CBSE Class 11 Business Studies Public Private And Global Enterprises Notes

CHAPTER - 3

PUBLIC, PRIVATE AND GLOBAL ENTERPRISES

· Introduction:

Soma, a student of class XI was reading a newspaper. There was the news item that Government planned to disinvest its shares in some PSUs as they were incurring heavy losses. At the same time, it was written that some private companies and MNCs were earning so much of profits. Maruthi Suzuki Ltd which a joint venture of Marathi Company and Suzuki Company of Japan was launching a new car in the market. She was curious to know about these terms like PSUs, joint venture etc.

a. Departmental Undertakings - Features

√ Part of Government-Central or State

√ Under direct control of the ministry

√ Funds comes directly from Govt.Treasury

√ Employees are Govt. employees.

√ Examples:- Railways

√ Defence

√ Post and Telegraphs

Merits

√Effective control

√Public Accountability 

√Suitable for national security Demerits 

√ Lack of flexibility

√ Delay in decision making √Red tapism

√ Political interference 

√ Unable to take advantage of opportunities

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 economics 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 govt.

4. It is accountable to the public

FORM OF PUBLIC ENTERPRISES

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

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 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 utilisation 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 organisations are usually insensitive to consumer needs and do not provide goods and adequate service to them.

5. Such organisations are managed by civil servants and govt. officials who may not have the necessary expertise and experience in management.

b. Statutory Corporations They are created by Special Acts of the Parliament which contains their powers and functions, rules and regulations regarding their employees and its relationship with government departments.

Features

√ Statutory Corporation is fully owned by the Government.

√ It is having a separate legal entity.

√ Its employees are not government employees.

√ Board of Directors are appointed by the government

√ It prepares its own budget and can retain its earnings which can be used for its business.

√ Profit is not the main motive.

√ It has public accountability.

√ Usually it is free from all types of interference.

Merits

√ Free from undesirable government

√ The government does not interfere in their financial matters.

√ It is relatively free from red tapes and can take quick decisions.

√ Its policies are subject to parliamentary control which ensures protection of public interest.

Limitations

√ statutory corporation’s actions are subject to many rules and regulations.

√ Government and political interference have always been there where huge funds are involved or in major decisions.

√ Where there is dealing with public, corruption exists at a larger level.

√ The Board of Directors may misuse their powers and indulge in undesirable practices.

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 statute / 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 government. 

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 utilisation 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 organisations are usually insensitive to consumer needs and do not provide goods and adequate service to them.

5. Such organisations are managed by civil servants and govt. officials who may not have the necessary expertise and experience in management.

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 statute / 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 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.

MERITS

1. Internal Autonomy :- It enjoys a good deal of autonomy in its day to day operations and is free from political interferance.

2. Quick decisions :- It can take prompt decisions and quick actions as it is free from the prohibitory rules of govt.

3. Parliamentary control :- Their performance is subject to discussion inparliament which ensures proper use of public money.

4. Efficent Management :- Their directors and top executives are professionals and experts of different fields.

DEMERIT

1. In reality, there is not much operational flexibility. It suffers from lot of political interferance.

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 corp. is suitable for undertaking requiring monopoly powers e.g. public utilities.

c. Government Company

Meaning: - According to The Indian Companies Act, 1956, a government company is a company in which not less than 51% of the paid up capital is held by the central or state government or both.

Subsidiary of a government company is also considered as a government company.

Eg: 1) Hindustan Machine Tools Ltd. (HMT)

2) Bharat Heavy Electricals Ltd (BHEL) 

3) Steel Authority of India Ltd.

Features

v It is created by the Indian Companies Act, 1956.

v It is having a separate legal identity.

v Its employees are are appointed according to the rules contained in the Memorandum and Articles of Association of the company.

v It is exempted from the accounting and audit rules and procedures.

v It obtains funds from government shareholdings, private shareholders and capital market.

Merits

v It can be easily established.

v It has a separate legal entity.

v There is no undue departmental interference in the working of the company.

v It can curb unhealthy business practices by providing goods and services at reasonable prices.

• Changing Role of Public Sector

Public Sector was started to achieve the following objectives:

v To speed up the economic growth of the country

v To achieve a more equitable distribution of income

v To create infrastructure facilities

v To develop all parts the country equally Performance of the Public Sector was poor due to unorganized plants, out dated technology, underutilization of capacity, over staffing, trade unionism, political interference etc., So the government, in the Industrial Policy 1991, introduced the following reforms in the public sector.

v The number of industries reserved for the public sector was reduced from 17 to 3 industries namely atomic energy, arms and rail transport.

v The Memorandum of Understanding signed between a public sector and its administrative ministry defines its autonomy and the targets to be achieved.

v Equity shares of public sector units are sold to private sector and the public which is known as Disinvestment.

v Loss making public sectors which are potentially viable will be restructured and revived through the Board of Industrial and Financial Reconstruction (BIFR). Public sector units which cannot be revived will be closed down.

v A National Renewal Fund was created to retrain and redeploy retrenched labor and to compensate employees seeking voluntary retirement.

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.

FEARURE

1. It is registered or Incorporated under companies Act.

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 privatte sharehoildings. It can also raise funds from 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. It can appoint professional managers on high salaries.

LIMITATIONS

1. It suffers from interferance from govt. 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 efficent operation of the company.

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 summarised as following :-

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 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 efficently.

2. Regional balance :- Earlier, most of the development was limited to few areas like port towns. For providing employment to the people and for acclerating 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.

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 expandng exports of the country. Very important role was assigned to public sector but its performance was far from satisfactory which forced govt. to do rethinking on public enterprises.

PUBLIC SECTOR REFORMS :

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

a) Reduction in no. of industries reserved for public sector - This no. is reduced from 17 to 8 and to 3 industries only in 2001. These three industries are atomic energy, arms and rail transport.

b) Memorandum of Understanding (MOU) - Under this govt. lays down performance targets for the management and gives greater autonomy to hold the management accountable for the results.

c) 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.

d) Restructure and Revival :- All public sector sick units were referred to Board of Industrial and financial Reconstruction (BIFR). Units which were potentially viable were restructured and which could not be revived were
closed down by the board.

• Global Enterprises/Multinational Companies

Meaning:- A global enterprise is one which owns and manages business in two or more countries. Eg:- Unilever Ltd, Coca cola, LG, Samsung, Hyundai Motors, Proctor and Gamble, etc.

Features

v A global enterprise has huge capital resources.

v It operates through a network of subsidiaries, branches and affiliates in host countries

v It has its headquarters in the home country which controls all branches and subsidiaries.

v It uses advanced technology to provide world class products and services.

v It employs professionally trained managers.

v It has vast access to international markets.

v It has advanced research and development departments which are engaged in developing new products and superior designs of existing products.

v It uses aggressive marketing strategies.

v It usually enters into agreements with local firms in the host countries.

MULTI NATIONAL COMPANIES/GLOBAL ENTERPRISES

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.

Example :- GEC, IBM, PHILIPS, COCA-COLA etc

FEATURES

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. Centralised control : MNCs have headquarters in their home countries from where they exercise control over all branches and subsidaries. It provides only broad policy framework to them and there is no interferance 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 orgs possess advanced and superior technology which enable them to provide world class products & services.

6. Product Innovations :- MNCs have highly sophisticated research and developent departments. These are engaged in developing new products and superior design of existing products.

7. Marketing Strategies - MNCs use aggresive marketing strategies. Their brands are well known and spend huge amounts on advertising and sale promotion.

• Joint Ventures

Meaning: A joint venture is a business partnership between two or more companies for a specified purpose.
Eg : Hero Honda, Maruti Udyog, Birla Yamaha Ltd, etc.

Benefits

v A joint venture has greater resources and capacity.

v It has access to advanced technology

v It has access to new markets.

v It can produce products at a lower cost.

v It has ideas and technologies to develop innovative products and services.

v When one party in a joint venture has well established brands and goodwill, the other party gets its benefits.

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 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

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 teachnology 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)

Public Private Partnership means an enterprise in which a project or service is financed and operated through a partnership between Government and private sectors.

Features

v It facilitates partnership between public and private sector.

v It is related to high priority projects.

v It is suitable for big projects whose gestation period is long.

v Revenue is shared between government and private enterprise in the agreed ratio.

v It is used in the government projects targeted at public welfare.

• Very Short Answer type Questions

Question. Name the types of public sector enterprises?
Answer. i) Departmental undertakings ii) statutory corporations
iii) Government company

Question. Name the organization which is considered as a part of Government Company only?
Answer. Departmental undertakings

Question. Where national security is concerned, which form of public enterprises is most suitable?
Answer. Departmental undertakings, because they are under the direct control and supervision of the ministry.

Question. Mention any two examples of departmental undertakings?
Answer. i) Post and Telegraphs
ii) Indian railways

Question. Name the organization formed by passing a special act of the parliament?
Answer. Statutory Corporation

Question. Mention any two examples of statutory corporation?
Answer. i) Food Corporation of India
ii) Life Insurance Corporation

Question. Name the company in which at least 51% shares are kept by the government?
Answer. Government Company

Question. In whose name the shares of a government Company are purchased?
Answer. The President of India

Question. Why is the ‘Government company’ form of public enterprise preferred to other types of organizations?
Answer. Because it enjoys maximum autonomy in all management decisions and actions.
There is no undue departmental interference in the working of a government company.

Question. Mention any two examples of a government company?
Answer. i) Bharat Heavy Electricals Limited
ii) Hindustan Machine Tools Limited

• Long Answer type Questions

11. What is public, private partnership? Explain its features.
Ans:-The following points should be explained
v Helps partnership public sector and private sector
v Related to high priority projects
v Suitable for big projects
v Public welfare
v Sharing revenue

12) “Multinational companies are a blessing to the developing countries.”
Comment on this statement.
Ans:-The following points should be explained
v Huge capital resources
v Centralized capital
v Expansion of market territory
v Advanced technology
v Product innovation

13. What are the benefits of entering into joint ventures?
Ans:- The following points should be explained
1. Increased resources and capacity
2. Access to new market and distribution networks
3. Access to technology
4. Innovation
5. Low cost of production
6. Established brand name

14. Name the form of public sector enterprises that is constituted as an autonomous unit by an Act of Parliament? Explain any five features of such an organizations?
Ans:- Statutory Corporation.
The following points should be explained
v Statutory Corporation is fully owned by the Government.
v It is having a separate legal entity.
v Its employees are not government employees.
v Board of Directors are appointed by the government
v It prepares its own budget and can retain its earnings which can be used for its business.
v Profit is not the main motive.

15. (a) Mention six causes responsible for inefficiency of government enterprises?
(b) Give any three distinctions between a statutory corporation and a government company?

Ans:-a) The following causes should explained Performance of the Public Sector was poor due to
v unorganized plants,
v  out dated technology,
v  underutilization of capacity,
v  over staffing,
v  trade unionism,
v  political interference
v  inefficient management

16. What was the role of public sector before 1991?
Ans:- Public Sector was started to achieve the following objectives:
v  To speed up the economic growth of the country
v  To achieve a more equitable distribution of income
v  To create infrastructure facilities
v  To develop all parts the country equally
v  Generation of employment
v  Defence Requirements
v  Check over concentration of economic power

17. What are the benefits available to the government company?
Ans:- 1. Easily established
2. Separate legal entity
3. Enjoys autonomy
4. Curbs unhealthy business practices
· HOTS (Higher Order Thinking Skills)
1. Can the public sector companies compete with the private sector in terms of profit & loss efficiency? Give reasons for your answer.

HOTS (Higher Order Thinking Skills)

Question. Can the public sector companies compete with the private sector in terms of profit & loss efficiency? Give reasons for your answer.
Ans. No, public sector companies cannot compete with the private sector in terms of profit & efficiency. Following are the reasons for this:
1. Public sector enterprises (PSEs) are owned by the government which has social services as the main motive. They do not operate fully on commercial basis. They are launched to achieve social objective like development of backward region, creation of employment opportunities, etc.
2. Working of public sector enterprise is subject to interference of the government.
Autonomy &flexible enjoyed by PSEs are only in name.
3. Due to the bureaucratic control, the management is very poor inefficient. They are managed by bureaucrats & not by professional.

Question. Public sector enterprises have played vital role in the economic development of india.however; government of India vigorously pursues the policy of disinvestment of such units. What is the rationale of disinvestment at this time?
Ans. Public sector enterprises played a significant role in the economic development of India by filling gaps in the industrial sector, generating employment opportunities, balance regional development, check over concentration of economic power & so on. despite their impressive role, public sector undertaking (PSUs) in India suffered several problems shortcoming such as excessive overhead, under- utalisation of production capacity, inefficient management, low return on investment or even losses, etc.therefore, government of India pursued the policy of disinvestment of sick PSUs.disinvestment involves the sale of the equity shares to the private sector& the public, i.e., reducing equity of the government.

Question. State any three situations wherein Government Company is the most suitable form of organizing public enterprises?
Ans. Government Company is the most suitable form of organizing public enterprises in the following situations:
1. When the government wants to control a company in the private sector without nationalization because of financial or employment crises, e.g., Indian iron steel co.
2. When the government feels necessary to promet & develops a field of economic acidity, e.g., STC.
3. When the government wishes to launch an enterprises in association of certain private interests, domestic or foreign, e.g., Hindustan Machine Tools.

Question. What motivates a company to go global?
Ans. desire to expand its business motivates a company to go global. If a company wants to enjoy the fruits of larges-cable production (i.e., increased profit reduces costs), it needs a
bigger market spread over to many countries.

· Gist of the Lesson
Private sector vs. public sector enterprises
Private sector enterprises are owned, managed and controlled by individuals or a group of individuals. Their main objective is to earn profit.
Public sector enterprises are owned, managed and controlled by the government. The forms organization which a public enterprises may take are departmental undertakings, statutory corporations and government companies.

Departmental undertakings
This is the oldest and most traditional forms of organizing public enterprises. The government functions through this department. Examples: - Post and Telegraphs,Indian Railways, etc.

Statutory Corporation
Statutory corporations are public enterprises brought into existence by a special act of the parliament. Egs: - Indian Airlines, LIC, RBI, etc.

Government Company
A government company means any company in which not less than 51% of the paidup capital is held by the central government or state government or bother:-
HMT,maruti dog ltd.,BHEL,etc.

Global enterprises
A multi-national company (MNC) may be defined as a company that operates in several companies that operates in several countries. Egs:- Pepsi, Samsung, Honda, etc

Joint ventures
When two businesses agree to join together for a common purpose and mutual benefits it is known as joint venture

Public Private Partnership
It means a busied in which a project or service is financed and operated through a partnership of government and private enterprises

Please click the link below to download pdf file for CBSE Class 11 Business Studies Public, Private And Global Enterprises