Please refer to Private Public and Global Enterprises Class 11 Business Studies notes and questions with solutions below. These revision notes and important examination questions have been prepared based on the latest Business Studies books for Class 11. You can go through the questions and solutions below which will help you to get better marks in your examinations.
Class 11 Business Studies Private Public and Global Enterprises Notes and Questions
Private Sector Enterprises
These firms are owned, controlled and managed by Private businessmen. The main object of such undertaking is profit making. They are as follows:
1. Sole Proprietorship Concerns
2. Hindu Undivided Family Business
3. Partnership Business Organizations
4. Co-operative Societies
5. Joint Stock Companies
Public Sector Enterprises
These are the enterprises which are owned and managed by the central government or by the state government or by both. The basic purpose of such undertakings is to render service to society. E.g. Railways, LIC, FCI, Post Offices etc.
Forms of Public Sector Enterprises
Public enterprises are organized as departmental undertakings, public corporations and Government Companies.
1. Departmental Undertakings:
These are the undertakings created by the decision of the government, financed and controlledby the Government and it is managed by the government officials under the ultimate control of a minister.
Some important Departmental Undertakings in India:
1. All India Radio
2. Doordarshan
3. Post and Telegraph
4. Indian Railways
5. Chittaranjan Locomoties, Calcutta
6. Integral Coach Factory Madras
7. Silver Refinery Project, Calcutta
8. Diesel Locomoties, Varanasi.
9. Ordinance Factories
10.Kolar Gold Mines, Mysore
Features / Characteristics
a. Funding – Financed through budget allocation.
b. Audit and Control – They are subject to Government audit.
c. Employees – Employees are Government servants.
d. Control – They are subject to direct control by the concerned ministry.
e. Accountability – They are accountable to the ministry and the government.
Merits
a. Control of parliament – Better control over funds and operations as it is controlled by ministry.
b. Public accountability – Responsibility to the government.
c. Source of revenue to government – Income earned by these organizations directly goes to the treasury.
d. National security – Secrecy can be maintained especially in case of strategic industries such as defense etc.
Limitations
a. Lack of flexibility – due to predetermined rules and regulations and interference from the ministry.
b. Delay in decisions – Approval from the government is necessary to take decisions.
c. Unable to tap business opportunities – Conservative approach of bureaucrats does not allow them to take risky ventures.
d. Red tapism and bureaucracy – It results delay in decision making and operations.
e. Political interference – These enterprises are subject political interference through the ministry.
f. Consumer needs – They usually do not give any consideration for consumer needs.
2. Statutory Corporations or 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.
Some Important Public Corporations:
1. Reserve Bank of India – RBI
2. Indian Airlines Corporation
3. Life Insurance Corporation – LIC
4. Air India
5. Oil and Natural Gas Commission – ONGC
6. Industrial Finance Corporation
7. State Bank of India
8. Unit Trust of India – UTI
9. Kerala State Road Transport Corporation – KSRTC
10.Kerala State Industrial Development Corporation – KSIDC
(1- 8 By Special Act of Parliament and 9 -10 by the Act of State Legislature)
Features
a. Formed by special Act – Created under a special Act of Parliament or State Assembly.
b. Ownership – It is owned by the Government.
c. Separate legal existence – It has a separate legal entity, so that it can own properties and enter into contract in its own name.
d. Financial autonomy – it obtains funds through borrowing from treasury or public and from the sales of goods and services. It has the power to utilize its revenues.
e. Employees – are appointed as per the terms and conditions of the corporation and they are not to be treated as government servants.
f. Independent accounting and audit – It has its own accounting and audit, but not subject to government audit and budget allocation.
Merits
a. High degree of flexibility – It enjoys flexibility of operations and financial and managerial freedom since it is free from undesirable government control.
b. Least government interference – As there is no budget allocation for funds from government there is no much government control.
c. Autonomous status – So that they can frame their own policies and procedure within the purview of the Act.
d. Helps in economic development – It contributes towards economic development in a big way.
e. Stability – Since they are not subject to political changes, they can take long termbusiness policies.
Limitations
a. Rules and regulations – It does not enjoy much operational flexibility as it is governed by various rules and regulations of the Act.
b. Political interference – In practice complete autonomy is not possible due to interference from the ministry.
c. Chances of corruption – Officials may misuse the autonomy status for their personal gain.
d. Inefficiency – Absence of competition and profit motive leads to inefficient operations.
e. Delay in action – Quick decisions cannot be taken by the officials because of the involvement of government nominees in the director board.
3. Government Company
Public enterprises organized under the Companies Act are Government companies. It is defined as a company in which at least 51% of share capital is held by the central government or by the State Government or governments or partly by the central and partly by one or more State Government.
Some of the Government Companies in India:
1. Hindustan Machine Tools Ltd. (HMT)
2. Hindustan Steel Ltd.
3. Indian Telephone Industries Ltd.
4. Hindustan Shipyard Ltd.
5. Fertilizers and Chemicals (Travancore) Ltd.
6. Bharat Electronics Ltd.
7. Asoka Hotels Ltd.
Features
a. Incorporation – It is incorporated under Companies Act.
b. Separate legal entity – It can own properties, enter into contracts, sue and be sued in its own name.
c. Management – Management is vested in the hands of Directors, appointed by Government.
d. Memorandum and Articles of Association – Objects of the company and its rules and regulations are contained in these documents.
e. Accounting and audit procedure – They are exempted from accounting and audit rules as per the Act. However government appointed auditor’s report should be presented in the Parliament or Legislative Assembly.
f. Funds – Investment in government companies is raised by government shareholdings and from private shareholders.
Merits
a. Easy formation by registration – No need of enactment of special Act in Parliament.
b. Separate legal entity – It has separate existence apart from the government.
c. Quick decisions – Prompt decisions in time as it has autonomy power.
d. Prevents unhealthy business – It can control unhealthy business practices by providing goods and services at a reasonable price.
Limitations
a. Autonomy is just for name sake – Since the government is the only shareholder in some companies, provisions of Companies Act have no relevance.
b. No accountability – Even though major investment is made by the government, it is not answerable to the Parliament.
c. Main purpose is not served – Being the major shareholder, government controls the affairs of the company. It defeats the main purpose by registering like other companies.
Changing Role of Public Sector – Public sector plays an important role in India’s economic development. The most important objective of public sector is growth with social justice and their primary objective is providing service to the society.
The growth of public sector in India has been very fast. During the 1st five year plan 1951-52 there were only five such enterprises with a total investment of Rs.29 crores. This became 242 in 2000- 01 with a total investment of Rs.2,74,114 crores. They are also providing more than 18 lakhs employment opportunities.
Importance of Public Sector
1. Development of infrastructure – Infrastructure includes transportation, communication, fuel and energy, basic and heavy industries etc. which are very essential for industrialization and economic development. Government has set up various public sector undertakings in these segments where private enterprises are unwilling to invest.
2. Regional balance – To maintain balanced regional development the government has taken initiative to start a number of public sector units in backward areas.
3. Economies of scale – Government has set up large scale industries in public sector to take advantages of economies of scale. Eg. Electric power plants, petroleum refinery, telephone industries etc.
4. Check over concentration of economic power – With the establishment of public sector undertakings, the flow of economic resources to the private sector industrialists can be controlled up to a certain extent.
5. Import substitution – Government has set up public sector units for production of capital goods which were imported earlier. Eg. BHEL has played an important role in import substitution by producing electricity generators. Likewise, several public sector companies are producing goods on a large scale, thus playing an important role in expanding exports of the country.
Government policy towards the public sector since 1991
Government of India introduced four major reforms in the public sector thorough the Industrial Policy in 1991.
a. Restructure and revive potentially viable Public Sector Undertakings (PSUs)
b. Close down PSUs, which cannot be revived.
c. Bring down government equity in all non-strategic PSUs to 26% or lower if necessary.
d. Fully protect the interest of workers.
Measures taken by the govt. to achieve the above:
a. Reduction in the number of industries reserved for public sector – 17 industries were reserved for public sector as per the Industrial Policy 1956. It has been reduced to 8 industries in 1991 and again to 3 industries in 2001, they are atomic energy, arms and rail transport.
b. Disinvestment – It means sale of equity shares of PSUs to private sector and to the public.
Government holding in such units is thereby reduced and private participation enhanced.
Sale of shares in Indian Petro Chemicals Ltd. and Maruthi Udyog Ltd. are examples of disinvestment.
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.
d. Memorandum of understanding (MOU) – To improve the performance of PSUs government introduced MOU system by giving clear target and operational autonomy to achieve those targets. Here PSUs are accountable for specified results.
Global Enterprises / Multinational Companies
In simple terms, a multinational company is a company carrying on business in two or more countries. Therefore it may be defined as a company that operates in several countries, such a company has factories, branches or offices in more than one country. Their branches are also called Majority Owned Foreign Affiliates (MOFA).
It is also known as multinational corporation, Transnational corporation, global giant, world enterprise, international enterprise, MNCs etc. e.g. Hindustan Lever Ltd. , ITC, Coco-cola, Pepsi, Union Carbide, Sony, Suzuki in Japan, Seimens, Glaxo, Good year etc. Features
a. Huge capital – They can have large capital investment as they are running large scale business units. Investors and financial institutions of the host country will be ready to invest in MNCs because of their credibility.
b. 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.
c. Advanced technology – MNCs are able to provide world class products of international standards by using advanced technology in the areas of production, marketing etc.
d. Marketing strategies – They adopt aggressive marketing techniques to increase the sales in a short period. They can have advanced marketing information system, advertising and sales promotion techniques and a good brand name.
e. Expansion of market territory – They can extent their markets very easily to the foreign countries as they are running the branches in various nations.
f. 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.
g. 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.
Joint Ventures (JVs)
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. Usually JVs are formed to share strengths, minimize risks and to increase competitive advantage in the market place
Benefits of a Joint Venture Business
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.
2. Access to markets – When a foreign company enters into JV with an Indian company, they gain access to the vast Indian market.
3. Access to technology – Technology adds to efficiency and effectiveness and thus reduces the cost.
4. Innovation – JVs comes up with some new ideas and techniques. Especially foreign partners can introduce innovative products in the market based on their experience.
5. Low cost of production – When two firms join hands, they can operate on large scale and reap the benefits of economies of scale.
6. Established brand name – In JVs goodwill of one party can be enjoyed by the other party also. So that this new organization need not take much effort to establish their new brand.
Eg., Toyota Kirloskar, Maruthi Suzuki etc.
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.
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.
Some Examples of Joint Ventures:
Private Public Partnership (PPP)
PPP is defined as a relationship between public and private entities in the context of infrastructure and other services. 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 PP are Government entities like ministries, government departments, municipalities etc.
The government’s contribution to PPP is in the form of capital for investment and transfer of assets that support the partnership. Whereas the role of private sector is to make use of its expertise in operation, managing tasks and innovation to run the business efficiently.
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.
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