Public, Private and Global Enterprises Class 11 Notes Business Studies Chapter 3 - CBSE

Chapter: 3

What Are Public, Private And Global Enterprises?

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Organisations are grouped as privately owned and government owned business enterprises, as India has a framework of mixed economy.

Classification of Indian Economy

Private sector

Enterprises owned by individuals or private firms with an aim to earn profit.

Public sector

Enterprises managed or owned by Government

Forms of Public Sector Enterprises

Departmental Undertaking
Statutory or Public Corporation
Government Company

Departmental Undertakings

Features

Established under specific ministries.
Managed by either State or Central Government.
The oldest and most traditional form of public enterprises.
Most suitable for business activities of national importance, public utilities,infrastructure and economic control.
Receive investments from Government Treasury.
Revenues earned are paid into the Government Treasury.
Headed by government officers or civil servants.

Advantages

Direct and centralised control
High degree of public accountability
Sources of income to government treasury
Most suitable for projects of national importance
Effective utilisation of funds

Disadvantages

Lack of flexibility
Delay in decision making
Lack of motivation
No risky projects
Red tapism
Influenced by political interest of concerned ministries
Not focused on consumer satisfaction
No freedom to utilise revenue, subject to government budgetary control

Statutory Corporations

Established and governed brought into existence by a Special Act of the Parliament or Central Legislature.

Features of Statutory Corporation

Established under an Act of Parliament or Central or State Legislatures.
The act regulates the objectives, powers and privileges.
Wholly owned by the government.
Set up as a corporate identity.
Accounting and Audit as per the procedures stated in the Act.
Independent financial structure, utilises revenues earned.
Employees appointed as per the terms of the Act.

Advantages Of Statutory Corporation

Independent functioning allows flexibility.
No government rules and regulations to be followed.
No political interference.
Enjoys powers of government and working culture of private sector.
Well protected public interest.

Disadvantages of Statutory Corporation

Needs approval from concerned ministries for all important decisions.
Investments from government leads to indirect interference.
Widespread corruption.
Lacks freedom due to the appointment of government officials.

Government Companies

Established under the Indian Companies Act, 2013 with shareholding of at least 51 percent of the paid up capital held by the Central Government, or by one or more State Governments or partly by Central Government and partly by one or more State Governments.

Features of Government Company

Company is created under the Indian Companies Act, 2013.
The company enjoys corporate identity, can sue and be sued by third party in the court of law.
The company can enter into a contract and can acquire property in its own name.
The management is regulated by the provisions of the Companies Act.
Memorandum of Association and Articles of Association state the rules and regulations for the company.
Exempted from the accounting and audit rules and procedures.
Annual reports are presented in the Parliament or the State legislative.

Advantages of Government Company

Any Special Act or Separate Act is not required.
Separate legal entity.
Independence in management of business operations.
Reduces unhealthy business practices by providing goods and services at reasonable prices.

Limitations of Government Company

Government being the major shareholder, exercises control over the management.
No accountability to public due to its autonomy status.
Policies formulated by the government officials are governed by personal interest.

Global Enterprises

Global Enterprises are huge industrial organisations which expand their marketing and industrial operations through a chain of their branches in several countries.

Features of Global Enterprises

Huge investments.
Large scale operations.
Corporations operate with branches, factories and workshops.
Collaboration with companies of host countries.
Use local resources and latest technology.
Continuous development of new products.
Aim to establish products as global brands.
Market territories across the globe.
Centralised control from head office.
Oligopolistic power, dominating status in the market.

Advantages of Global Enterprises

Direct foreign investments help in economic development of the host country.
Creates employment opportunities in the host country.
Standardised products of high quality.
Facilitate the growth of local enterprises as ancillary units or suppliers for MNC firms.
Improve the standard of living in host countries.
Foreign collaborations promote diversifications and expansions.
Local resources and low labour cost provide cost benefits.
National economies integrated as a world economy.
International brands and global market.
High credibility in the capital market attracting investors from across the globe.

Limitations of Global Enterprises

Deal only in profitable business sectors.
To earn maximum profits, host country's priorities are ignored.
May use obsolete technology in underdeveloped countries.
Pressure on host country against transfer of foreign exchange.
Threat to local and small enterprises.
Give rise to monopoly and concentration of power.

Joint Ventures

Two or more businesses join by pooling their reserves, sharing expertise for a common goal and mutual benefit.

Features of Joint Ventures

Increased financial and human resources.
Increased production capacity.
Economies of scale and low production cost.
Expansion with access to new markets and distribution networks.
Development of existing products with access to latest technology.
Creativity and new ideas leading to innovations and development of new products.
Established brand name.

Types of Joint Venture

Contractual Joint Venture (CJV): It is an agreement in which both the parties cooperate and work together and have some influence over it but do not share the ownership of the company.
Equity-based Joint Venture (EJV): It is an agreement in which a separate business entity, jointly owned by two or more parties is made with the agreement of the parties.

Advantages of Joint Venture

Provides increased resources and capacity.
Access to new markets and distribution networks.
Access to technology from other countries.
Partnership with foreign partners brings in new ideas.
International collaborations enable to benefit from efficiencies of partner countries.
Facilitates joint ventures to enjoy existing reputation of partners.

Limitations of Joint Venture

Trade secrets shared, therefore, not possible to maintain secrecy.
Dual ownership may result in conflict of interest.
Each company may aspire to have majority of shareholding to get control.
Centralised control may result in delayed decisions.

Public Private Partnership (PPP)

Business organised as a partnership government enterprise for projects related to public welfare.

Features of (PPP)

Partnership between public and private sector.
It may allow investment from private sector and services controlled by the government or vice-versa.
Operations are established for a specific period of time.
The business risks are shared.
Suitable for projects which require subsidies from government.