Public Private and

Global Enterprise
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PRIVATE SECTOR ENTERPRISES

Private sector Enterprise

The private sector consists of business owned by
individuals or a group of individuals. The varios forms of
organisation are- sole proprietorship, partnership, joint
hindu family, cooperative and company.

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 economic
activity of the country through these enterprises.

FEATURES:
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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 govt.

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 ←
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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 govt. 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 more effective in achieving the objective laid down
by govt. as it is under the direct control of govt.

2. It is a source of govt. income as its revenue goes to govt.

treasury.

3. It is accountable to parliament for all its actions which

ensures proper utilization of funds.

4. It is suitable for activities where secrecy and strict

control is required like defence production.
DEMERITS

1. It
suffers from interference from minister and top officials
in their working.

2. It lacks flexibility which is essential for smooth

operation of business.

3. It suffers from red tapism in day to day Work.

4. These organizations are usually insensitive to consumer

needs and do not provide goods and adequate service to
them.

5. Such organization are managed by civil servants and

govt. officials who may not have the necessary expertise
and experience in management.
SUITABILITY:

(i) Where full Govt. control is needed.

(ii) where secrecy is very important such as defence.

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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.
its own identity /
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2. It has a separate legal entity. Own name
its member .

nights distinct from

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3. Its management is vested in a Board of directors
appointed or nominated by 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 public or
through earnings.

6. It is not subject to same accounting & audit rules which

are applicable to govt. department.

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MERITS

1. Internal Autonomy: It enjoys a good deal of autonomy

in its day to day operations and is free from political
interference.

2. Quick decisions: It can take prompt decisions and quick

actions as it is tree from the prohibitory rules 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.

DEMERITS -
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1. In
reality, there is not much operational flexibility. It
suffers from 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.
3. Where there is dealing with public, rampant corruption
exists. Thus public corporation is suitable for undertaking
requiring monopoly powers e.g. public utilities.

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.

HINDUSTAN UNI LIVER

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GOVERNMENT COMPANY
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The
company proposed
the share capital will

be distributed among
all the
shareholders .

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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FEATURE

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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 it funds from govt. shareholdings

and other private shareholdings. It can also raise funds from
capital market.
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MERITS
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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.
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LIMITATIONS

1. It
suffers from interference from govt. officials, ministers
and politicians.
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2. It evades constitutional responsibilityIwhich 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 in

govt.

(ii) Where activities related to finance are to be encouraged.

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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 and (2) to achieve a more equitable distribution of
income and wealth among people. The role and importance
of public sector changed with time. Its role over a period of
time can be summarized as following:

1. Development of Infrastructure: At the time of

a
independence, India suffered from acute shortage of heavy
industries such as engineering, iron and steel, oil refineries,
heavy machinery etc. Because of huge investment
requirement and long gestation period, private sector was
not willing to enter these areas. The duty of development of
basic infrastructure was assigned to public sector which it
discharged quite efficiently.

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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 public sector in those areas.

3. Economies of scale: In certain industries (like Electric

power plants. natural gas, petroleum etc) huge capital and
large base are required to function economically. 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 were also

engaged in production of capital equipments which were
earlier imported from other countries. At the same time
public sector Companies like STC and MMTC have played
an important role in expending exports of the country. Very
important role was assigned to public sector but is
performance was far from satisfactory which forced govt.
to do rethinking on public enterprises.

PUBLIC SECTORY REFORMS

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In the industrial policy 1991, the govt. of India introduced
four major reforms in public sector.

(I) Reduction in No. of industries reserved for public sector:

This no. is reduced from 17 to 8 and to 3 only in 2001.
These three industries are atomic energy arms and rail
transport.

(II) Memorandum of Understanding (MOU): Under this

govt. lays down performance target for public sector and
gives greater autonomy to hold the management but held
accountable for the specified results.

(III) Disinvestment:
Equity shares of public sector
enterprises were sold to private sector and the public. It was
expected that this would lead to improved managerial
performance and better financial discipline.

(IV) Restructural
and Revival: All public sector sick units
were referred to Board of Industrial and Financial Re-
construction (BIFR). Unite which were potentially viable
were restructured and which could not be reviewed were
closed down by the board.

MULTINATIONAL COMPANIES/GLOBAL
ENTERPRISES Philips

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Multinational company may be defined of a company that

has business operations in several countries by having its
factories, branches or offices in those countries. But is has
its headquarter in one country in which it is incorporated.
Examples: PHILIPS, Coca Cola etc.

FEATURES
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1. Huge Capital Resources: MNCs possess huge capital

resources and they are able to raise 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 broad policy
framework to them and there is no interference in their day
to day operations.

4. ForeignCollaboration: 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. in which an internal
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event is held )

5. Advanced technology – These organisation possesses

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

2011

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. Similarily, 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.
SIGN
HERE

BENEFITS

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 then helps in reduction in cost and
improvement in quality of product.
3. Access to New Markets and distribution network – A
foreign co. gain access to the vast Indian market by
entering into a joint venture with Indian Co. It can also take
advantage of the well established distribution system of
local firms.

4. Innovation – Foreign partners in joint ventures have the

ideas and technology to develop innovative products and
services. They have an advantage in highly competitive and
demanding markets.

5. Low Cost of production – Raw material and labour are

comparatively cheap in developing countries so if one
partner is from developing country they can be benefitted
by the low cost of production.

6. Well known Brand Names: When one party has well

established brands & goodwill, the other party gets its
benefits. Products of such brand names can be easily
launched in the market.
Public Private Partnership (PPP):
It means an enterprise in which a project or service is
finance and operated through a partnership of Government
and private enterprises.

FEATURES:

1. Facilitates partnership between public sector and private

sector.
Related to

_
2. Pertaining high priority project.

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.