551/552MG33 Business organization and Environment

Relationship between Government and Business Organizations

Government and business institutions in a country in many ways are interrelated and interdependent on
each other. In today’s global economy, its businessmen and entrepreneurs are the driving forces of the
economy.
In a planned economy or even in market economy government holds control of shaping the business
activates of a country.
For maintaining a steady and upward economic growth The Government must try to make the
environment for business organizations suitable.
And the organizations must follow the laws of governments’ to run the businesses smoothly and making
sure there is a level playing field.

The main goal of businesses is to make profit and governments’ goal is to ensure economic stability and
growth. Both of them are different but very co-dependent.
For this, the government and organizations or businesses always try to influence and persuade each other
in many ways for various matters.
A balanced relationship between the government and businesses is required for the welfare of the
economy and the nation.

How Business Organizations Influences the Government

Organizations try to force the government to act in ways that benefit the business activities. Of Course,
for that, an organization must go through in a legitimate way. But sometimes we see that organizations
try to go over the line.
Anyways, these are the common methods that business organizations us to influence government
policies.

MR. JOHN BOSCO 1 DMI-St. Eugene University, Zambia

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 Personal Conducts and Lobbying

The corporate executives and political leaders and government officials are in the same social class.
This creates a personal relationship between both parties. Also, organizations formally from the
group to present its issues to government bodies.
 Forming Trade Unions And Chamber Of Commerce
Trade unions and chamber of commerce are associations of business organizations with a common
interest. They work to find the common issues of organizations and present reports, holds dialogue to
discuss them with government bodies.
 Political Action Committees
Recently in the 2012 US elections, the term “super PACs” was a common topic in many discussions.
Political action committees (PACs) or are special organizations formed to solicit money and
distribute to political candidates.
Most times the rich executives donate money to the political candidates whose political views are
similar to them.
 Large Investment
The companies if can make a very large investment in industries or projects, they could somehow
affect the government policies.
We see these very often in developing countries where foreign corporate wants to invest in these
countries.
These works in another way around, where the government tries to implement the policy to attract
foreign investment.

How Government Influences the Business Organizations

The government attempts to shape the business practices through both, directly and indirectly,
implementing rules and regulations.
The government most often directly influences organizations by establishing regulations, laws, and rules
that dictate what organizations can and cannot do.
To implement legislation, the government generally creates special agencies to monitor and control
certain aspects of business activity.
For example, environment protection agency handles Central Bank, Food and Drug Administration,
Labor Commission, Securities, and Exchange Commission and much more. These agencies directly
create, implements laws and monitor its application in the organization.
Governments sometimes take an indirect approach to shaping the activities of business organizations.
These are also done by implementing laws or regulations but they are not always mandatory.
For instance, the government sometimes tries to change organizations policies by their tax codes. The
government could give tax incentives to companies that have an environment-friendly waste
management system in a production factory.
Or, tax incentives could be provided to companies that have established its production facilities in a less
developed region in the country. As a result, more often the businesses would probably do so.
However, this regulation and its implementation must be to an optimal degree.

Impact of Government Policy Changes on Business and Industry

The policy of liberalization, privatization and globalization of the Government has made a significant
impact on the working of enterprises in business and industry.

These challenges can be explained as follows:

MR. JOHN BOSCO 2 DMI-St. Eugene University, Zambia

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(i) Increasing competition: As a result of changes in the rules of industrial licensing and entry of
foreign firms, competition for firms has increased especially in service industries like
telecommunications, airlines, banking, insurance, etc. which were earlier in the public sector.

(ii) More demanding customers: Customers today have become more demanding because they are
well-informed. Increased competition in the market gives the customers wider choice in purchasing
better quality of goods and services.

(iii) Rapidly changing technological environment: Increased competition forces the firms to develop
new ways to survive and grow in the market. New technologies make it possible to improve machines,
process, products and services. The rapidly changing technological environment creates tough
challenges before smaller firms.

(iv) Need for developing human resource: Indian enterprises have suffered for long with inadequately
trained personnel. The new market conditions require people with higher competence and greater
commitment. Hence the need for developing human resources.

(v) Market orientation: Earlier firms used to produce first and go to the market for sale later. In other
words, they had production oriented marketing operations.

Privatisation:
Privatisation is only a modern name assigned to the concept of Laissez-faire advocated by Adam Smith
and other classical economists. But in the environment of mixed economy, it has a new significance.
The world economists have adopted it as a tool of new economic prosperity. It is expected that the new
liberal era of industrialisation will open a new chapter in the field of productivity, efficiency, cost
consciousness, competitiveness and management. The participation of the private sector in the
development process is not an option; it is an essential requirement of development.
Earlier private enterprises which got into financial difficulties were taken over by the
government in most of the countries. Now the policy has completely changed. Public enterprises which
got into financial difficulties are transferred to a private agency.
Government policy in the country as in other countries is undergoing a sea change both on account of
shifts on ideological account as well as basic economic considerations. Moreover, international lending
agencies have increasingly bought in the privatisation of public enterprises as a condition for their
project lending in several countries. It is evident from the World Bank report which has supported
privatisation of a public sector steel industry and World Bank experts have suggested that privatisation
is essential to attain productivity and efficiency.

Privatization, which has become a universal trend, means transfer of ownership and/or management of
an enterprise from the public sector to the private sector. It also means the withdrawal of the state from
an industry or sector, partially or fully. Another dimension of privatization is opening up of an industry
that has been reserved for the public sector to the private sector. Privatization is an inevitable historical
reaction to the indiscriminate expansion of the state sector and the associated problems.

Methods of Privatisation:
(a) Divestiture (or) privatisation of ownership: through the sale of equity. In countries where
there are well functioning capital markets, this entails selling stock to the public. In industrial
countries, privatisation had taken place mainly through divestiture of government economic

MR. JOHN BOSCO 3 DMI-St. Eugene University, Zambia

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activities. Bangladesh, Pakistan, Brazil, Peru, Chile, Jamaica, Sudan and Philippines are some of
the examples of this method.
(b) Denationalization (or) Reprivatisation. Several large enterprises were denationalized in
Pakistan, Bangladesh and Chile.
(c) Franchising is also one of the methods of privatisation. In this certain services are designated in
certain geographical areas which will be delivered by private companies. This is common in
utility services and transport.
Franchise business arrangements in Zambia are based on British contract law. Distributor or
agent franchising is most common in Zambia, although the business format type of franchising is
beginning to develop. There is increased interest in franchising in Zambia generated by publicity
and exposure to international franchise trade events in the U.S. lack of financing options remains
a major obstacle to franchise business in Zambia.
(d) Contracting is also common in public works. Where suppliers compete for contract and there
are no loss economies of scale, contracting is efficient. Long term contracts tend to encourage
monopolistic tendencies in private companies.
(e) Leases and management contracts: Privatisation may also take the form of privatisation of
management; using Leases this is offering the ownership for particular periods say for 20 years,
10 years.
Objectives of Privatisation:
(a) Improvement of the economic performance of assets.
(b) Depoliticalisation of economic decisions.
(c) Reduction in public outlays, taxes and borrowing requirements.
(d) Promotion of popular capitalism through wider ownership of assets.
(e) Promotion of equity.

Liberalisation:
“Liberalisation” is an essential pre-requisite for a successful privatisation. Liberalisation has got two
dimensions

(i) Domestic liberalisation:

A formal liberalisation of economic policy, which consists of relaxing restrictions on production,
investment, prices and increasing the role of the market, guiding resources allocations. The modification
of the licensing procedure and recognition of additional capacities. If the government announces the
facility of utilizing installed capacity without limit in certain cases, the licensing policy will be
liberalized. The statement focused attention on the need for promoting competition in the domestic
market, technological up gradation and mordernisation. The logic of liberalisation is the withering
effects of a sheltered market on industries and other competitive sectors.

(ii) Trade liberalisation (or) External sector liberalisation:

It is the relaxing of restrictions on international flow of goods and services, technology and
capital. It is the policy reversal. Here there been no trade restrictions or high tariffs. It ordinarily means
reducing restrictions on trade or ‘making trade free than before’. In technical sense it may defined as
policy change which would make a country’s trade system more neutral. A completely neutral system
means free trade system. There fore any move towards neutral system means trade liberalisation. There
is not a single country which has completely free trade; there is always some room for a movement
towards neutrality.
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MR. JOHN BOSCO 4 DMI-St. Eugene University, Zambia
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Import liberalization

• Policy for import of capital goods

• Policy for import of raw materials
• Import policy for registered exporters
• Policy for import of technology

Policy for import of capital goods

A large number of capital goods were placed under OGL (open general license) category i.e. they could
be import without any import license.

Policy for import of raw materials

In addition to OGL imports, actual users were extended the facility of raw materials, components
consumables under supplementary licenses. It includes dismantling of tariff as well as non-tariff.

Import policy for registered exporters

The aim of these policies was to provide the registered exporters an assured, continuous and
uninterrupted supply of the required production inputs, essential for expanding the exports on a
sustaining basis.

Policy measures for Liberalisation:

A number of policy measures are there, some of them are as follows;
(a) Limiting the role of licensing
(b) Expanding the scope for contribution to growth by large houses
(c) Encouraging mordernisation
(d) Raising the investment limits for the promotion of the small scale sectors.
(e) Providing fiscal incentives
(f) Encouraging existing industrial undertakings in certain industries to achieve minimum economic
levels of operations.

Globalisation:
Globalisation and Liberalisation are inter-related terms. It is not a synonym for the
‘Internationalisation’. Globalisation means adopting a global outlook for the business and business
strategies are aimed at enhancing global competitiveness. “Stop thinking of themselves as national
markets, but start thinking themselves as global marketers.” Companies planning business all the world
over, competing in international markets throughout the globe. Executives are trained in world wide
operations. Management staffs are recruited from many countries and procurements are made
throughout the world. The world is perceived as a global village. It is the integration of the country with
the world economy. It implies the linkage of nations market with the global market. Globalisation is
identified with external sector liberalisation.

Advantages of Globalisation:
(a) Globalisation trends with reduction in tariffs.
(b) Identification of products with competitive advantages
(c) Helps to compete in the international market
MR. JOHN BOSCO 5 DMI-St. Eugene University, Zambia
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(d) It led to inflow of Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII).
(e) It helps to expand the domestic product in global.
(f) Globalisation production cost has been reduced and best products are available at competitive
prices.
(g) It creates more employment opportunities.
(h) It helps to improve the standard of living.
(i) It helps to increase the growth rate of GDP
(j) The balance of payments deficits have been improved.
Demerits of Globalisation:
There are some limitations and dangers prevail of Globalisation they are as follows;
(a) Unwanted goods are flooded and dumped into the country.
(b) It creates the ways of outflows of profits than the inflow of foreign investments.
(c) The globalisation will affect the development of the domestic industries.
(d) It will create more unemployment and inequalities of income in the country.
(e) It creates the track for monopolistic and oligopolistic structure in the country.
(f) Globalisation will lead to the exploitation with heavy prices.
(g) Globalisation causes the devaluation of money as the imports increases than the exports.
(h) It creates scarcity of Agricultural goods as they are lower price while comparing to other
countries.
(i) It decays the cottage and small scale industries.
(j) It will lead to loss of revenues to the government as the result of customs duty reduction.
(k) Globalisation may result in loss of immunity towards world level economic diseases.

MR. JOHN BOSCO 6 DMI-St. Eugene University, Zambia