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CHAPTER – 12 : SECTORAL DMSION OF ORGANISATIONS AND BUSINESS
Introduction
The classification of organisations and business is made from various viewpoints. When business and organisations are divided from sectoral point of view, the types are formulated while considering ownership and purpose.
1. Private and Public enterprises
When sectoral division of business management is doe, private, co-operative, joint and public enterprises are to be considered.
[Joint enterprise is not a part of syllabus.]
We have studied private enterprise and co-operative enterprise in the previous chapters. We have seen that a person or a group of persons of society runs a business for his profit and private enterprise emerges. Private enterprise is helpful in the development of national economy, The base for economic uplifting of a nation is private enterprise. Private enterprise is contributing a lions’s share in national income. Private enterprise is old by centuries. Mostly, private enterprise has been successful through time-test. Private enterprise is given incentives even in countries like China and India
Before considering these questions pertaining to public enterprise, it is essential to know what public enterprise is. It can be said in simple words that when state or central government runs a business, public enterprise comes into existence. The purpose of private enterprise is to earn profit whereas that of public enterprise is to have social welfare. Of course, it has no negative purpose of not earning profit at all but earning profit by exploiting customers, society can never be its purpose.
Thus, following fundamental differences are there between private and public enterprises:
(1) The ownership of private enterprise is of a person or a group of persons
- The ownership of public enterprise is of government.
(2) Private enterprise comes into existence for profit only.
- Public enterprise comes into existence for people’s welfare.
(3) Private enterprise may exploit various classes of society by hook or by crook.
- This is not possible for public owned enterprise.
(4) Government control over private enterprise is possible but interference in its day-to-day operations cannot be there.
- Public enterprises have to run according to government policy and rules.
(5) Sole proprietorship, partnership and joint stock company are the forms of private enterprise.
- Government department, public corporation and government company are the forms of public enterprise.
Need of public enterprise
Public enterprise has become inevitable in modern times. Due to following circumstances and reasons, the need of public enterprise has arisen :
(1) Public enterprise has become necessary for national welfare-for the welfare of people at .large.
(2) Public enterprise has become necessary for basic, heavy and defense industries which require huge capital investment.
(3) Private monopoly exploits various classes of society instead of contributing in national welfare. So for removing this type of monopoly public enterprise has become necessary.
(4) Many a time control over finance and banking is required to be with government for national interest. At this time, public enterprise is established.
(5) When private enterprise fails in providing basic necessities to people, public enterprise is required, e.g. Railway.
(6) Public enterprise is needed in developing countries like India
(7) Exploitation of workers is possible in private enterprise. Therefore, for preventing exploitation and for providing better facilities, public enterprise is necessitated as an ideal master.
(8) For removing inequality amongst different geographical areas so far as industrialization is concerned public enterprise is required.
(9) For enhancing economic development and for expansion of economic activities of nation public enterprise is needed.
(10) Public enterprise is required in those industries in which heavy capital investment is to be made with low rate of profit. Private enterprise will not enter in these industries, e.g. Highways,
(11) Public enterprise is useful instrument for the establishment of social justice. The importance to women, services to weaker sections with reasonable rate, observation of labour laws job security and other such matters can favourably be cared by public enterprise. So, its establishment itself becomes the cause for the establishment of social justice.
Advantages - Limitations of public enterprise :
Advantages :
(1) Various classes are not exploited as public enterprise emerges for people’s welfare.
(2) As public enterprise works for public health, education, atomic energy and other sectors like these, nation becomes stronger.
(3) Public enterprise can collect capital on a big scale.
(4) As to its capacity to collect capital on a large scale, public enterprise accepts responsibility of businesses like railway, road transport, air transport.
(5) Rapid changes take place in certain industries - businesses. Before, obtaining enough return from capital invested, equipments become obsolete due to, new researches. So, new instruments - equipments are to be purchased. Public enterprise becomes very useful in these industries, e.g. Air transport. New types of aeroplanes are made in a very short span of time in this industry and aeroplanes become obsolete very quickly, therefore, public enterprise becomes useful in this type of industries.
(6) As profit motive is absent, public enterprise can distribute goods or services at low rate.
(7) The position of worker, personnel in public enterprise remains better.
(8) As the size of public enterprise is big the benefit of large scale can be gained. So, the great advantage of low average cost of unit can be gained.
(9) Public enterprise develops the areas in a balanced manner and it also likes serve the backward area.
(10) More employment opportunities can be created due to public enterprise.
(11) Public enterprise enhances the national. wealth.
(12) For defense related industries, public enterprise is must.
Limitations
It is said, ‘All that glitters is not gold’. After examining the advantages of public enterprise a feeling may arise that public enterprise is completely flawless. In reality, limitations of public enterprise are there which are as follows :
(1) Political interference is high in the public enterprises. Due to this political interference, the benefits to the political invested interests are on the agenda while taking business decisions.
(2) Political figures take more care of their constituencies and are careless towards other areas.
(3) Due to lack of competition, efficiency cannot be compared. So, there is no control over production expenditure.
(4) Public enterprise has to work within the structure of traditional rules. So, the desire for initiative, entrepreneurship and intuition is lacking.
(5) Public enterprise is known as public but it has no transparency or if there is any, it is negligible.
(6) It is true that the primary purpose of public enterprise is not to earn profit but it does not mean that it has to incur loss. Due to carelessness and inefficiency people are burdened with huge loss. It is to be seen that public enterprise does not incur loss but it fails in doing so. Resultantly inefficiency is injected and most of the units of public enterprise incur huge loss. Ultimately people have to bear this burden.
Forms of management of public enterprise
The management of public enterprise may be of the type of commission, trust or board. Example : Khadi and Gramodhyog Commission, Port Trust, Tea Board.
But, we have to study the below-mentioned three main forms :
(1) Government department (2) Government Company (3) Public Corporation.
(1) Departmental Organisation - Government Department :
When enterprise is managed as a government department like any other government departments, it is said to be departmental organization. Telegram-post, Railway, Defense industries are the examples of departmental organization.
The characteristics of this type of organization are as follows :
(1) These industries are also government departments like any other government departments.
(2) The guidance to and control over this type of public enterprises are the concern of departmental minister like other departments.
(3) Minister is accountable to the Parliament / Legislative Assembly. Resultantly, indirectly the accountability of department is to the Parliament / Legislative Assembly.
(4) The necessary expenditure of this enterprise is made through the government treasury. Likewise, its income is deposited into the government treasury.
(5) The required expenditure of department is provided through government budget.
(6) The government control and audit of this enterprise, are also like other departments.
(7) Its routine administration is generally with the civil officer.
(8) All the employees are government employees.
Advantages of departmental organisation are as follows :
(1) As government is in total control of the enterprise in departmental organisation, government can achieve its social and political aims through this department.
(2) Due to ministerial responsibility and parliamentary control this department has public accountability. Accountability means informing people about the working and accounts of units.
(3) Secrecy can be maintained in defense industries in the national interest.
(4) Government earns income due to this type of organisation and can provide services at cheap rate to the customers.
The limitations of departmental organisation are as follows :
(1) Evils of bureaucracy enter into the departmental organisation, so red-tapism takes places in the management which is harmful to industries.
(2) Centralization of authority emerges in the departmental organisation. So, persons connected with the department do not feel it to be their own which results into disinterest among people in performing their duties.
(3) Files have to move from lower division clerk to minister in departmental organisation. This leads to unpardonable delay in decision making process. This cannot be tolerated by any business. Many a time loss is incurred due to this delay.
(4) There is no place of excellent personality in departmental organisation. As work is done by the employees on the basis of the principle ‘Read what written’ because of fixed rules and regulations, they do not resort to their own uncommon commonsense and intuition.
(5) As departmental organisation is a government department many a time its irregularity and inefficiency are tried to be shielded by the name of government.
(6) Business management requires long-term planning but many a time due to change of government or minister the plan of departmental organisation also changes or no importance is given to that plan, so its continuity is not maintained.
(7) As government control is many a time parliamentary control, no risk is undertaken which is vital for business. If a normal mistake is committed or loss is incurred, it is feared that employee will be held responsible.
(8) If profit is earned taxpayer will be benefited but there is no assurance that customer who is to be credited for profit will be benefited. There is no guarantee that with the increase in railway fare facilities will increase.
(9) Many a time the profit of one department is utilised to cover the loss of another department.
In which fields is the government department favourable?
In spite of above-mentioned disadvantages departmental organisation is favourable in economic activities which require huge capital investment, in activities which require confidentiality of secrets and, services to be provided at cheap rate to public. Atomic energy, defense, post-telegram, railways are these types of activities where departmental organisation is presently working. Hence, people get services at cheap rate and/or secrecy is maintained.
[2] Government Company
The second form of management of public enterprise is government company. That company is known as government company in which government holds capital not less than 51%. This capital investment may be of central and/or state government. This capital investment can be even 100%. Government company is like any other company incorporated under Indian Companies Act. Difference is only, that 51 % or more holding of capital is of central and/or state government, e.g. Hindustan Aeronautics Limited, Hindustan machine Tools, etc. The characteristics of government company are as follows:
Characteristics
(1) Government company is incorporated according to the provisions of Company Act.
(2) 51 % or more or total capital is of state and/or central government in government any.
(3) All the members of board of directors of company are appointed by the government. Directors are appointed in general meeting.
(4) Auditors are appointed in the company according to the rules and regulations of government.
(5) Annual report of the working of the company is presented to the Legislative Assembly Parliament.
(6) This type of company is run under the supervision of concerned department minister. It means government plays a role of a shareholder.
The advantages - limitations of the government company :
Advantages :
(1) Government company is just like any other joint stock company, so flexibility in its management is possible.
(2) Management according to business principles like any other company is possible
(3) Government company is free from departmental organisation’s bureaucrac
(4) Government can control government company easily as per its policy and procedure.
Limitations :
(1) As directors are appointed by the government in the government company, naturally, the attitude to escape from responsibility and accountability is found.
(2) There is democracy in other companies whereas in the government company the element of democracy is not present as only government is the shareholder.
(3) As it is a government company many provisions of company act are not implemented for it.
(4) Many a time the annual report of government company is published irregularly, so accountability is not observed and information received is outdated.
(5) Sometimes civil officers are there in the management of government company therefore, bureaucracy, nepotism and rigidity may find way in company management.
In which fields is government company favourable ?
For overtaking a company in private enterprise which is facing financial or other crisis government company is useful. Besides, government company can be availed of for doing business in collaboration with private enterprise.
In recent times government company is very useful for foreign collaboration when foreign capital is invested, e.g. Maruti Suzuki.
[3] Public Corporation
One popular-form of public enterprise in modern times is public corporation. We are conversant with Life Insurance Corporation, Indian Airlines or Sardac Sarovar Narmada Nigam.
Public corporation is emerged through specific Act passed by the Legislative Assembly or Parliament. The authority - duties, power, liabilities, etc. are being specifically provided in this special Act itself. In short, this act is a constitution of corporation. The characteristics of corporation are as follows :
(1) It is a legal artificial person created by an Act.
(2) Government is the sole owner of such corporation.
(3) Even though corporation is owned by the government it is completely autonomous Minister is not interfering in the routine work. Autonomy means independence given to the board for taking decisions and for implementing them.
(4) The administration of corporation lies with the Board of Directors. Well-known personalities, successful businessmen, professional and experts adorn this board of directors.
(5) Board of Directors frames the policy. Managing director implements the policy.
(6) Even though corporation knows how to earn profit but it does not earn it at the cost of consumers.
(7) The report of working of corporation is placed in Legislative Assembly / Parliament.
Advantages - limitations of public corporation :
Advantages :
(1) Corporation is free from the rigidity and time wasting practices of government department. Corporation is possessing dynamism and quick decision making capacity of private enterprise.
(2) As bureaucracy is not controlling corporation, it can appoint efficient persons in the management.
(3) Changes in government seldom affect the working of corporation as corporation itself has emerged through legal provisions.
(4) This type of corporations is a balanced form of private enterprise and departmental organisation. So by avoiding their disadvantages their advantages can be earned.
(5) In spite of its autonomy it has to abide by public accountability due to legal provisions.
(6) Corporation can do business on the basis of best of business principles.
(7) As possibility of appointment of experienced, honest, sincere persons from the people on the board of directors is there, efficient management without malpractice is possible.
Limitations :
(1) Corporation is incorporated by the special Act so corporation does not come into existence without the enactment of law. Thus, wastage of time takes place at its very establishment.
(2) Corporation is totally autonomous according to law. Many a time this autonomy is merely nominal and members of the Legislative Assembly, members of the Parliament, ministers interfere in the working of corporation.
(3) Persons having business skill, impartiality and prestige only should be appointed on board of directors of corporation according to the principle but it does not happen in practice. So, management is done whimsically by putting aside basic principles of business.
(4) Annual report of corporation is placed on the floor of Legislative Assembly or Parliament but right evaluation of its working is not done.
In which field is the corporation favourable ?
Public corporation is the best innovation of 19th century. Government control, public accountability, efficiency of private enterprise, effective administration are inherent in it, so corporation is favourable in almost all types of business. It has been proved to be successful in insurance, road - transport, air-transport, financial transactions, mining and others like them.
Let us study the following table for comparison of managements of public enterprises :
 |
| Departmental, government, and public corporation |
3. Chanting Role of Public Enterprise
If we consider the role of public enterprise with reference to India India Britain United States
What a huge loss public enterprise is incurring ! Now, it is believed that public enterprise also has to achieve the goal of earning profit. The inevitability of profit for survival and developments of business and for taking advantage of research to the business is to be accepted. It is not right that people-tax payers have to` be burdened as public enterprise continues to incur loss. The belief has gathered momentum that public enterprise must carry welfare of its customers but not at the cost of tax-payers.
On the other hand, that opinion is also prevalent that public enterprise should remain and its privatisation should not be done.
Government has found a way to get out of this puzzle. Government has provided incentives to private enterprise to enter the field of air-transport, banking, insurance and other services like them for the survival of public enterprise. It is said that due to the monopoly of public enterprise, it has not been motivated for progress. Under the guise of people’s welfare, the managers of public enterprise try to conceal their inefficiency and it incurs the loss. If competition is injected, comparison with competitor can be made and public enterprise will be compelled to improve its working to survive in the competition and to improve its services. This only will make the public enterprise to survive and flourish.
The future of public enterprise in our country is bleak in modern times. Employees want the survival of public enterprise. It is sure that public enterprise has to provide better services, has to become more popular and, has to accept the sovereignty of customers. It has to come out of the economics of loss and has to adopt the profit culture not for exploitation but for further welfare.
International or Transnational Enterprise
Multinational Company or Corporation
The rise of international enterprise or multinational company is a remarkable characteristic of business-industry of last two centuries. We are not unknown with international company or multinational company. Coca-cola, Pepsi, Cadbury, Colgate - Palmolive, Procter and Gamble, Mitsubishi, Philips, Siemens, Nokia, Toyato, General Motors, Exon Mobile, Micro-Soft, Lever, I.B.M., Mcdonald, Gillette, Xerox, Cannon, Kodak, Panasonic, Sony, A.T. & T, General Electric, Larsen & Toubro, Nestle, Imperial Tobacco, Glaxo, Dupontthis list can be made very long. Mostly the sales and income of these companies are huge. The income of these companies is more than the national income of countries like India
Now, Tata, Birla, Reliance and other Indian companies are also on the way to become multinationa.
We must know the meaning of this company :
“The company or enterprise which is active in many countries and of which products services are generated out of its native-original country is known as multinational company.”
Thus, that firm or company which is having production facilities for products or services, ownership control and management in many countries is known as multinational company.
Characteristics of international / multinational company
On the basis of above-mentioned list and explanation, the characteristics of multinational company can be stated as below :
(1) Multinational company is active on I big scale at international level. Its presence is in each corner of the world. It is said, coca-cola is present even in the dense forests of Africa .
(2) Multinational company is adopting international strategy for investment production and distribution. Illustration : Mcdonald company has adopted the strategy of vegetarian burger in India
(3) Multinational companies have specific interests in electronics, information technology, petroleum and mining, automobile industry, chemical and pharmaceutical industry.
(4) Most of the multinational companies are of big size. The sales of most of the companies are in billions of rupees.
(5) The major part of their income is from foreign countries.
(6) These companies are economically very much strong. The income of many companies is even more than the total national income of countries like India
(7) Multinational companies are the product of economically developed countries. Japan , USA., Britain , Holand , Germany , Switzerland , France , Italy and now countries like Korea
(8) Certain companies of countries like India
(9) Due to their economic power multinational companies yield political power also.
(10) Multinational companies have changed life style of the people of many countries in recent time. We have started enjoying Pizza instead of Fafda-Jalebi.
(11) In many countries of the world some multinational companies are commanding immense power yet they do not remain loyal to those countries.
(12) Due to huge income multinational companies spend for research and development on big scale. They enhance technical knowledge. However, it may happen that they transfer the benefits of this technical knowledge to their own countries and they may not give anything to that country from where they are earning. If at all they give, they may give very belatedly.
(13) Multinational companies adopt capital intensive method so jobs are reduced. Illustration : Computerisation has been introduced in Indian banks due to foreign banks, resultantly, Indian banks have been compelled to formulate Voluntary Retirement Scheme (V.R.S.)
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