Private, Public and Global Enterprises
Chapter - 3
Private Sector Enterprises
Private Sector Enterprises
Firms owned, controlled and managed by private businessmen
The main object of such undertaking is profit
making
Private Sector Enterprises
Types of Private Sector Enterprises
Public Sector Enterprises
Public Sector Enterprises
Enterprises owned and managed by central government or state government or by both
The basic purpose is to render service to society
E.g. Railways, LIC, FCI, Post Offices etc.
Forms of Public Sector Enterprises
Forms of Public Sector Enterprises
Post and Telegraph
Reserve Bank of India
Indian Telephone Industries
1 2
3
Departmental Undertakings
Departmental Undertakings
✔ Undertakings created by government
✔ Financed and controlled by government
✔ Managed by government officials
✔ Under the control of a minister
Departmental Undertakings
Examples of Departmental Undertakings
Indian Railway
Post and Telegraph
Doordarshan
All India Radio
Features of Departmental Undertakings
Features of Departmental Undertakings
Funding
Financed through budget allocation
a
Features of Departmental Undertakings
Audit and Control
They are subject to Government audit
b
Features of Departmental Undertakings
Employees
Employees are Government servants
c
Features of Departmental Undertakings
Control
Subject to direct control by the concerned ministry
d
Features of Departmental Undertakings
Accountability
Accountable to the ministry and the government
e
Merits of Departmental Undertakings
Merits of Departmental Undertakings
Control of parliament
Better control over funds and operations as it is controlled by the ministry
a
Merits of Departmental Undertakings
Public accountability
Responsibility to the government
b
Merits of Departmental Undertakings
Source of revenue to government
Income earned by these organizations directly goes to the treasury
c
Merits of Departmental Undertakings
National security
Secrecy can be maintained especially in case of strategic industries such as defence etc.
d
Limitations of Departmental Undertakings
Limitations of Departmental Undertakings
Lack of flexibility
Predetermined rules and regulations and interference from the ministry
a
Limitations of Departmental Undertakings
Delay in decisions
Approval from the government is necessary to take decisions
b
Limitations of Departmental Undertakings
Unable to tap business opportunities
Conservative approach of bureaucrats does not allow them to take risky ventures
c
Limitations of Departmental Undertakings
Red tapism and bureaucracy
Results delay in decision making and operations
d
Limitations of Departmental Undertakings
Political interference
These enterprises are subject political interference through the ministry
e
Limitations of Departmental Undertakings
Consumer needs
They usually do not give any consideration for
consumer needs
f
Statutory Corporations or
Public Corporations
Public Corporations
It is generally created as an autonomous institution by passing a Special Act in the Parliament or State Legislature
As a body corporate, it is a separate entity for legal purposes and can sue and be sued, enter into contracts and acquire property in its own name
Public Corporations
Some Important Public Corporations
KSRTC
Life Insurance Corporation
Indian Airlines Corporation
Reserve Bank of India
Features of Public Corporations
Features of Public Corporations
Formed by special Act
Created under a special Act of Parliament or State Assembly
a
Features of Public Corporations
Ownership
Owned by the Government
b
Features of Public Corporations
Separate legal existence
It has a separate legal entity, so that it can own properties and enter into contract in its own name
c
Features of Public Corporations
Financial autonomy
It has the power to utilize its revenues
d
Obtains funds through borrowing from treasury or public and from the sales of goods and services
Features of Public Corporations
Employees
Appointed as per the terms and conditions of the corporation and they are not to be treated as government servants
e
Features of Public Corporations
Independent accounting and audit
It has its own accounting and audit, but not subject to government audit and budget allocation
f
Merits of Public Corporations
Merits of Public Corporations
High degree of flexibility
It enjoys flexibility of operations and financial and managerial freedom since it is free from undesirable government control
a
Merits of Public Corporations
Least government interference
As there is no budget allocation for funds from government there is no much government control
b
Merits of Public Corporations
Autonomous status
They can frame their own policies and procedure within the purview of the Act
c
Merits of Public Corporations
Helps in economic development
It contributes towards economic development in a big way
d
Merits of Public Corporations
Stability
Since they are not subject to political changes, they can take long term business policies
e
Limitations of Public Corporations
Limitations of Public Corporations
Rules and regulations
It does not enjoy much operational flexibility as it is governed by various rules and regulations of the
Act
a
Limitations of Public Corporations
Political interference
In practice complete autonomy is not possible due to interference from the ministry
b
Limitations of Public Corporations
Chances of corruption
Officials may misuse the autonomy status for their
personal gain
c
Limitations of Public Corporations
Inefficiency
Absence of competition and profit motive leads to
inefficient operations
d
Limitations of Public Corporations
Delay in action
Quick decisions cannot be taken by the officials because of the involvement of government nominees in the director board
e
Government Company
Government Company
Public enterprises organized under the Companies Act are Government companies
It is a company in which at least 51% of share capital is held by the Central Government
or by the State Government or both
Government Companies in India
Steel Authority of India Ltd.
Bharat Heavy Electricals Ltd.
Hindustan Shipyard Ltd.
Coal India Ltd.
Features of Government Company
Features of Government Company
Incorporation
It is incorporated under Companies Act
a
Features of Government Company
Separate legal entity
It can own properties, enter into contracts, sue and be sued in its own name
b
Features of Government Company
Management
Management is vested in the hands of Directors, appointed by Government
c
Features of Government Company
Memorandum and Articles of Association
Objects of the company and its rules and regulations are contained in these documents
d
Features of Government Company
Accounting and audit procedure
However government appointed auditor’s report should be presented in the Parliament or Legislative Assembly
e
They are exempted from accounting and audit rules as per the Act
Features of Government Company
Funds
Investment in government companies is raised by government shareholdings and from private shareholders
f
Merits of Government Company
Merits of Government Company
Easy formation by registration
No need of enactment of special Act in Parliament
a
Merits of Government Company
Separate legal entity
It has separate existence apart from the government
b
Merits of Government Company
Quick decisions
Prompt decisions in time as it has autonomy power
c
Merits of Government Company
Prevents unhealthy business
It can control unhealthy business practices by providing goods and services at a reasonable price
d
Limitations of Government Company
Limitations of Government Company
Autonomy is just for name sake
Since the government is the only shareholder in some companies, provisions of Companies Act have no relevance.
a
Limitations of Government Company
No accountability
Even though major investment is made by the government, it is not answerable to the Parliament
b
Limitations of Government Company
Main purpose is not served
It defeats the main purpose by registering like other companies
c
Being the major shareholder, government controls the affairs of the company
Changing Role of Public Sector
Ajith Kanthi Wayanad
Changing Role of Public Sector
Public sector plays an important role in India’s economic development
The most important objective of public sector is economic growth with social justice and providing service to the society
Importance of Public Sector
Importance of Public Sector
Development of infrastructure
Transportation, communication, fuel and energy, basic and heavy industries etc. are very essential for economic development
1
Government has set up various PSUs in these areas where private enterprises are unwilling to invest
Importance of Public Sector
Regional balance
To maintain balanced regional development the government has taken initiative to start a number of public sector units in backward areas
2
Importance of Public Sector
Economies of scale
Government has set up large scale industries in public sector to take advantages of
economies of scale
3
Eg. Electric power plants, petroleum refinery, telephone industries etc.
Importance of Public Sector
Check over concentration of economic power
The flow of economic resources to the private sector entrepreneurs can be controlled up to a
certain extent
4
Importance of Public Sector
Import substitution
Government set up public sector units for production of capital goods which were imported earlier
5
Several public sector companies are producing goods on a large scale, thus playing an important role in expanding exports of the country also
Government Policy Towards
Public Sector
Government of India introduced four major reforms in the public sector thorough the Industrial Policy in 1991
Government Policy
Government Policy
a
Restructure and revive potentially viable Public Sector Undertakings (PSUs)
Government Policy
b
Close down PSUs, which cannot be revived
Government Policy
c
Bring down government equity in all non-strategic PSUs to 26% or
lower if necessary
Government Policy
d
Protect the interest of workers
Measures Taken by Govt. to Reform Public Sector
Measures Taken by Govt.
a
Reduction in the number of industries reserved for public sector
Measures Taken by Govt.
Disinvestment
Eg. Sale of shares in Indian Petro Chemicals Ltd., Maruthi Udyog Ltd. etc.
b
Measures Taken by Govt.
c
Protection of sick units
Highly sick public enterprises which are unlikely to be revived will be referred to the Board for Industrial and Financial Reconstruction (BIFR) for rehabilitation
Measures Taken by Govt.
d
Memorandum of understanding (MOU)
Global Enterprises
or Multinational Companies
Global Enterprises
Multinational Companies
Global Enterprises
Multinational Companies
It is also known as Multinational corporation, Transnational Corporation, Global Giant, World Enterprise, International Enterprise, MNCs etc.
Multinational Companies – Examples
Global Enterprises
Features of Global Enterprises
Features of Global Enterprises
Huge capital
They have large capital investment as they are running large scale business units
a
Investors and financial institutions of the host country will be ready to invest in MNCs because of their credibility
Features of Global Enterprises
Foreign collaboration
Global enterprises usually collaborate with Indian companies, both private and public sector, by this both the parties will be benefited by sharing technology, brand name etc.
b
Features of Global Enterprises
Advanced technology
MNCs are able to provide world class products of international standards by using advanced technology in the areas of production, marketing etc.
c
Features of Global Enterprises
Marketing strategies
They adopt aggressive marketing techniques to increase the sales in a short period
d
They have advanced marketing information system, advertising and sales promotion techniques and a good brand name
Features of Global Enterprises
Expansion of market territory
They can extent their markets very easily to the foreign countries as they are running the branches in various nations
e
Features of Global Enterprises
Product innovation
Their products are always highly innovative as they are running their own research and development wing for developing new products and superior designs for existing products
f
Features of Global Enterprises
Centralized control
The headquarters of an MNC can exercise better control over the operations of its branches in various countries as they operate within the policy framework of the parent organization
g
Joint Ventures
JVs
Joint Ventures
An association of two or more individuals or organizations formed by agreement for a common purpose or mutual benefit is called a joint venture
These organizations may be private, government or a foreign company
Joint Ventures
Usually JVs are formed to share strengths, minimize risks and to increase competitive advantage in the market place
Eg. Bajaj Allianze Insurance Co., Mahindra – Renault Ltd, Air Asia India, Maruthi and Suzuki, Yamaha and Mahindra.
Benefits of a Joint Venture Business
Benefits of Joint Ventures
1
Increased resources and capacity
JVs can easily expand their business and they are able to face market challenges, reap the benefits of economies of scale
Benefits of Joint Ventures
2
Access to markets
When a foreign company enters into JV with an Indian company, they gain access to the vast Indian market
Benefits of Joint Ventures
3
Access to technology
Technology adds to efficiency and effectiveness and thus reduces the cost
Benefits of Joint Ventures
4
Innovation
Benefits of Joint Ventures
5
Low cost of production
When two firms join hands, they can operate on large scale and reap the benefits of
economies of scale
Benefits of Joint Ventures
6
Established brand name
Eg. Toyota Kirloskar, Maruthi Suzuki etc.
Types of Joint Ventures
Types of Joint Ventures
Types of Joint Ventures
1. Contractual Joint Ventures (CJV)
In this case a new entity is not created There is only an agreement to work together
The parties do not share ownership of the business but exercise some elements of control in the joint venture
Franchisee relationship is a typical example for contractual joint ventures
Franchise Business
Types of Joint Ventures
2. Equity Based Joint Venture (EJV)
In this case a separate business entity is formed jointly owned by two or more parties based on an agreement
The ownership of this organization is shared by these parties
Formed by: Bajaj Finserve Ltd. Bajaj Group of India and Allianz SE a European financial services company
Examples of JVs
No. | Name of JV | Established | Joint Venture Holders |
1. | AVI Oil India Pvt. Ltd | 1993 | Balmer Lawrie & Co. Ltd and NYCO SA France |
2. | Green Gas Ltd | 2005 | GAIL (India) Ltd. and IOCL |
3. | Delhi Aviation Fuel Facility Pvt. Ltd | 2010 | BPCL and DIAL |
Private Public Partnership P P P
Private Public Partnership
It is a relationship between public and private entities in the context of infrastructure and other services
Private Public Partnership
Under PPP model public sector plays an important role and ensures that the social obligations are fulfilled and public investments are successfully met
The public partners in PPP are Government entities like ministries, government departments, municipalities etc
Private Public Partnership
The government’s contribution to PPP is in the form of capital for investment and transfer of assets that support the partnership
Expertise
The role of private sector is to make use of its expertise in operation, managing tasks and innovation to run the business efficiently
Private Public Partnership
Power generation and distribution, water and sanitation, pipelines, hospitals, school buildings and teaching facilities, stadiums, air traffic control, prisons, railways, roads, billing and other information technology system, housing etc. are the major sectors in which PPP operates
Power generation