Business Studies​

CHAPTER : 3​
Private, Public and Global Enterprises

PUBLIC SECTOR ENTERPRISES

Meaning: The public sector consists of various organizations owned and managed by central or
State or by both governments. The govt. participates in the economic activity of the country
through these enterprises.
FEATURES:
1. Capital is contributed by central or state or both govts.​
2. Public welfare or Service is the main objective.​
3. Management & control are in the hands of the government.​
4. It is accountable to the public.

I. DEPARTMENT UNDERTAKING
These are established as departments of the ministry and are financed, managed and controlled
by either central govt. or state govt.
Examples: Indian Railways, Post & Telegraph departments.
FEATURES
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 the
government. treasury.​
3. Accounting &Audit: The govt. rules relating to audit & accounting are applicable to it.​
4. Staffing: Its employees are govt. employees & are recruited & appointed as per govt. rules.​
5. Accountability: These are accountable to the concerned ministry.
MERITS​
1.. It is a source of govt. income as its revenue goes to the government. treasury.​
2. It is accountable to parliament for all its actions which ensures proper utilization of funds.​
3. It is suitable for activities where secrecy and strict control is required like defence production.
DEMERITS
1. It suffers from interference from ministers and top officials in their work.​
2. It lacks flexibility which is essential for smooth operation of business.​
3. It suffers from red tapism in day to day work.
SUITABILITY:
(i) Where full Govt. control is needed.​
(ii) where secrecy is very important such as defence.
STATUTORY CORPORATIONS
It is established under a special Act passed in parliament or state legislative assembly. Its
objectives, powers and functions are clearly defined in the special Act.
Examples: Unit Trust of India, Life Insurance Corporation.
FEATURES
1. It is established under a special act which defines its objects, powers and functions.​
2. It has a separate legal entity.​
3. Its management is vested in a Board of directors appointed or nominated by the government.​
4. It has its own staff, recruited and appointed as per the provisions of act.​
5. This type of enterprise is usually independently financed. It obtains funds by borrowing from
govt. or from the public or through earnings.
DEMERITS
1. In reality, there is not much operational flexibility. It suffers from a lot of political interference.​
2. Usually they enjoy monopoly in their field and do not have profit motive due to which their
working turns out to be inefficient.
SUITABILITY: It is suitable for organizing public enterprise when,
(i) The enterprise requires special power under an Act.​
(ii) The enterprise requires a huge amount of capital investment.
GOVERNMENT COMPANY
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.
FEATURE
1. It is registered or Incorporated under companies Act1956.​
2. It has a separate legal entity.​
3. Management is regulated by the provision of companies Act.​
4. Employees are recruited and appointed as per the rules and regulations contained in
Memorandum and Articles of association.​
5. The govt. Co. obtains its funds from the government. shareholdings and other private
shareholdings. It can also raise funds from the capital market.
MERITS
1. It can be easily formed as per the provision of companies Act. Only an executive decision of
govt. is required.​
2. It enjoys autonomy in management decisions and flexibility in day to day working.​
3. These are able to control the market and curb unhealthy business practices.
LIMITATIONS
1. It suffers from interference from the government. officials, ministers and politicians.​
2. It evades constitutional responsibility which a company financed by the govt. should have as
it is not directly answerable to parliament.​
3. The board usually consists of the politicians and civil servants who are interested more in
pleasing their political bosses than in efficient operation of the company.
SUITABILITY:
(i) Where the private sector is also needed along with the government.​
(ii) Where activities related to finance are to be encouraged.
CHANGING ROLE OF PUBLIC SECTOR
1. Development of Infrastructure: At the time of independence, India suffered from acute
shortage of heavy industries such as engineering, iron and steel, oil refineries, heavy machinery
etc. Because of the huge investment requirement and long gestation period, the private sector
was not willing to enter these areas. The duty of development of basic infrastructure was
assigned to the public sector which was discharged quite efficiently.
2. Regional balance: Earlier, most of the development was limited to few areas like port towns.
For providing employment to the people and for accelerating the economic development of
backward areas many industries were set up by the public sector in those areas.
3. Economies of scale: In certain industries (like Electric power plants. natural gas, petroleum
etc) huge capital and large bases are required to function economically. Such areas were taken
up by the public sector.
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.
PUBLIC SECTOR REFORMS

(I) Reduction in No. of industries reserved for the public sector: This no. was reduced from 17 to
8 and to 3 only in 2001. These three industries are atomic energy arms and rail transport.
(II) Disinvestment: Equity shares of public sector enterprises were sold to the private sector and
the public. It was expected that this would lead to improved managerial performance and better
financial discipline.
MULTINATIONAL COMPANIES/GLOBAL ENTERPRISES
A multinational company may be defined as a company that has business operations in several
countries by having its factories, branches or offices in those countries. But it has its
headquarter in one country in which it is incorporated.
Examples: PHILIPS, Coca Cola etc.
FEATURES
1. Huge Capital Resources: MNCs possess huge capital resources and they are able to raise a
lot of funds from various sources.
2. International Operations: A MNC has production, marketing and other facilities in several
countries.
3. Centralized control: MNCs have headquarters in their home countries from where they
exercise control over all branches and subsidiaries. It provides only a broad policy framework to
them and there is no interference in their day to day operations.
4. Foreign Collaboration: Usually they enter into agreements relating to sale of technology,
production of goods, use of brand name etc. with local firms in the host country.
5. Advanced technology – These organizations possess advanced and superior technology
which enable them to provide world class products & services.
6. Product Innovations: MNCs have highly sophisticated research and development
departments. These are engaged in developing new products and superior design of existing
products.
7. Marketing Strategies – MNCs use aggressive marketing strategies. Their brands are well
known and spend huge amounts on advertising and sale promotion.
JOINT VENTURES
Meaning: When two or more independent firms together establish a new enterprise by pooling
their capital, technology and expertise, it is known as a joint venture.
Example: Hero Cycle of India and Honda Motors Co. of Japan jointly established Hero Honda.
Similarly, Suzuki Motors of Japan and Maruti of Govt. of India come together to form Maruti
Udyog.
FEATURES​
1. Capital is provided jointly by the Government and Private Sector Entrepreneurs.​
2. Management may be entrusted to the private entrepreneurs.​
3. It combines both social and profit objectives.​
4. It is responsible to the Government and the private investors.
Public Private Partnership (PPP):
It means an enterprise in which a project or service is financed and operated through a
partnership of Government and private enterprises.
FEATURES:​
1. Facilitates partnership between public sector and private sector.​
2. Pertaining high priority projects.​
3. Suitable for big project (capital intensive and heavy industries).​
4. Public welfare example Delhi Metro Railway Corporation.​
5. Sharing revenue – Revenue is shared between government and private enterprises in the
agreed Ratio