Business Environment Unit-1 PDF

BUSINESS ENVIRONMENT UNIT-1 CONTENT - Concept - Significance - Components of Business environment - Factor affecting Business Environment - Social Responsibilities of Business WHAT IS BUSINESS Business is an economic activity which is related...

BUSINESS ENVIRONMENT UNIT-1 CONTENT - Concept - Significance - Components of Business environment - Factor affecting Business Environment - Social Responsibilities of Business WHAT IS BUSINESS Business is an economic activity which is related with continuous production of good and services for satisfying human wants. 1. Exchange of goods/services 2. Deals in numerous transactions. 3. Profit is main objective. 4. Risk and uncertainties. 5. Buyer and seller. 6. Marketing and distribution of goods/services. 7. To satisfy human wants. 8. Social obligation Business does not function in isolation or in vacuum. It is affected by internal and external factors. These internal and external factors collectively constitute business environment. Internal environmental factors are within the control of business, whereas external factors are beyond the control of business. ‘Environment’ refers to the system in which human beings live and they have to adjust themselves according to it. So it is surroundings, external agents, influences or circumstances under which something exists. *Business Environment can be defined as the aggregate of all those forces, factors and institutions which directly affect the working of a business organization. Some of these constituents may be static, while others may be changing. “Business Environment is the aggregate of all conditions, events and influences that surround and affect the business.” Keith Davis “Business Environment encompasses the climate or set of conditions-economic, social, political or institutional in which business operations are conducted.” Prof. Weimer “The term Business Environment of a company is defined as the pattern of all external influences that affect its life and development.” Andrews “The total of all things external to firms and industries that affect the function of the organisation is called business environment.” Wheeler *CHARACTERISTICS/NATURE OF BUSINESS ENVIRONMENT Business Environment is very complicated, dynamic and multi-dimensional and affects different business institutions in different ways. It exhibits many characteristics like: 1. Complex Environment comprises of many factors. All these factors are related to each other. Therefore, their individual effect on the business cannot be recognised. This is perhaps the reason which makes it difficult for the business to face them. 2. Dynamic As is clear that environment is a mixture of many factors and changes in some or the other factors continue to take place. Therefore, it is said that business environment is dynamic. 3. Uncertain Nothing can be said with any amount of certainty about the factors of the business environment because they continue to change quickly. The professional people who determine the business strategy take into consideration the likely changes beforehand. 4. *Multi-dimensional Business environment is related to the local conditions and this is the reason as to why the business environment happens to be different in different countries and different even in the same country at different places. 6. Interdependent components The different factors of business environment are co-related. For example, change in the import-export policy with the coming of a new government. In this case, the coming of new government to power and change in the import-export policy are political and economic changes respectively. Thus, a change in one factor affects the other factor. *IMPORTANCE/SIGNIFICANCE OF BUSINESS ENVIRONMENT: Business and its environment are closely inter-related and mutually interdependent. Environment has its bearing on business and business has its bearing on environment. The success of business lies in understanding the environmental changes and adapting its business policies accordingly. The surroundings of business enterprise which are constantly changing, carry with them both opportunities and risks or uncertainties which can make or mar the future of business. Significance of the study of environment in business sector may be explained as follows: 1. Early identification of opportunities helps a business organization to be the first to exploit them. 2. A business organization should make its policies keeping in view the demands of environment. 3. The study of business environment is important to ensure optimum utilization of resources like, financial resources, human resource and physical resource etc. 4. Environment analysis helps the business organizations to identify strengths and weaknesses. 5. Environment analysis helps the business organizations to identify threats and explore opportunities available to business. 6. Environment analysis helps in adapting latest technological development which results in improved efficiency. 7. Scanning the business environment helps to understand Political Situation and its effect on business. 8. Scanning the business environment helps to understand economic policies of Government and their impact on business. 9. Because of globalization, the impact of international events on business is increasing. To understand global events and their impact on business, study of international environment is must. 10. By environmental analysis, business organizations come to know about the strategies of competitors to formulate counter plans. 11. Environment analysis helps in understanding the market conditions i.e. change in demand/supply, change in fashion, taste, boom or depression etc. SCANNING BUSINESS ENVIRONMENT There is a close and continuous interaction between business and its environment. So it is essential to understand and scan the environment to ensure effective utilization of resources. SWOT analysis is an analysis undertaken by business firms to understand their external and internal environment. The term SWOT consists of four words: S = Strengths W = Weaknesses O = Opportunities T = Threats SWOT analysis is applied to formulate effective organizational strategies. Through SWOT analysis, the business firms can match Strengths and Weaknesses existing with an organization with the Opportunities and Threats existing in the external environment. COMPONENTS/TYPES/CONSTITUENTS/FACTORS OF BUSINESS ENVIRONMENT Every business faces two types of environments simultaneously i.e. Internal Environment and External Environment. 1. INTERNAL ENVIRONMENT All those factors within an organization which impart strengths or cause weaknesses constitute the internal environment. These factors can be controlled by business but they are quite important in shaping the behaviour of people working in it. Hence, managers have to take internal factors into account while taking actions. 2. EXTERNAL ENVIRONMENT All those factors outside the organization which provide opportunities or pose a threat to the organization make up the external environment. These factors are those over which the business organization has no control. According to William Glueck and Jauck “In environment there are external factors, which constantly bring opportunities and threats to the business firm. In includes Economic, Social, Technological and Political conditions.” Examples of situations that may cause change in the external environment include: (i) Improvement in production techniques (ii) Fluctuations in the levels of demand (iii) Fluctuations in interest rates (iv) Changes in laws and regulations (v) Changes in taxation (vi) New social trends, fashions or life styles (vii) International influences TYPES OF EXTERNAL ENVIRONMENT MICRO ENVIRONMENT Micro environment consists of factors in the company’s immediate environment that affect the performance of the company. These include the suppliers, marketing intermediaries, competitors, customers and the public. According to Philip Kotler “The micro environment consists of factors in the company’s immediate environment which affect the performance of the business unit. These include suppliers, marketing intermediaries, competitors, customers and the public.” According to Hill and Jones “The micro environment of a company consists of elements that directly affect the company such as competitors, customers and suppliers.” MICRO ENVIRONMENT 1. Suppliers Suppliers are important for any business unit. Suppliers are those who supply the inputs like raw material and components to the company. Organizations should keep two things in mind regarding suppliers: Reliability Multiple suppliers 2. Customers or clients A business exist only because of its customers. Hence, a major task of a business is to create and sustain customers. Monitoring the customer’s sensitivity is a pre-requisite for business success. A company may have different types of customers (i) Individual and household customers (ii) Government bodies (iii) Foreign customers (iv) Retail customers (v) Wholesale customers To succeed in capturing and sustaining customers, following points must be kept in mind: (i) Buyer’s behaviour data can be used in constructing a customer profile. (ii) Geographical factors should also be analyzed to know the opportunities and threats. (iii) In the era of free trade, foreign customers can be attracted by making such products which can compete with foreign products. (iv) Single customer of a company is full of risks as it places the company in a poor bargaining position. (v) The business firm should make separate products for separate segments. Following can be the basis of segmentation: (a) Income level of customers (b) Age of customers (c) Personality and life style of customers (d) Tastes and preferences of customers (e) Quantity to be purchased by customers (f) Education level of customers 3. Competitors Competitor means other business units which are making similar products or a very close substitute of our product. Competitors play a vital role in running the business enterprise. Business has to adjust its various activities according to the behaviour of the competitors. 4. Market Intermediaries Every business enterprise may be assisted by market intermediaries which include agents, brokers who help the company find customers. It is a link between company and final consumer. Market intermediaries help the company to promote, sell and distribute its goods to final buyers. Examples: Wholesalers, retailers, advertising agencies, consultancy firms, banks, insurance companies, warehouse, transport agencies etc. 5. Public Public is any group that has actual or potential interest in the business. To achieve this interest, it has its impact on the business. Public includes users and non-users of the product like Environmentalists, NGOs, Local Community, Media. EXTERNAL ENVIRONMENT A company and the forces operate in a larger Macro environment that shape opportunities and pose threats to the company. These factors are generally more uncontrollable than the micro forces. According to Philip Kotler “Macro environment includes forces that create opportunities and pose threat to the business unit. It includes economic, demographic, natural, technological, political and cultural environments.” According to Hill and Jones “The macro environment consists of the broader economic, social, political, legal, demographic and technological setting within which the industry and the business units are placed.” 1. ECONOMIC ENVIRONMENT Economic environment consists of economic factors that influence the business in a country. It is very complex and dynamic in nature that keeps on changing with the change in policies or political situations. Key components of economic environment are: (A) Economic Conditions of Public (B) Economic Policies (C ) Economic System 2. POLITICAL-LEGAL ENVIRONMENT Political environment affects different business units significantly. A stable and dynamic political environment is essential for business growth. Whenever there is a change in the Government in a democratic country, it is a sign of change in economic policies. The Political environment of business depends on: 1. Ideology of the Government 2. Political Establishment 3. Political Stability in the country 4. Relations with other countries 5. Defense and Military Policy 6. Centre State Relationship 7. Approach of Opposition parties towards business LEGAL ENVIRONMENT Legal environment constitutes the laws framed by the Government and various legislations passed in the parliament. The businessman cannot overlook the legislations because he has to perform his business transactions with in the framework of legal environment. Every aspect for business is regulated by law in India. Government has also framed legislations which regulate and control the business. Some of the main legislations regulating the business are as follows: 1. Industrial Dispute Act, 1947 2. Factories Act, 1948 3. Consumer Protection Act, 1986 4. Companies Act, 1956 5. Foreign Exchange Management Act 1999 6. Securities and Exchange Board of India Guidelines, 2000 3. SOCIAL & CULTURAL ENVIRONMENT Business is an integral part of society and both influence each other. Influence exercised by social and cultural factors is known as socio-cultural environment. These factors include: attitude of people, family system, caste system, religion, education, marriage, habits and preferences, languages, urbanization, customs and traditions, ethics etc. 4. TECHNOLOGICAL ENVIRONMENT A systematic application of scientific knowledge is known as technology. Everyday there are vast changes in products, services, lifestyles and living conditions, these changes must be analyzed by every business unit and should adapt these changes. 5. DEMOGRAPHIC ENVIRONMENT Demographic environment refers to the study of the features of population i.e. size of population, growth rate, gender ratio, age composition, income level, education level, family size, family structure etc. All these factors affect size of demand, tastes, fashion, liking, preferences of consumer etc. 6. NATURAL OR ECOLOGICAL ENVIRONMENT It includes geographical and ecological factors such as natural resources, weather and climatic conditions, port facilities, topographical factors such as soil, rivers, rainfall, pollution etc. Every business unit must look for these factors before choosing the location for their business. 7. INTERNATIONAL/ GLOBAL ENVIRONMENT International environment is important for industries directly depending on import and export. A recession in foreign market or protection policy by foreign nations may create difficulties for industries depending on exports. Liberalization of import may help some industries but may adversely affect other industries. Following factors of International environment affect business: 1. Globalization 2. Liberalization 3. International agreements and declarations 4. International terrorism 5. Cultural exchange SOCIAL RESPONSIBILITY OF BUSINESS Social Responsibility of Business can be defined as the obligation an organization’s management team has towards the interests and welfare of the society or community that provides it with resources and environment to not only survive but flourish. In other words, Social Responsibility is the way your company gives back to and takes care of the community it is located in and the greater society we are all a part of. “Conceptually social responsibility may be taken up to mean intelligent and objective concern for the welfare of the society.” K.R. Andrews “Social responsibility is the personal obligation of every one as he acts for his own interests to assure that the rights and legitimate interests of all other are not impinged.” Koontz and O’Donnel There are four dimensions of Corporate Responsibilities: 1. Economic: Responsibility to earn profit for owners 2. Legal: Responsibility to comply with laws 3. Ethical: Doing what is right, just and fair 4. Voluntary and Philanthropic: Promoting human welfare and goodwill. Being a good corporate citizen contributing to community and quality of life. PHILANTHROPIC RESPONSIBILITY ETHICAL RESPONSIBILITY LEGAL RESPONSIBILITY ECONOMIC RESPONSIBILITY SOCIAL RESPONSIBILITY PYRAMID RESPONSIBILITY OF BUSINESS TOWARDS VARIOUS STAKEHOLDERS SHARE- - HOLDERS COMMUNITY EMPLOYE ES SOCIAL RESPONSIBILI TY OF GOVERN- BUSINESS CUSTOME -MENT RS CREDITO SUPPLIER RS S Responsibility towards Shareholders IMPORTANCE OF SOCIAL RESPONSIBILITY OF BUSINESS Social Responsibility of Business is important for organization and its stakeholders due to following reasons: 1. Increased productivity and quality 2. Reducing operating cost 3. Increased sales and customer loyalty 4. Reduced in corruption 5. Improved financial performance 6. Improved transparency and reporting 7. Reduced regulatory oversight Responsibility towards Shareholders 1. Shareholders are source of funds for the company. They expect maximization of the value of their investment in the company. 2. It is the duty of management to see that the financial position of the company is sound and the company always looks for growth. 3. The management should keep the shareholders well informed about the progress and financial position of the company. 4. The assets of the company are purchased with the funds provided by the shareholders. The management is responsible to safeguard these assets. Responsibility towards Workers 1. Every business should pay reasonable wages and salaries to its employees so that they may satisfy their needs and lead a good life. 2. Good working conditions are necessary to maintain the health of the workers. Since workers spend about 8 hours at work place, they must be provided with good working conditions. 3. Workers should be provided with adequate benefits such as housing and medical facilities, insurance cover and retirement benefits. 4. The management should recognize the workers’ right to fair wages, to participate in decision affecting their working life, to form trade unions etc. 5. The workers should be helped by training and other means to improve their skills. Responsibility towards Customers 1. The management should produce goods which meet the needs of the consumers of different classes, tastes and with different purchasing power. 2. The management should make goods of right quality available to right people at the right time and place at reasonable price.  3. The management should provide a prompt, adequate and courteous service to customers and handle their grievances carefully. 4. The management should ensure that advertisement and statement issued by the business are true and fair. 5. The management should not indulge into unfair and unethical practice such as black marketing, hoarding, adulteration etc. Responsibility towards Suppliers 1. Giving regular orders for purchase of goods. 2. Dealing on fair terms and conditions. 3. Availing reasonable credit period. 4. Informing about the taste of consumers. 5. Timely payment of dues 6. Informing the suppliers for future development plans. Responsibility towards Creditors 1. Provide accurate information regarding financial health of the organization. 2. Fairness in transactions 3. Promote a healthy atmosphere where creditors, suppliers and other interest groups are treated as patterns in a co-operative endeavor. Responsibility towards Government 1. To abide by the laws of the nation 2. To pay government taxes honestly 3. To avoid corrupting government employees 4. To encourage fair trade practices. Responsibility towards Community 1. The management should not indulge in any practice which is not fair from social point of view. Society expects that the business uses the factors of production effectively and efficiently. 2. The management can develop the surrounding area for the well being of workers and general public. It should take preventive measures against water and air pollution and should contribute to community development activities. 3. It is the responsibility of management to help increase direct and indirect employment in the area where it is functioning. 4. The management should make best possible use of capital, raw material, machine, technical knowledge and other resources for the well-being of the society. New Companies Bill, 2013 Parliament has passed a new bill which is the first major overhaul of Company law in more than 50 years. The legislation strengthens accounting standards and shareholder rights, and makes it mandatory for companies with market capitalisation of more than Rs. 500 crore to spend 2 per cent of their annual net profits on Corporate Social Responsibility (CSR), such as social work or charity. Schedule 7 of the Act lists out activities, which a qualified company can take up in discharging its CSR and includes promotion of education, promoting of gender equality and empowering women and employment enhancing vocational skills. Section 135 and Schedule 7 specifically provide that a preference should be given to the local area where a company operates.  UNIT-II ECONOMIC SYSTEM SYLLABUS Capitalism Socialism Communism Mixed Economy Public Sector and Private Sector ECONOMIC SYSTEM An economic system is a system designed by a nation to utilize its resources for satisfying the needs and wants of people. An economic system consists of those institutions which a given nation or group of nations has chosen or accepted as the means through which their resources are utilized for the satisfaction of human wants. W.W. Loucks An economy is a system by which people get a living. A.J. Brown An economy is a system which produces goods and provides services with the help of all natural and physical resources for the purpose of providing living to its people. It includes all agricultural firms, mines, workshops, factories, shops, roads, railways, ships, insurance and banking companies, schools, hospitals etc, which help directly in producing goods and services for providing satisfaction to human wants and living to the people. In every economy mutual interaction among people depends to a large extent on the ownership of the means of production. Ownership of means of production may assume many forms, i.e. ownership of private individuals, ownership of government, ownership of both private individuals and government. These different forms of ownership of means of production give rise to alternative forms of economic systems.  Household  Firm  Industry  Government are Basic Units of an Economic System. There are three types of Economic Systems found in the world: 1. Capitalism 2. Socialism 3. Mixed Economy CAPITALISM ECONOMIC SYSTEM MIXED SOCIALISM ECONOMY CAPITALISM In capitalistic economy, all means of production like firms, factories, mineral resources etc are owned, managed and controlled by private entrepreneurs. Government does not interfere in the economic activities. They are free to run them in the way they like. Their main motive is to earn profit. It is also known as Free Market Economy or Free Enterprise Economy. Origin and growth of Capitalism dates back to 18th century after the Industrial revolution in England and other nations of Europe. US, UK, Japan are the examples of this economy. Capitalism is a system in which property is privately owned and economic decisions are privately made. Ferguson and Krips FEATURES OF CAPITALISM 1. A very outstanding feature of capitalism is the economic freedom. Everybody is free to choose any trade or business or industry or occupation as one like and one feels more profitable. 2. Individuals can hold, use or sell their property as they like or they can pass it on to their heirs after death.  3. The consumer occupies a key position in capitalism. Consumers have complete freedom of choice of consumption. The production decisions are based on consumer desires. 4. The government plays a part but it is limited. Its role is required only to define and protect property rights, ensure freedom or entry and exit, enforce contractual agreements among private entrepreneurs. 5. In capitalism competition is found among producers, seller and consumers. Producers compete to produce better, sellers compete to attract maximum consumers and consumers compete with each other in obtaining goods and services of better quality. 6. In a capitalistic economy an individual is free to save as much as he can and invest or spend that saved money the way he likes. 7. In capitalism, price mechanism guides the producers and consumers. Price mechanism means that price is determined by the interaction of the forces of demand and supply. Price mechanism helps producers to decide what to produce, how much to produce, when to produce and where to produce. MERITS AND DEMERITS OF CAPITALISM MERITS DEMERITS Capitalism is democratic in nature since all the Greatest demerit of capitalism is unequal producers, sellers, consumers etc are free to do distribution of wealth and income. This render rich the work of their choice. more rich and poor more poor. Capitalism increases productivity of all the factors Capitalism leads to division of society in two of production. It offers higher standard of living to classes. Rich and capitalist class leads a luxurious people and leads to rapid economic growth. life and labour class struggles to get even two square meals. The scare resources are used most economically Capitalism promotes materialistic attitude in the and with minimum waste so that their cost of people. The lust for profit and wealth gives rise to production may come to minimum. several social evils. People get incentives to save and invest more Competition, one of the distinctive features of because of right of private property and capitalism can be quite wasteful in reality when an inheritance. It increases saving and investments advertisement is used to compete out other which lead to a higher rate of capital formation. competitor from the market. SOCIALISM In socialistic economic system, economy is controlled by government and it directly intervenes in economic activities in the interest of social well being. The concept of socialist economy was propounded by Karl Marx and Friedrich Engels in 1848 in their T C M T U““‘ disintegration in late eighties. China, Vietnam, Cuba, Hungry, Polland are the examples of this economy. *Socialism is a system under which the economic system of the country is controlled and regulated by the government so as to ensure welfare and equality of opportunity to people in a society. FORMS OF SOCIALISM Among different forms of socialism, two are most important: Democratic Socialism Means of production and other activities are controlled and regulated by the government but at the same time there is freedom of occupation and consumption. Totalitarian Socialism Economy is completely controlled by the government and people have to work under the direction of the government. It is popularly called Communism. FEATURES OF SOCIALISM 1. All important means of production are owned, managed and controlled by state. Government represents the society. But it does not mean that an individual cannot keep his private property. 2. Decisions regarding production, costs, prices, wages etc are taken by Planning Commission. For this purpose, a planning commission is set up. Planning Commission prepares the plans and implement them. 3. State being the chief entrepreneur there is not cut-throat competition as found under capitalist economy. All the wastage of competition is prevented. 4. Socialism recognizes human values. A main criterion M 5. Socialist system aims at an equitable distribution of income. Government decides the fair distribution of income. 6. Socialism promotes social equality. As all the members work to earn their living, there are no such classes as capitalist class or labour class.  7. Government in socialist economy do not differentiate among people and provide equal opportunity of education, occupation and other social benefits to all members of the society. MERITS AND DEMERITS OF SOCIALISM MERITS DEMERITS Under socialism, income is distributed on just and People are made to work according to directions equitable basis; equal opportunities are provided of state. Hence, they lose individual initiatives and to everyone. incentives to work. All important economic decisions are taken by Consumers lose freedom of choice of goods and Central Authority (Planning Commission) which services and workers lose freedom of choice of ensures allocation of resources for maximum occupation since all power is vested on the social welfare and satisfaction. government. Under socialism, there is no wasteful Prices are not determined on the basis of demand advertisement. Goods and services are produced and supply which is necessary for effective as per actual needs of people. functioning of an economy. Cyclical fluctuations which are common in Bureaucratic controls and procedural bottlenecks capitalism do not occur in socialism. Situations like lead to approvals to be taken from the boom, depression, unemployment, over- government which promotes bribery and other production etc do not raise their ugly heads. forms of corruption. *DIFFERENCE BETWEEN CAPITALISM/PRIVATE SECTOR & SOCIALISM/PUBLIC SECTOR BASIS OF DIFFERENCE CAPITALISM/PRIVATE SECTOR SOCIALISM/PUBLIC SECTOR Ownership of means of Owned and controlled by private Owned and controlled by State. production entrepreneurs. Economic Decisions Decisions are taken by private Decisions are taken by State. entrepreneurs. C C C for success. important. Basic Motive Capitalism is based on profit motive. Socialism is based on social welfare. Distribution of Income Unequal distribution of Income and Equal distribution of Income and and Wealth wealth. wealth. Competition Capitalism promotes perfect Socialism bans competition. competition. Nature Capitalism implies free economy. Socialism implies controlled economy. Freedom of occupation People enjoy freedom of occupation People do not enjoy freedom of and consumption and consumption. occupation and consumption. Role of Government Confined to regulation and control of Government plays a key role in economy. the economy. Economic Incentives Capitalism provides highest incentives Socialism kills efficiency and for greater efficiency, hard work and ability. entrepreneurial ability. Class struggle Capitalism divides the society into two Socialism promotes social justice. parts-rich and poor. Economic stability Capitalism causes trade cycles, Socialism promotes economic fluctuations and economic instability. stability and sustained growth. MIXED ECONOMIC SYSTEM *Mixed economy is a system in which both public and private sectors work simultaneously to promote the economic welfare of the society. It is also known as Dual Economy. After the depression of 1929, J.M. Keynes suggested a new economic system. In this system, private and public sector co-operate with each other with a view to achieve economic objectives as well as promotion of social welfare. India, Canada etc have mixed economic system. Mixed economy is that economy in which both public and private institutions exercise economic control. Samuelson Government usually owns public utility services like, Railways, Road Transport, Air Services, Shipping, Defense, Supply of water, electricity, education and health facilities, post and communication etc. Consumer goods industries, small scale industries and agriculture etc are generally owned by private entrepreneurs. Government keeps a watch on the activities of private entrepreneurs to ensure maximum utilization of resources and to protect the interest of workers, consumers and weaker sections of society. FEATURES OF MIXED ECONOMIC SYSTEM 1. Under mixed economy public and private sectors work hand in hand. Industries of public utility are owned by Government and consumer goods industries are owned by private entrepreneurs. 2. Mixed economy functions through both the price mechanism and government direction. 3. Economic planning is an important feature of mixed economy. It maintains a balance between public and private sector. The two sectors are not rivals to each other; they cooperate with each other. 4. Aim of production under this system is to earn profit and to promote social welfare. If the government is convinced that any private industry is working against the interest of the society, it nationalizes such industry. MERITS AND DEMERITS OF MIXED ECONOMIC SYSTM MERITS DEMERITS Public and private sector industries cooperate The public sector and private sector do not always with each other to achieve rapid economic work in a complementary manner. growth. Government provides essential services such as Mixed economy cannot continue for long period. Railways, Roads, Power, Communication, In the course of time, either it assumes the form Education, Hospitals etc. of capitalism or socialism In mixed economy both private and public sectors The government can take over any industry at any ensures optimum utilization of resources. time. This creates a fear of nationalization in private entrepreneurs. Mixed economy ensures fair distribution of In practice, private sector remains unable to income and wealth. Profit earned by public achieve efficiency because of constant and strict enterprises can be utilized for capital formation government controls. Public sector remains and providing facilities to poor. inefficient due to lack of initiative and responsibility. Poor people are protected against exploitation by Mixed economy suffers from the evil of corruption rich. The government takes several legislative and hence economic progress is adversely measures to safeguard the interests of people. affected. PUBLIC SECTOR AND PRIVATE SECTOR PUBLIC SECTOR ENTERPRISE Public enterprise refers to that industrial institution which is owned, managed and controlled by the government. Public enterprises are also known as Government Enterprises, State Enterprises and Government Industries. T engaged in supplying the public with goods and services which alternatively might be supplied by private Encyclopedia Britanica OBJECTIVES OF PUBLIC SECTOR ENTERPRISE Following are the main objectives of Public Enterprises: 1. To help in the rapid economic growth and industrialization of the country and create necessary infrastructure for economic development. 2. To earn return on investment and generate resources for development. 3. To promote redistribution of income and wealth. 4. To create employment opportunities. 5. To promote balanced regional development. 6. To assist the development of small scale and ancillary industries. 7. To promote import substitution, save and earn foreign exchange. FEATURES OF PUBLIC SECTOR ENTERPRISE 1. Public sector industries are owned, managed and controlled by the government. The government may be Central or State. 2. In public sector industries, major part of the capital is invested by the Government. Hence, along with the ownership, management also vests with the Government. 3. Public sector enterprises are engaged in production and/or supply of goods and services. For some industries, only public enterprises have the right of production and distribution. 4. Public sector enterprises work under the guidance of a Central Planning Authority. These enterprises minimize the occurrence of trade cycle.  5. Public sector enterprises are very important source for implementing the government policies. The government implement its various polices through these enterprises. 6. Public sector enterprises are essentially operative in the interest of the public. Efforts are made by these enterprises to satisfy all possible human needs. 7. Public sector enterprises help in the development of infrastructure necessary for the development of a country. All the facilities like water, power, transportation, communication, banking etc are developed by public enterprises. PROBLEMS OF PUBLIC SECTOR ENTERPRISE 1. M organized and managed so that national welfare may be promoted. 2. There is unnecessary gap between planning and implementation of projects in public sector enterprises. Actual implementation gets very late and this increases the cost. 3. Responsibility of providing funds rests with the government which is provided through budget and plan, so public sector enterprises often suffers from shortage of funds. 4. Public sector enterprises are audited by internal auditor and final audit is done by Comptroller and Auditor General of India. 5. A number of public sector enterprises are established with foreign collaboration. These enterprises are dominated by foreign technicians and experts. Therefore, Indian technicians and experts do not get proper opportunity of development. 6. Employees are appointed by Public Service Commission. So often posts remain vacant for a long time. 7. Public sector enterprises suffer from red-tapism. 8. Generally IAS, IPS officers are deputed on the key posts of these enterprises, who are not necessarily so efficient to run an enterprise. 9. Direct or indirect interference of politicians creates disturbance. PRIVATE SECTOR ENTERPRISE Private enterprise refers to all those industrial units or corporation engaged in production which are owned by private individuals and managed by them for profit motive. These days, private sector is qualitatively different from private sector of the past in the sense that the corporate industrial units are owned by the shareholders and managed by professional managers. They are not always interested in profits for shareholders but have other corporate objectives as well such as expansion and consolidation, social consciousness and social welfare etc. Private sector includes the following: 1. Organized sector (All large scale units) 2. Unorganized sector (Individual units) 3. Small scale units PROBLEMS OF PRIVATE SECTOR ENTERPRISE 1. Bureaucratic delays in getting license, permits and necessary government clearances. 2. Corruption while getting necessary clearance form various government departments. 3. Increase in foreign competition as a result of liberalization and globalization. It has adversely affected small scale industries. 4. Problem of finance and credit for small scale private sector industries. 5. Interest rates on loan are still very high in comparison to international interest rates. 6. Tax rates are still very high. 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