BUSINESS AND MANAGEMENT MODULE 1 BUSINESS ORGANIZATIONS & ENVIRONMENT

Private & Public Sector Organizations  The Private Sector comprises businesses owned and controlled by individuals or groups of individuals. –In every country, most business activity is in the private sector. –These businesses differ in size –The main objective is to make a profit  Money earned from the sale of goods minus any costs involved in selling those goods or services  The Public Sector comprises organizations accountable to and controlled by central or local government.  These usually include: –Health and education services –Defense –Law and order –Some strategic industries. THE ECONOMY Private SectorPublic Sector

The Private Sector Legal Structure Private Sector Businesses Sole Trader Partnership Limited Companies Cooperatives Private LTD Public LTD

Public Corporations  Organizations that are wholly owned by the government are called Public or (Crown) Corporations  Examples include: –BBC – British Broadcasting –KCRC – Hong Kong’s national railway –Nanjing Auto – China’s main automaker –LCBO – Ontario’s Liquor Control Board

Reasons for Public Corporations  To ensure everyone has access to basic services (health, transportation etc)  To avoid wasteful competition (national defense or postal delivery)  To protect citizens and businesses through institutions such as the Police and court systems  To reduce unemployment as governments tend to be large employers (teachers, doctors and nurses)

Privatization  Private sector ownership provides many more benefits than the public sector –Mainly in the area of money-making –As a result, many governments sell off their businesses to private interests  Governments will then set up regulatory bodies to monitor the conduct and performance of these businesses, since they usually have a large share of the market –Ontario sell off of Ontario Hydro Ontario HydroOntario Hydro

Benefits of Privatization  Efficiency gains –As more competition now enters the marketplace  Lower production costs –Again based on a competitive environment  Increased choice –For customers based on a competitive environment  Incentives to innovate –Coming up with new ideas to stay competitive  Less financial burden –As the government stops funding public companies  Source of government revenue –One time sales only, but the amount can be enormous

Formative Case Study – ETR 407 ETR 407ETR 407  In 1999, the Ontario government sold Highway 407 for $ 3.1 billion to to a consortium of Spanish and Quebec based companies, including SNC- Lavalin, making it the largest privatization in Canadian history.  In addition, much needed extensions were built at no additional cost to taxpayers, creating more than 6,000 new construction jobs in the province.  Originally the 407 was to pay for itself and become a free public highway in approximately 30 years.  The conditions of the sale allow the new owners to set whatever toll rates it wants for the next 99 years.  Today, the highway is valued at over $10 billion, and the government had been heavily criticized for the poor terms of lease, including underestimating the value of the road.  Many "905ers" in the rapidly growing Greater Toronto Area who had been expecting to be served by a much-needed non-tolled, or at least reasonable priced Highway 407 consider its lease and skyrocketing toll rates a sellout, thereby significantly eroding the Conservatives' formerly strong support base in that region.  Critics have complained that the rising toll rates have made Highway 407 more of a "luxury" rather than a bypass on existing congested roads as it was initially intended