Types of Companies and Forms of Organising Public Sector

Companies can either be the private company or public company.

Also, there are many types of public sector organizations such as

departmental undertakings, government companies etc. So let us take

a more detailed look at both these types of companies and public

sector organizations.

Private Sector Companies

Private sector companies are companies which are not run by the

government. They are the part of a country’s economic system and is

run by individual and companies with the intention to earn the profit.

Browse more Topics under Private Public And Global Enterprises

● Departmental Undertakings

● Statutory Corporations

● Government Company

● Changing Role of Public Sector

● Joint Ventures

● Global Enterprises

Public Sector Organizations

Public sector organizations are formed in three different forms:

1. Departmental undertakings

2. Public corporations/statutory corporations

3. Government company

1. Departmental Undertakings

This is the oldest form of public sector enterprises. The departmental

undertaking is considered as one of the departments of government. It

has no separate existence than the government. It functions under the

overall control of one ministry or department of government.

For example, Railways, post & telegraph, broadcasting, telephone

service etc.

Features of departmental undertakings:-

The main characteristics of departmental undertakings are:-

1. They operate under the overall control of one of the ministries

of central or state government.

2. They are a part of government only, there is no separate entity.

3. The revenue of departmental undertakings is deposited in the

treasury of government.

4. They are financed from the annual budgets of the government.

Merits of departmental undertakings: ● It is very easy to form a departmental undertaking as no

registration is compulsory.

● There is direct parliamentary control. The performance of

departmental undertakings can be discussed in parliament. So

there is public accountability.

● The revenue of departmental undertaking is deposited in the

treasury of the government. So these undertakings help to

increase the government revenue.

2. Public Corporation/Statutory Corporation

A statutory corporation is a body corporate formed by a special act of

parliament or by the central or state legislature. It is fully financed by

the government. Its powers, objects, limitations etc. are also decided

by the act of the legislature.

For example Indian airlines, air India, state bank of India, life

insurance corporation of India, food corporation of India, oil & natural

gas corporation, etc.

Features of a public corporation:-

The main characteristics of a public corporation are:-

● It is created by an act of parliament or central or state

legislature.

● The powers, objectives & limitations of a public corporation

are defined in the act only.

● Under total control of central or state government operations of

public corporations takes place.

● a public corporation is a separate legal entity. It gets

incorporated automatically when the act is passed in the

parliament.

Merits of a public corporation:- ● A public corporation is able to manage its affairs with

independence & flexibility.

● A public corporation is relatively free from red tape, as there is

less file work & less formality to be completed before taking

decisions.

● The activities of the public corporation are discussed in

parliament. This ensures the protection of public interest.

3. Government Companies

The company in which at least 51% of the paid-up share capital is held

by the central or state government or partly by central or state

government is Government Company. The government companies are

governed & ruled by the provisions of the companies act, 2013 like

any other registered companies. For example, steel authority of India,

state trading corporation, Hindustan machine tools.

Features of Government Company:- ● Registration: The government company gets incorporated

under the companies act, 1956. All the provisions of companies

act are applicable to a government company.

● Ownership: The government company is wholly or partly

owned by the government. The share capital of these

companies is owned by the government of India in the name of

the president.

● Management: The government is managed by the board of

directors, who are nominated by the government & other

shareholders. The government has the authority to appoint a

majority of the directors.

Merits of Government Company:- ● The government company is relatively free from government &

political interference.

● The government company is managed, financed & audited just

as any other private sector company. It can, therefore, secure

greater flexibility, freedom of operation & quickness of action

in running the enterprise.

● The government companies can avail & accommodate

managerial skill, technical know-how or expertise of the

private enterprise of the private enterprise by conveniently

collaborating with it.

Solved Questions for You

Q1: What do you mean by Government companies and explain its

features.

Ans: Government Company can be defined as a company whose 51%

holding is held by the government itself (By central or state

government). Features of Government Company are:

● Registration: The government company gets incorporated

under the companies act, 2013.

● Ownership: The government company is wholly or partly

owned by the government.

● Management: the government is managed by the board of

directors.

Q2: What are the features of Departmental undertakings?

Ans: Features of departmental undertakings are:-

● The staff of departmental undertakings is civil servants and are

recruited and compensated as per the rules of civil servants.

● The staff is under the direct control of the departmental head,

which is accountable to the concerned minister.

● They are a part of government only, there is no separate entity.

● They are financed from the annual budgets of the government.

Departmental Undertaking

So we know that Air India or Indian Railways are under the control

and the ownership of the government. But how are these organisations

set up? Who is responsible for their performance, and their day to day

activities? So let us learn more about Departmental Undertaking.

Departmental Undertaking

The departmental undertaking is the oldest and traditional form of an

organization of the public sector enterprise.It is organized, financed

and controlled in such a manner that any other government

organization.

The undertaking is under the control of a minister who is responsible

to the parliament. Some example of departmental undertakings is

Indian Railways, Post and Telegraph, All India Radio, Doordarshan

etc.

Browse more Topics under Private Public And Global Enterprises

● Types of Companies and Forms of Organising Public Sector

● Statutory Corporations

● Government Company

● Changing Role of Public Sector

● Joint Ventures

● Global Enterprises

Features of Departmental Undertaking

1. Audit and Accounting

Normal budgeting, accounting and audit procedures are applicable to

departmental undertakings just like government departments.

2. Managed by Civil Servants

The departmental undertakings are managed by the civil servants, who

are subject to the same services condition as applicable to civil

servants of the government.

3. Sovereign Immunity

Without the consent of the government, a departmental undertaking

cannot be sued at all.

Advantages

1. Provides easy information

It is easy to set up departmental undertaking. The departmental

undertaking is created by an administrative decision of the

government, involving no legal formalities for its formation.

2. Direct control over Parliament or State Legislature

The departmental undertaking is directly responsible to the parliament

or the state government through its overall head i.e. the minister

concerned.

3. Tax on the Public is lesser

Earnings in this department are paid into government treasury,

resulting in the lesser tax burden on the public.

4. Tool for social change

The economic activity and social justice can be promoted by the

government through departmental undertaking. It can be used by the

government, as a tool for social change.

5. Avoid misuse of Government Treasury

The officers of the departmental undertaking are under the direct

administrative control of the ministry. They are guided by the rules

and regulations of the ministry, framed with a focus on public welfare.

6. Monitored by the rules and regulations of the Ministry

As the departmental undertaking is subject to the budgeting,

accounting and audit procedures of the government, the risk of misuse

of public money is relatively less.

Read about Joint Ventures here.

Solved Example for You

Q1. What are the Drawbacks suffered by departmental undertakings?

Answer:

● Lack of flexibility: the departmental undertakings are strictly

under the control of parliament. The minister and the top

financial managers also interfere frequently in its working.

● Lack of motivation: In the absence of competition and profit

motive, there is little incentive for hard work and efficiency.

There is hardly any link between reward and the performance

and promotions are based on the incentives.

● Financial dependence: the departmental undertaking deposits

its earnings into the government treasury. It cannot take

long-term decisions as it is financed by the government.

Statutory Corporations

Statutory corporations are body corporates formed by a special act of

parliament or by the central or state legislature. It is fully financed by

the government. Its powers, objects, limitations etc. are also decided

by the act of the legislature. Examples include Air India, State Bank of

India, Life Insurance Corporation of India etc.

Features of Statutory Corporations

The main characteristics of the statutory corporation are:

1. It is a Corporate Body

It is an artificial person created by law & is a legal entity. Such

corporations are managed by the board of directors constituted by the

government. A corporation has a right to enter into contracts & can

undertake any kind of business under its own name.

Browse more Topics under Private Public And Global Enterprises

● Types of Companies and Forms of Organising Public Sector

● Departmental Undertakings

● Government Company

● Changing Role of Public Sector

● Joint Ventures

● Global Enterprises

2. Owned by State

State provides help to such corporations by subscribing to the capital

fully or wholly. It is fully owned by the state.

3. Answerable to the Legislature

A statutory corporation is answerable either to parliament legislature

or state assembly whosever creates it. Parliament has no right to

interfere in the working of statutory corporations. It can only discuss

policy matters & overall performance of corporations.

4. Own Staffing System

Employees are not government servants, even though the government

owns & manages a corporation. Employees of various corporations

receive balanced or uniform pay & benefits by the government. They

are recruited, remunerated & governed as per the rules laid down by

the corporation.

5. Financial Independence

A statutory corporation enjoys financial autonomy or independence. It

is not subject to the budget, accounting & audit controls. After getting

the prior permission from the government, it can even borrow money

within & outside the country.

Merits of Statutory Corporations

The main advantages of the statutory corporation are:

● Initiative & flexibility: Operations & management of a

statutory corporation is done independently, without any

government’s interference, with its own initiative & flexibility.

● Administrative autonomy: A public corporation is able to

manage its affairs with independence & flexibility.

● Quick decisions: A public corporation is relatively free from

red-tapism, as there is less file work & less formality to be

completed before taking decisions.

● Service motive: The activities of the public corporation are

discussed in parliament. This ensures the protection of public

interest.

● Efficient staff: The public corporations can have their own

rules & regulations regarding remuneration & recruitment of

employees. It can provide better facilities & attractive terms of

service to staff to secure efficient working from its staff.

● Professional management: Board of directors of statutory

corporation consists of business experts & the representatives

of various groups such as labor, consumers nominated by the

government.

● Easy to raise capital: As such corporations are fully owned by

the government, they can easily raise required capital by

floating bonds at a low rate of interest. Since these bonds are

safe, the public also feels comfortable in subscribing such

bonds.

Demerits of Statutory Corporations

● Autonomy on paper only: The autonomy & flexibility of public

corporation is only for name’s sake. Practically ministers,

government officials & political parties often interfere with the

working of these operations.

● Lack of initiative: Public corporations do not have to face any

competition & are not guided by a profit motive. So the

employees do not take initiative to increase the profit & reduce

loss. The losses of the public corporation are made good by the

government.

● Rigid structure: The objects & powers of public corporations

are defined by the act & these can be amended only by

amending the statute or the act. Amending the act is a

time-consuming & complicated task.

● Clash amongst divergent interests: The government appoints

the board of directors & their work is to manage & operate

corporations. As there are many members, it is quite possible

that their interests may clash. Because of this reason, the

smooth functioning of the corporation may be hampered.

● Unfair practices: The governing board of a public corporation

may indulge in unfair practices. It may charge an unduly high

price to cover up inefficiency.

● Suitability: The public corporation is suitable where the

undertakings require:

○ monopoly powers.

○ special powers, defined by the act or statute.

○ regular grants from the government.

○ an appropriate combination of public accountability &

operational autonomy.

Solved Questions for You

Q1. What do you mean by the statutory corporation?

Ans. A statutory corporation is a body corporate formed by a special

act of parliament or by the central or state legislature. It is fully

financed by the government. Its powers, objects, limitations etc. are

also decided by the act of the legislature. It is also called” public

corporation”.

State helps the statutory corporations by subscribing full capital and it

is fully owned by the state. Government nominates the board of

directors and they manage and operate such corporations. It enjoys the

financial autonomy and is answerable to legislature only which creates

it.

Q2. For statutory corporations, it is very easy to raise capital. Explain

this statement in terms of merit.

Ans. The statutory corporations are fully owned by the government,

therefore raising capital for them is an easy process. They can easily

raise required capital by floating bonds at a low rate of interest. Since

these bonds are safe, the public also feels comfortable in subscribing

such bonds.

Government Company

A country’s economy is driven by its corporate enterprises. These

corporate play a very vital role in managing the index and GDP of the

country. These organizations affect the economic conditions of the

country. One such enterprise is a Government Company. Let us learn

more about them.

Government Companies

Government Company is a company or an organization in which at

least 51% of the paid up share capital is held by the central

government or the state government or partly by both central and state

government. These are many government companies, few of them are,

Steel Authority of India Limited, Bharat Heavy Electricals Limited,

Coal India Limited, State Trading Corporation of India, etc.

The public sector companies in India were incorporated into two main

objectives:

● To achieve more equity in the distribution of wealth and

income amongst the citizens of the country.

● To gain the momentum in the growth of the nation.

(Source: stockguidance)

Features of a Government Company

● It is a separate legal entity.

● It is incorporated under Companies Act 1956 & 2013.

● The management is governed and regulated by the provisions

of Companies Act.

● The Memorandum of Association and Articles of Association

govern the appointment of employees.

● A government company gets its funding from government

shareholding and other private shareholdings. The company

can also raise money from the capital market.

● A government company is audited by the agency appointed by

the central government. This agency is mainly Comptroller and

Auditor General of India (C&AG).

Merits of a Government Company

● To incorporate a government company, all the provisions of the

Companies Act are to be followed.

● The government organization enjoys all autonomy in

management decisions and flexibility in day to day activities.

● These companies control the local market and sustain it to curb

the unhealthy business practices.

Limitations of a Government Company

● These companies face a lot of government interference and

involvement of government officials, ministers, and politicians.

● As these companies are financed by the government, so these

companies evade all constitutional responsibilities of not

answering to the parliament.

● The efficient operations of the company are hampered, as the

board of the company comprises mainly of politicians and civil

servants, who have more emphasis and interest in pleasing their

political party co-workers or owners and less concentrated on

growth and development of the company.

Suitability of a Government Company

● Where in some situations the private sector companies are

needed along with public sector companies for generating

strategic growth for the society. The suitability of Government

Company becomes more required in giving all powers which a

private sector company is deprived of.

● Whenever the private sector companies lack the financial

arrangement and the objectives are not fulfilled. In this case,

the private sector joins hands with Government Companies to

create synergic effects for growth and expansion.

Role and Importance

The importance and role of public sector companies have changed

with time. Let us see the role of these companies in nation’s growth.

1. Economies of Scale

The sectors where a large amount of capital is required, which in

general terms private sector companies don’t accommodate are dealt

in by the public sector companies. Industries like, electric power

plants, natural gas, petroleum etc are under the control of public sector

companies.

2. Regional Balance

For the overall development of the nation, various areas which

economically backwards be never touched by companies. Mainly the

development was done near port areas and interior parts of the country

were never accessed. To have a balanced growth of the whole nation,

public sector companies take the charge and do the development in

underprivileged areas.

3. Development of the Infrastructure

All the heavy industries were very less in number and low capacity at

the time of independence. These industries were like, engineering,

iron, and steel, oil and gas refineries, heavy goods machinery, etc.

Private Sector was never willing to participate in the development of

heavy industries because the gestation period was too long in these

industries and the amount of capital to be invested is huge in number.

So the government had to rely on public sector companies to develop

these sectors which were an integral part of the development of the

nation.

4. Control on Monopoly and Restrictive Trade Practices

Public sector companies have a very important role to control the

monopoly created by private sector companies. Public sector

companies keep a check on guidelines of Monopolistic and Restrictive

Trade Practices.

5. Import Substitution

Public enterprises are also engaged in manufacturing and production

of capital equipment which was earlier imported from other countries.

Companies like MMTC have played a very crucial and vital role in

expanding Indian markets for exports and other trades.

Solved Questions for You

Q: Government Company refers to the company in which _______ per

cent or more of the paid-up capital is held by the government.

a. 100%

b. 50%

c. 51%

d. 66%

Ans: The correct answer is C. In a government company at least 51%

of the company is owned by the government. It can be the Central,

State or even the Local Government who owns this share, or any

combination of the three.

Changing Role of Public Sector

When India gained independence in 1947, the economic condition of

the country was very poor. There were hardly any public sector

enterprises other than the Railways and the Postal Services. It was

determined that going forward public sector would play a big hand in

our economic development. And then again in the 1990’s the trend

changed again. So let us take a more detailed look at the changing role

of public sector.

Changing Role of Public Sector

As we know that in 1991 India opened up its economy and started the

process of globalization. But also, through the same changes in

economic policies, we embraced privatization. Up until then in the

post-independence period, the public sector was an integral part of the

development and progress of our country.

The government took the responsibility of investing huge capital in

infrastructure and manufacturing industries. The private sector was not

equipped to handle such immense projects with heavy capital inflow

and long gestation periods. So the central and state governments relied

on public enterprises to provide thee services to the economy.

Browse more Topics under Private Public And Global Enterprises

● Types of Companies and Forms of Organising Public Sector

● Departmental Undertakings

● Statutory Corporations

● Government Company

● Joint Ventures

● Global Enterprises

The first few Five Year Plans were all designed to promote and

safeguard the public sector. But then came the era of privatization and

globalization in 1991. The role of public sector companies was

reevaluated. Now the public sector was to actively participate in a

competitive market with the private enterprises. Inefficiency and

uninspired management were not tolerated.

The public sector was also held responsible for the huge losses of their

companies. And so the role of public sector in our economy saw an

overhaul. Let us take a look at the Changing Role of Public Sector.

(Source: purpledrive)

Importance of the Public Sector

Let us first understand the importance and role of public sector

undertakings in our economy. These are the reasons that till early

1990, the public sector dominated our economy over the private

sector.

● Developing Infrastructure: In a newly independent country,

with a nascent economy, it is not suitable for private enterprises

to invest huge capitals into infrastructure projects. So this

responsibility falls to the public sector. And the development of

infrastructure is absolutely essential for the development o an

economy. For example, all the rail, road, and air transport

projects were carried out by public sector undertakings in the

post-independence era.

● Regional Balance: Private sector companies tend to focus on

industrial areas. This results in the backward areas and the

smaller towns and villages to be excluded from economic

growth. But the government can ensure that growth happens

throughout the country in a balanced manner. Public sectors set

up units and factories in backward areas bring employment

opportunities and economic development to such areas.

● Check on the Concentration of Economic Power: When the

private sector sometimes the wealth gets concentrated in the

hands of a few. This may lead to monopolistic tendencies and

concentration of economic power. The public sector helps keep

this in check. The income generated by a public enterprise is

shared by a large number of employees and also the public at

large. this helps restore some economic equality.

Change in Government Policy

In the overhaul of our economic policies and reforms in 1991, the

government of India introduced four major changes regarding the

public sector. These four changes forever changed the role of public

sector in our country

1] Reduction in Industries Reserved for the Public Sector

In the first Five Year Plan, the government had reserved seventeen

industries for the public sector. This meant that only the government

could operate in these industries, no private capital would be involved.

But by 1991 this number was down to 8. And now there are only 3,

which include the railways and atomic energy.

While the public sector must be credited with developing these

industries, now the private sector is quite capable of taking them

forward. Now the private and public companies co-exist and

compliment each other in these industries, for example, mining, air

transport etc.

2] Disinvestment

Disinvestment from the public sector means to sell equity shares in

public companies to the private sector and the public at large. Also,

disinvestment allows for the new influx of capital and better efficiency

and financial discipline in private hands. It also ensures that the

government has additional funds to invest in social programs and

causes, things such as public health and sanitation.

Disinvestment also shifts the commercial and financial risks to the

private sector. It brings the companies under the purview of corporate

governance and reduces the amount of public debt. In some cases such

as the telecom industries, disinvestment has also benefitted the

consumers by raising competition and lowering prices.

3] Closure of Sick Units

After the change in policies, all public sector units were to be

reviewed by the Board of Industrial and Financial Reconstruction.

This board would review the condition of the units and decide whether

they were capable of rehabilitation or were to be shut down

permanently. But this upset the workers and employees of the sick

units that were shut down.

Since the government was not able to sustain such sick units they had

to be shut down. The workers were provided with a safety net as to

their loss of income. A National Renewal Fund was set up to finance

Voluntary Separation Scheme and Voluntary Retirement Scheme for

such workers. But in the end, they were insufficient measures.

4] Memorandum of Understanding

This was a system to give the public sector units a chance at revival.

The management of the unit and the concerned government authorities

would sign a MoU. Clear standards will be given for the enterprise to

meet. If the targets were met the company would continue. Otherwise,

it would be shut down or disinvested.

Solved Question for You

Q: Just like in air transport, public companies can also invest in rail

transport of India. True or False?

Ans: The given statement is false. Railways is still a reserved industry

in the Public Sector, along with atomic energy. This means only the

government is allowed to operate in these particular sectors. Private

companies or private capital is not permissible.

Joint Venture

Joint Venture is a business preparation in which more than two

organizations or parties share the ownership, expense, return of

investments, profit, governance, etc. To gain a positive synergy from

their competitors, various organizations expand either by infusing

more capital or by the medium of Joint Ventures with organizations.

Joint Ventures

Joint Ventures can be with a company of same industry or can be of

some other industry, but with a combination of both, they will

generate a competitive advantage over other players in the market.

In short, when two or more organizations join hands together for

creating synergy and gain a mutual competitive advantage, the new

entity is called a Joint Venture. It can be a private company, public

company or even a foreign company.

In India, many companies underwent joint venture with various

foreign companies, which were either technologically more advanced

or geographically more scattered. The major joint ventures in India

were done in sectors like Insurance, Banking, Commercial Transport

vehicle, etc.

Browse more Topics under Private Public And Global Enterprises

● Types of Companies and Forms of Organising Public Sector

● Departmental Undertakings

● Statutory Corporations

● Government Company

● Changing Role of Public Sector

● Global Enterprises

Possibilities in a Joint Venture

A joint venture can be very flexible which can be in context to the

requirements of the organization. The agreement between the

companies should have detailed terms and conditions with respect to

the activities that will be carried by them. This aids in clarification and

don’t allow any ambiguity between the stakeholders. The agreement

also helps to designate the actual scope of work which either of parties

has to conduct.

Two organizations of different countries can also undergo a Joint

Venture to conduct a business. In this case, the directives issued by the

respective governments have to be followed before entering into any

kind of Joint Venture. These norms help the governments to keep a

check on the activities of the organizations and ensure a legal activity

is conducted by the organizations in Joint Venture.

(Source: globalcompliancenews)

Characteristics of a Joint Venture

1. Creates Synergy

A joint venture is entered between two or more parties to extract the

qualities of each other. One company may possess a special

characteristic which another company might lack with. Similarly, the

other company has some advantage which another company cannot

achieve. These two companies can enter into a joint venture to

generate synergies between them for a greater good. These companies

can work on economies of large scale to give cost advantage.

2. Risk and Rewards can be Shared

In a typical joint venture agreement between two or more

organization, may be of the same country or different countries, there

are many diversifications in culture, technology, geographical

advantage and disadvantage, target audience and many more factors to

overcome. So the risks and rewards pertaining to the activity for

which the joint venture is agreed upon can be shared between the

parties as decided and entered into the legal agreement.

3. No Separate Laws

As for joint venture, there is no separate governing body which

regulates the activities of the joint venture. Once they are into a

corporate structure, then the Ministry of Corporate Affairs in

association with Registrar of Companies keep a check on companies.

Apart from that, there is no separate law for governing joint ventures.

Advantages of Joint Venture

1. Economies of Scale

Joint Venture helps the organizations to scale up with their limited

capacity. The strength of one organization can be utilized by the other.

This gives the competitive advantage to both the organizations to

generate economies of scalability.

2. Access to New Markets and Distribution Networks

When one organization enters into joint venture with another

organization, it opens a vast market which has a potential to grow and

develop. For example, when an organization of United States of

America enters into a joint venture with another organization based at

India, then the company of United States has an advantage of

accessing vast Indian markets with various variants of paying capacity

and diversification of choice.

At the same time, the Indian company has the advantage to access the

markets of the United States which is geographically scattered and has

good paying capacity where the quality of the product is not

compromised. Unique Indian products have big markets across the

globe.

3. Innovation

Joint ventures give an added advantage to upgrading the products and

services with respect to technology. Marketing can be done with

various innovative platforms and technological up gradation helps in

making good products at efficient cost. International companies can

come up with new ideas and technology to reduce cost and provide

better quality products.

4. Low Cost of Production

When two or more companies join hands together, the main motive is

to provide the products at a most efficient price. And this can be done

when the cost of production can be reduced or cost of services can be

managed. A genuine joint venture aims at this only to provide best

products and services to its consumers.

5. Brand Name

A separate brand name can be created for the Joint Venture. This helps

in giving a distinctive look and recognition to the brand. When two

parties enter into a joint venture, then goodwill of one company which

is already established in the market can be utilized by another

organization for gaining a competitive advantage over other players in

the market.

For example, a big brand of Europe enters into a joint venture with an

Indian company will give a synergic advantage as the brand is already

established across the globe.

6. Access to Technology

Technology is an attractive reason for organizations to enter into a

joint venture. Advanced technology with one organization to produce

superior quality of products saves a lot of time, energy, and resources.

Without the further investment of huge amount again to create a

technology which is already in existence, the access to same

technology can be done only when companies enter into joint venture

and give a competitive advantage.

Solved Question for You

Q: Joint ventures can be for a long-term relationship or short-term

projects. True or False?

Ans: The statement is True. A joint venture can work entirely on the

terms agreed by the concerned parties. It can be a long-term or a

short-term agreement as per their wishes and requirements.

Global Enterprises

Global business generally refers to international trade. A company

which is doing business all over the world, that business are called

global enterprises. Earlier also there was the exchange of goods over

great distances. Such trade, of course, was not by definition global but

had the same characteristics.

Global Enterprises

Global enterprises are the companies that operate around the world.

There are categories based on their huge size, a large number of

products, advance in technology, marketing, strategy and network of

operations all over the world.

Through a network of their branches in several countries, global

enterprises extend their industrial and marketing operations. Their

vision to work across many global frontiers to earn in international

currencies of many countries. These organizations have books of

accounts of various countries, which at the end of financial year of

respective countries being consolidated together, according to its

usage.

Browse more Topics under Private Public And Global Enterprises

● Types of Companies and Forms of Organising Public Sector

● Departmental Undertakings

● Statutory Corporations

● Government Company

● Changing Role of Public Sector

● Joint Ventures

Global Business Services

Instead of operating numerous shared service centres and managing

outsourcing vendors independently, they are:

● implementing global business services,

● providing integration of governance, locations and business

practices to all shared services and,

● outsourcing activities across the enterprises.

A global enterprise is one which owns and manages the functions in

two or more countries. for example- Unilever Ltd, Coca-Cola,

Samsung etc.

Features of Global Enterprise

Huge Capital Resources

These enterprises have huge financial resources. They have the ability

to raise funds from different sources. Funds are raised by the issue of

issuing equity shares, debentures, etc to the public. The investors of

the host countries are always willing to invest in them because of their

high credibility in the market.

Foreign Collaborations

With companies of the host countries, these enterprises enter into

agreements. These agreements are made in respect of the sale of

technology, production of goods, patents, resources, etc.

Advanced Technologies

These enterprises use advanced technology for production, hence

goods/services provided by the MNCs conform the international

standard and quality specifications.

Product Innovations

These enterprises have efficient teams doing research and

development at their own R &D centres. The main task is to develop

new products and design existing products into new shapes in such a

manner as to make them looks and new and attractive and also creates

satisfies the demands of the customers.

Expansion of Market Territory

They expand their market territory when the network of operations of

these enterprises extends beyond their existing physical boundaries.

They occupy dominant positions in various markets by operating

through their branches, subsidiaries in host countries.

Centralized Control

Despite the fact the branches of these branches of these enterprises are

spread over in many countries, they are managed and controlled by

their Head Office (HO) in their home country only. All these branches

have to work within the broad policy framework of their parent

company.

Solved Questions for You

Q. Explain the term “Multinationals”?

Ans- The term is used in a neutral sense simply to indicate the very

large size and participation in global markets. A more negative

connotation of the term is that:

● such corporations are effectively beyond the full reach of

national laws.

● They have a presence in many locations and,

● Can move money and resources around at will, which can

sometimes escape taxation and thus represent a power beyond

public control.

Q3. What motivates a company to go global?

Ans- The desire to expand its business motivates a company to go

global. If a company wants to enjoy the fruits of large-scale

production, it needs a bigger market spread over too many countries.