1. BUSINESS STUDIES
CHAPTER 3
PRIVATE, PUBLIC AND GLOBAL
ENTERPRISES

2. INTRODUCTION
We always come across all
types of business organisations
in your daily life. Which are
follows :-
Global enterprises-
Businesses which operate in more
than one country known as global
enterprises.
Private enterprises-
Business organisations in our
neighbourhood market, there are
shops owned by sole proprietors
or big retail organisations run by

3. o a company. Some people who is providing us services
like legal services, medical services, being owned by
more than one person (i.e. partnership firms). These all
are privately owned organisations.
Public enterprises-
Similarly, there are other offices or places of business
which may be owned by the government. For example,
Railways is an organisation wholly owned and managed
by the government.
In this chapter we will study how the
economy is divided into two sectors, public
and private, the different types of public
enterprises, their role and that of the global
enterprises.

4. PRIVATE SECTOR AND PUBLIC
SECTOR
There are all kinds of business
organisations - small or large,
industrial or trading, privately
owned or government owned
existing in our country. These
organisations affect our daily
economic life and therefore
become part of the economy
(Indian). The economy,
therefore, may be classified
into two sectors viz., private
sector and public sector.

5. Private Sector-
The private sector consists of business owned by individuals or
a group of individuals. The various forms of organisation are
sole proprietorship, partnership, joint Hindu family, cooperative
and company.
Public sector-
The public sector consists of various organisations owned and
managed by the government. These organisations may either
be partly or wholly owned by the central or state government.
They may also be a part of the ministry or come into existence
by a Special Act of the Parliament. The government, through
these enterprises participates in the economic activities of the
country.
Thus, we have public sector units, private sector
enterprises and global enterprises coexisting in the
Indian economy.

6. Indian Economy
Public Sector
Departmental
Undertakings
Government
Companies
Sole
Proprietorship
Partnership
Joint
Hindu
Family
Cooperative
Multinational
Corporations
Company
Private Sector
Public
(Ltd.)
Private
(Ltd.)

7. Difference private and public sector
Point of difference Private sector Public sector
Formation involves Long process. Short time just by govt. decision
Objective Earning profit. Providing service to public.
Managed and control By boards of
directors who
professional experts
By boards of director who
generally are representatives of
government.
Capital contributed By owners or
investors.
By the government.
Freedom of
operation
More. Less due to political
interference.
Accountable Not directly
accountable to
general public.
Are accountable to general
public as their performance is
discussed in the parliament.
Employees They recruit and
select their own
employees and
have their own
rules.
Employees are generally civil
servants and public sector
follows government rules
regarding remuneration, etc.
Performance
evaluation
Is judged on the
basis of economic
gains only.
Is not only judged by economic
gain but on many other non
economic issues as well.

8. FORMS OF ORGANISING PUBLIC
SECTOR ENTERPRISES
Government’s participation in business
and economic sectors of the country
needs some kind of organisational
framework to function. The government
has a major role to play in the formation
of the public sector. For this purpose,
public enterprises were formed by
government. A public enterprise may
take any particular form of organisation
depending upon the nature of its
operations and their relationship with
the government. The suitability of a
particular form of organisation depends
upon its requirements.

9. The forms of organisation which a public enterprise may take
are as follows:
(i) Departmental undertaking
(ii) Statutory corporation
(iii) Government company

10. i. Departmental Undertakings
Departmental undertaking is the
oldest and most traditional form
of organising public enterprises.
These enterprises are established
as departments of the ministry
and are considered part or an
extension of the ministry itself. It
has no separate existence then
government. They have not been
constituted as autonomous or
independent institutions and as
such are not independent legal
entities. Examples of these
undertakings are railways and
post and telegraph department.

11. Features:-
1. The funding of these enterprises come directly from the
Government Treasury and are an annual appropriation from the
budget of the Government. The revenue earned by these is also
paid into the treasury.
2. They are subject to accounting and audit controls applicable to
other Government activities.
3. The employees of the enterprise are Government servants. They
are headed by Indian Administrative Service
(IAS) officers and civil servants who are
transferable from one ministry to another.
4. It is generally considered to be a major
subdivision of the Government department and
is subject to direct control of the ministry.
5. They are accountable to the ministry since
their management is directly under the concerned ministry.

12. Merits:-
1. These undertakings facilitate the Parliament to exercise effective
control over their operations.
2. These ensure a high degree of public accountability.
3. The revenue earned by the enterprise goes directly to the treasury
and hence is a source of income for the Government.
4. Where national security is concerned, this form is most suitable
since it is under the direct control and supervision
of the concerned Ministry.
Limitations:-
1. Departmental undertakings fail to provide flexibility,
which is essential for the smooth operation of business.
2. The employees or heads of departments of such undertakings are
not allowed to take independent decisions, without the approval
of the ministry concerned. This leads to delays, in matters where
prompt decisions are required.
3. These enterprises are unable to take advantage of business
opportunities. The bureaucrat’s over-cautious and conservative
approval does not allow them to take risky ventures.

13. 4. There is red tapism in day-to-day operations and no action can be
taken unless it goes through the proper channels of authority.
5. There is a lot of political interference through the ministry.
6. These organisations are usually insensitive to consumer needs and
do not provide adequate services to them.
Suitability:-
Departmental undertaking are suitable in following cases-
1. Where utmost secrecy is required.
Example- defence.
2. Where government control is necessary.
Example- broadcasting.
3. Where huge investments are required and is involved.
Example- iron and steel, aircraft, etc.
4. Where undertaking is a source of income for government.
Example- railways.

14. ii. Statutory Corporations Or Public
Corporations
A Statutory corporations is the
body corporate created or
formed by an special act of
parliament or by the central or
state legislature. It is fully
financed by the government.
It’s powers, objectives, etc.
are also decided by the act of
legislature. Examples for
statuary corporations –Indian
airlines, Air India, State Bank
of India(SBI), Life Insurance
Corporation of India, Food
Corporation of India, etc.

15. Features:-
1. Statutory corporations are set up under an Act of Parliament and
are governed by the provisions of the Act. The Act defines the
objects, powers and privileges of a statutory corporation.
2. This type of organisation is wholly owned by the state.
3. A statutory corporation is a body corporate and can sue and be
sued, enter into contract and acquire property in its own name.
4. This type of enterprise is usually independently financed. It has
the authority to use its revenues.
5. A statutory corporation is not subject to accounting and audit.
6. The employees of these enterprises are not
government or civil servants.
Merits:-
1. They enjoy independence in their functioning and a high degree of
operational flexibility. Free from government control.
2. Government generally does not interfere in their financial
matters, including their income and receipts.

16. 3. Since they are autonomous organisations they frame their own
policies and procedures within the powers assigned to them by the
Act.
4. A statutory corporation is a valuable instrument for economic
development.
Limitation:-
1. In reality, a statutory corporation does not enjoy as much
operational flexibility as stated above. All actions are subject to
many rules and regulations.
2. Government and political interference has always been there in
major decisions or where huge funds are involved.
3. Where there is dealing with public, rampant corruption exists.
4. The government has a practice of appointing advisors to the
Corporation Board. This curbs the freedom of the corporation in
entering into contracts and other decisions.

17. Suitability:-
The public corporation or statuary corporation is suitable under
following cases-
1. Where the undertaking requires monopoly powers.
2. Where the undertaking requires special powers, defined by
the act or statute.
3. Where the undertaking requires regular grant from the
government.
4. Where the undertaking requires appropriate combination of
public accountability and operational autonomy.

18. iii.Government Company
Government company means any
company in which at least 51% of
paid up share capital is held by the
government central or state or
partly by state or central
government. The government
companies are governed and ruled
by Companies Act 1956 like any
other registered company. The
share of companies are purchased
in the name of president of India.
Since government is major share
holder and exercises control over
management of company they are
known as government companies.
Examples- Steel Authority of India,
State Trading Corporation, etc.

19. Features:-
1. It is an organisation created by the Indian Companies Act, 1956.
2. The company can file a suit in a court of law against any third
party and be sued.
3. The company can enter into a contract and can acquire property
in its own name.
4. The management of the company is regulated by the provisions
of the Companies Act, like any other public limited company.
5. The employees of the company are appointed according to their
own rules and regulations as contained in the Memorandum and
Articles of Association of the company.
6. These companies are exempted from the accounting and audit
rules and procedures.
7. The government company obtains its funds from government
shareholdings and other private shareholders. It is also permitted
to raise funds from the capital market.

20. Merits:-
1. A government company can be established by fulfilling the
requirements of the Indian Companies Act. A separate Act in the
Parliament is not required.
2. It has a separate legal entity, apart from the Government.
3. It enjoys autonomy in all management decisions and takes
actions according to business prudence.
4. These companies curb unhealthy business practices
by providing goods and services at reasonable prices.
Limitations:-
1. In some of the Companies, Government is the only
shareholder the provisions of the Companies Act
does not have much relevance.
2. It evades constitutional responsibility.
3. The main purpose of a government company, registered like
other companies, is defeated. Since government is the sole
shareholder.

21. Comparison between different companies.
Point of
difference
Departmental
undertaking
Public
corporation
Government
companies
Formed by Ministry as a
department of
government.
Passing special act
in parliament.
Getting registered
under companies act
1956.
Legal status No separate
legal status.
It is a Separate
legal entity.
It is a separate legal
entity.
Financed by Government
(fully).
Government can
borrow as well.
Government, borrowing
,private participation.
Managed and
controlled by
government
officials.
boards of director
(govt. nominated)
Directors (private or
govt. nominated).
Staff Govt. servants. Not govt. servants Not govt. servants.
Autonomy
work
No because of
strict control.
Yes no control of
govt.
Some freedom from
govt. interference.
Owned by Government Government At least 51% by govt.
Operational
flexibility
No or very
little.
Considerable
flexibility.
Moderate flexibility.
Suitable in Defence, post Industrial ,etc. Where foreign
participation required

22. GLOBAL ENTERPRISES
Global enterprises are huge
industrial organisations which
extend their industrial and marketing
operations through a network of
their branches in several countries.
Their branches are also called
Majority Owned Foreign Affiliates
(MOFA). These enterprises operate
in several areas. producing multiple
products with their business
strategy extending over a number
of countries. They are characterised
by their huge size, large number of
products, advanced technology,
marketing strategies and network
of operations all over the world.
Examples- Pepsico, Nokia, etc.

23. Features:-
1. Huge capital resources –These enterprises are
characterised by possessing huge financial resources and
the ability to raise funds from different sources. Because of
their financial strength they are able to survive under all
circumstances.
2. Foreign collaboration -Global enterprises usually enter
into agreements with Indian companies pertaining to the
sale of technology, production of goods, use of brand
names for the final products, etc. But at the same time
these foreign collaborations have given rise to the growth
of monopolies and concentration of power in few hands.
3. Advanced technology -These enterprises possess
technological superiorities in their methods of production.
They are able to conform to international standards and
quality specifications.

24. 4. Product innovation -These enterprises are characterised by
having highly sophisticated research and development
departments engaged in the task of developing new products and
superior designs of existing products. Qualitative research
requires huge investment which only global enterprises can
afford.
5. Marketing strategies -The marketing strategies of global
companies are far more effective than other companies. They use
aggressive marketing strategies in order to increase their sales in
a short period. They posses a more reliable and up-to-date
market information system.
6. Expansion of market territory -Their operations and activities
extend beyond the physical boundaries of their own countries.
Their international image also builds up and their market territory
expands enabling them to become international brands.
7. Centralised control -They have their headquarters in their home
country and exercise control over all branches and subsidiaries.
However, this control is limited to the broad policy framework of
the parent company. There is no interference in day-to-day
operations.

25. JOINT VENTURES
When two business organizations
agree to join together for a common
purpose and mutual benefits it is
known as joint ventures. These two
organizations may be private,
government owned or a foreign
company. The firms contribute
capital and participates in
management of enterprise. In simple
words joint ventures is a partnership
between two firms. If joint ventures
are formed by companies of different
companies, the provision of
governments of the two countries
has to be followed. Examples-
 Maruti of India and Suzuki of
Japan has collaborated to form
Marutisuzuki India LTD.

26. A joint venture company can be formed in any of the following ways:
 Two parties (individuals or companies), incorporate a company in
India. Business of one party is transferred to a new company. For
consideration of such transfer, shares are issued by the new
company and subscribed by the above party. The other subscribes
for the shares in cash.
 The above two parties subscribe to the shares of the joint venture
company in agreed proportion, in cash and start a new business.
 Promoter shareholder of an existing Indian company and another
party which may be either an individual or a company may
collaborate to jointly carry on the business of that company. The
other party may be non-resident or resident and may take up shares
of the company through payment in cash. All joint ventures in India
require government approvals if a foreign partner or a Non-Resident
Indian (NRI) is involved. The approval can be obtained either from
the Reserve Bank of India or Foreign Investment Promotion Board
(FIPB), depending upon particular circumstances.
1. If the joint venture is covered under automatic route, then the
approval of the Reserve Bank of India is required.
2. In other special cases not covered under the automatic route, a
special approval of FIPB is required.

27. Benefits:-
1. Increased resources and capacity: Joining hands with another
or teaming up adds to existing resources and capacity enabling
the joint venture company to grow and expand more quickly and
efficiently.
2. Access to new markets and distribution networks: When a
business enters into a joint venture with a partner from another
country, it opens up a vast growing market. For example, when
foreign companies form joint venture companies in India they
gain access to the vast Indian market.
3. Access to technology: Technology is a major factor for most
businesses to enter into joint ventures. Technology also adds to
efficiency and effectiveness, thus leading to reduction in costs.
4. Innovation: The markets are increasingly becoming more
demanding in terms of new and innovative products. Joint
ventures allow business to come up with something new and
creative for the same market.

28. 5. Low cost of production: When international corporations invest
in India, they benefit immensely due to the lower cost of
production. They are able to get quality products for their global
requirements. India is becoming an important global source and
extremely competitive in many products.
6. Established brand name: When two businesses enter into a
joint venture one of the parties benefits from the other’s goodwill
which has already been established in the market. A lot of
investment is saved in the process.
Reasons for joint ventures:-
1. Business expansion
2. Development of new products
3. Moving into new markets particularly in another country.
4. To take advantage of the assets and technology of two countries.

29. Changing role of public sector
The public sector has been playing a
vital role in the economic development
of the country. Despite their impressive
role public enterprises in India suffer
from several problems such as poor
project planning, excessive overheads,
overstaffing, under-utilization of
capacity, inefficiency, etc. to
overcome these problems and to
bring improvement in the efficiency
level of the public sector, some
steps are taken by the government.
Although the performance of public
sector enterprise is not remarkable but
then also government cannot ignore the
development of public sector
enterprises because these enterprises
help to overcome the social problems of
poverty, unemployment, imbalance in
regional growth, etc.

30. Rationale of public sector:-
1. Infrastructure- It consists of services like transportation,
communication irrigation, etc. Government set up various public
sector enterprises to undertake the task of developing
infrastructure because public sector hesitates due to delayed
profit and huge capital investments.
2. Balanced regional development- Government tries to locate
new public sector enterprises in the backward areas so that the
people of that area get opportunity to work and these areas can
also be developed ensuring balanced regional development
where private sector hesitates to setup as lack of infrastructure.
3. Economics on scale- Where large scale industries are required
to setup, this require huge capital. These industries requires
larger base to function economically which is only possible with
government resources and large scale production.
4. Check over concentration of economic power- in private
sector very few business houses are willing to invest in heavy
industries ,so public sector can invest in heavy sector. This
prevents concentration of wealth in few hands(private sector)
and get shared by large number of employees and workers.

31. 5. Import substitutes- Government is setting up public sector
enterprises for production of capital goods which were being
imported earlier. These enterprises are making us self-reliant and
saving huge amount of foreign exchange.
6. Defence requirement- Defence is most sensitive department of
every country. The government cannot depend upon private sector
for supply of equipment's to defence. The government invests in
public sector to ensure smooth supply of goods and services.
7. Employment- Public sector provides employment opportunity to
millions of people. These enterprises prefer to use labour-intensive
techniques and create more and more jobs, thereby increasing per
capita income.
8. Social utilities- The government undertakes the responsibility of
providing these public utilities through public sector. As private
sector hesitates to invest in public utilities services like water
supply, electricity, etc. as profits are not quick in these sectors.
9. Industrialization- Government setup basic and heavy industries
under public sector in order to provide the basic infrastructure for
industrialization. As economic growth of company depends upon
the industrial development .

32. THANK YOU !!!!
By: Mudit and David