because of huge investment requirement, private sector was not willing to enter, these areas. The duty of development of infrastructure was assigned to public sector., 2. Regional balance: The development was limited to few areas.Many industries, were set up by public sector in backward areas to provide employment and economic, development., 3. Economies of scale: In some industries (like Electric power plants. natural gas,, petroleum etc) huge capital and large base are required.Such areas were taken up by, public sector.
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4. Control of Monopoly and Restrictive trade Practices : These enterprises were also, established to provide competition to pvt. Sector and to check their monopolies and, restrictive trade practices., 5. Import Substitution : Public enterprises helped in manufacturing capitals goods, which were imported earlier. At the same time public sector companies like STC and, MMTC have played an important role in expanding exports of the country., 6.Government policy towards the Public Sector since 1991 : The govt.of India, introduced 4 major reforms in the public sector in its new 'Industrial Policy ' in 1991., They are :, 1.Restructure and revive potentially viable PSUs., 2.Close down non reviving PSUs., 3.Bring down govt equity in non - strategic PSUs to 26 % or lower., 4.Fully protect the interest of workers.
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PUBLIC SECTOR REFORM, In the industrial policy 1991, the govt. of India introduced four major reforms in, public sector., 1.Reduction in No. of industries reserved for public sector: The no. was reduced, from 17 to 8 in 1991 and from 8 to 3 in 2001. These three industries were atomic, energy, arms and rail transport., 2.Memorandum of Understanding (MOU): Under this govt. sets performance target, for public sector and gives greater autonomy to hold the management.They are also, accountable, if they fail to achieve the targets., 3.Disinvestment: Equity shares of public sector enterprises were sold to private, sector and the public. It was also expected that this would lead to improved, managerial performance and better financial discipline., 4.Restructure and Revival: All public sector sick units were referred to Board of, Industrial & Financial Re-construction (BIFR). Units which were potentially viable, were restructured and which could not be revived were closed down by the board.
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MULTINATIONAL COMPANIES/GLOBAL ENTERPRISES, Multinational company is a company whose business is extended in many countries, through its factories, branches or offices in different countries. But is has its, headquarter in one country in which it is incorporated., Examples: PHILIPS, Coca Cola etc., FEATURES OF MNC, 1.Huge Capital Resources: MNCs possess huge capital resources and they are able to, raise lot of funds from various sources., 2.Product Innovations: MNCs are continuously engaged in research and, development departments. They develop new products and superior design of, existing products., 3.Centralized control: MNCs have headquarters in their home countries from where, they exercise control over all branches. It works under policy framework of the, parent company.
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4.Foreign Collaboration: Usually, they collaborate with Indian companies (public or, private) for production of goods,use of brand names or for sale of technology., 5.Advanced technology : These organisation have advanced and superior technology, which helps them to provide world class products & services., MERITS OF MULTINATIONAL COMPANIES, 1.Employment opportunities : It gives employment opportunities to many lower, income groups and unemployed people., 2.Advanced technology : They acts as a source of advanced technology because they, have their own Research and Development department ,where they develop new, techniques., 3.Growth of domestic firms : It helps in the growth of domestic firms by promoting, them., 4.Healthy competition : It helps local firms to improve their efficiency in order to, improve standard of living., 5.Innovation : It brings innovation in the market which brings healthy competition.
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DEMERITS OF MULTINATIONAL COMPANIES, 1.Disregard of national priorities : MNCs invest their capital only in the profitable, projects without any regard to national priorities of the host country., 2.Creation of monopoly : It give rise to concentration of economic power and, monopoly in the host country., 3.Depletion of natural resources : It exploits the resources of the host country to, maximise their global profits., 4.Obsolete technology : The technology transferred by MNCs in host countries is, usually obsolete or outdated., 5.Threat to national sovereignty : It enjoys political influence due to their huge, operations and have enough power to influence and interfere in the political affairs, of host countries.
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JOINT VENTURE, When two or more firms join together to establish a new enterprise by pooling their, capital, technology and expertise, it is known as a joint venture.They work for, common purpose and mutual benefit., Example: Hero Cycle of India and Honda Motors Co. of Japan jointly established Hero, Honda. Similarily, Suzuki Motors of Japan and Maruti of Govt. of India come together, to form Maruti Udyog., MERITS OF JOINT VENTURE, 1.Greater resources and Capacity : In a joint venture,the resources and capacity of, two or more firms are combined which enables it to grow quickly and efficiently., 2.Access to advanced technology : It provides access to advanced techniques of, production which increases efficiency and helps in reduction in cost and, improvement in quality of product.
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3.Innovation : Joint venture provide new ideas and technology to develop innovative, products and services. They have an advantage in highly competitive and demanding, markets., 4.Low Cost of production : Cost of raw material,labour, etc.is comparatively low in, India.As a result,many international companies enter into joint venture with Indian, companies to take advantage of lower cost of production., 5.Well known Brand Names: Some companies have well established brand name and, goodwill which helps the other company to get the benefit of goodwill.Products of, such brand names can be easily launched in the market., DEMERITS OF JOINT VENTURE, 1.Conflict of interest : The dual ownership may lead to conflicts between the, partners over control of business., 2.Risk of loss of trade secrets : There is risk of disclosure of technology used in, production and trade secrets.
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3.Lack of coordination : There can be lack of coordination among the partners, which, may affect the efficient functioning of the Joint Venture., 4.Imbalance : Different companies work together.So, there is imbalance of, expertise,assets and investment., 5.Time taking process : A lot of research and planning is necessary which takes a lot, of time., PUBLIC PRIVATE PERTNERSHIP (PPP):, It means an enterprise in which a project or service is finance and operated through a, partnership of Government and private enterprises., FEATURES OF PPP, 1. Facilitates partnership between public sector and private sector., 2. Pertaining high priority project., 3. Suitable for big project (capital intensive and heavy industries).
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4. Public welfare example Delhi Metro Railway Corporation., 5. Sharing revenue - Revenue is shared between government and private enterprises, in the agreed Ratio., MERITS OF PPP, 1.Inflow of private investment, 2.Increased efficiency, 3.Innovation, 4.Sharing of project risks, 5.Better viability
