Business structure

Question 1

What is private sector?

Answer 1

Private sector comprises of businesses owned and

controlled by individuals or groups of individuals

Question 2

What is public sector?

Answer 2

Public sector comprises of organisations accountable to

and controlled by central or local government

Question 3

What is privatization?

Answer 3

Privatisation means selling state-owned and
controlled business organisations to investors in the
private sector

Question 4

Advantages of privatization are?

Answer 4

1 The profit motive of private-sector
businesses will lead to much greater
efficiency than when a business is supported
and subsidized by the state
2 Decision making in state bodies can be slow
and bureaucratic
3 Market forces will be allowed to operate:
failing businesses will be forced to change or
die and successful ones will expand,
unconstrained by government limits on
growth. Profits of most of the privatised
businesses have increased following their
sell-off
4 Sale of nationalized industries can raise
finance for government, which can be spent
on other state projects

Question 5

Disadvantages of privatization are?

Answer 5

1 The state should take decisions about
essential industries. These decisions can be
based on the needs of society and not just
the interests of shareholders. This may
involve keeping open business activities that
private companies would consider unprofitable.

2 Breaking up nationalized industries,
perhaps into several competing units, will
reduce the opportunities for cost saving
through economies of scale

Question 6

What are Public-private partnerships?

Answer 6

Public-private partnerships are government services
or business ventures that are funded and managed
through a partnership of government and one or
more private-sector companies

Question 7

What are the two main types of Public-private partnerships?

Answer 7

1. Government funded

2. Private-sector funded

Question 8

What is Government funded?

Answer 8

Government funded – privately managed schemes. In these ventures, the government will provide all or
part of the funding, but the management of the
organisation will be by a private business that will
use private–sector methods and techniques to
control it as efficiently as possible.

Question 9

What is Private-sector funded?

Answer 9

Private-sector funded – government or state
managed. In these ventures, which will often involve large sums of capital investment, the government is
released of the financial burden of finding taxpayers’
money to pay for the project. Once the assets have
been paid for, they are then managed and controlled
by a government department.

Question 10

What is free trade?

Answer 10

Free trade means no restrictions or trade barriers
exist that might prevent or limit trade between
countries

Question 11

What are tariffs?

Answer 11

Tariffs are taxes imposed on imported goods to make them more expensive than they would otherwise be.

Question 12

What are Quotas?

Answer 12

Quotas are limits on the physical quantity or value of certain goods that may be imported

Question 13

What is voluntary export limits?

Answer 13

Voluntary export limits means an exporting country agrees to limit the quantity of certain goods sold to one country

Question 14

What is protectionism?

Answer 14

Protectionism means using barriers to free trade to protect a country’s own domestic industries

Question 15

What are the benefits of free trade?

Answer 15

1 By buying products from other nations (importing), consumers (and producers) are offered a much wider choice of goods and services
2 Imports of raw materials can allow a developing economy to increase its rate of industrialization
3 Importing products creates additional competition for domestic industries and this should encourage them to keep costs and prices down and make their goods as well designed and of as high quality as possible
4 Countries can begin to specialize in those products they are best at making if they import those that they are less efficient at compared to other countries. This is called comparative advantage.
5 Specialization can lead to economies of scale and further cost and price benefits

Question 16

What are the drawbacks of free trade?

Answer 16

1 There may be loss of output and jobs from those domestic firms that cannot compete effectively with imported goods
2 There may be a decline, due to imports, in domestic industries that produce very important ‘strategic’ goods, for example coal, foodstuffs; this could put the country at risk if there were a conflict between countries or another factor leading to a loss of imports
3 The switch from making goods that cannot compete with imports to those in which the country has a comparative advantage may take a long time
4 Newly established businesses may find it impossible to survive against competition from existing importers
5 Some importers may ‘dump’ goods at below cost price in order to eliminate competition from domestic firms

Question 17

What is globalization?

Answer 17

Globalisation means the increasing freedom of
movement of goods, capital and people around the
world

Question 18

What is a multinational business?

Answer 18

A multinational business is a business organisation
that has its headquarters in one country, but with
operating branches, factories and assembly plants in
other countries

Question 19

Why become a multinational?

Answer 19

1. Closer to main markets
2. Lower costs of production
3. Avoid import restrictions
4. Access to local natural resources

Question 20

Benefits to host country of a Multinational?

Answer 20

1 The investment will bring in foreign currency and, if output from the plant is exported, further foreign exchange can be earned
2 Employment opportunities will be created and training
programs will improve the quality and efficiency of local people
3 Local firms are likely to benefit from supplying services and components to the new factory and this will generate additional jobs and incomes
4 Local firms will be forced to bring their quality and
productivity up to international standards either to compete with the multinational or to supply to it
5 Tax revenues to the government will be boosted from any profits made by the multinational
6 The total output of the economy will be increased and this will raise gross domestic product

Question 21

Down side to a host country of a Multinational?

Answer 21

1 Exploitation of the local workforce might take place. Due to the absence of strict labour and health and safety rules in some countries, multinationals can employ cheap labour for long hours with few of the benefits that the staff in their ‘home’ country would demand
2 Pollution from plants might be at higher levels than allowed in other countries
3 Local competing forms may be squeezed out of business due to inferior equipment and much smaller resources than the large multinational
4 Some large Western-based businesses, such as McDonald’s and Coca-Cola, have been accused of imposing ‘Western’ culture on other societies by the power of advertising and promotion
5 Profits may be sent back to the country where the head office of the company is based, rather than kept for investment in the host nation
6 Extensive depletion of the limited natural resources of some countries has been blamed on some large multinational corporations