State-Owned Enterprise (SOE) Definition
A State-Owned Enterprise (SEO) is a business venture with full or partial government ownership. This legitimate entity is primarily established to indulge in commercial affairs on behalf of the government. SEOs usually drive economic growth while preserving public interest.
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Unlike state entities or government agencies that are primarily created for non-profit purposes, SOEs generate revenueRevenueRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions.read more for the government while furthering its public policy objectives. They are instrumental in modernizing the country and are usually set up in sectors like infrastructure, strategic goods and services, banking, healthcare, etc. United States Postal Services (USPS), Fannie MaeFannie MaeFannie Mae, i.e., Federal National Mortgage Association is a United States government-sponsored enterprise (GSE) which was founded in the year 1938 by congress to boost the secondary mortgage market during the great depression which involves financing for the mortgage lenders thereby providing access to affordable mortgage financing in all the markets at all times.read more, and Freddie Mac are popular examples of state-owned businesses in the U.S.
- A state-owned enterprise is a fully or partially government-owned business undertaking that participates in economic activities on its behalf while promoting the public interest.
- SEOs usually contribute to the growth and development of a country. They serve different economic and social objectives.
- The nation must practice SOE transparency to improve accountability, develop more partnerships, and guarantee better results.
- Several developing countries exercise the corporatization of SOEs wherein a government agency is converted into a profit-oriented venture aiming lucrative financial returns.
State-Owned Enterprise Explained
Also called Government-Owned Enterprises, SOEs are companies owned and controlled by the government. A majority of them dominate the public utility domains like water, electricity, transportation, etc. They are prevalent in South Africa, New Zealand, Brazil, Norway, India, and China.
Usually, the resource-rich nations employ them to capitalize on natural reserves and practice more authority over the sector for its betterment. Saudi Arabian oil company Saudi Aramco and state-owned Kuwait Petroleum Corporation (KPC) are well-known examples of SEOs controlling the oil sector in their respective countries.
Note that SOEs are different from listed companies with stocks partly owned by a government body. While SOEs are wholly or partially government-owned firms, listed companies are public corporations with the government acting solely as their shareholders.
SOEs strive to strike a balance between profitability and public accountability. In other words, it seeks to make the most of private sectorPrivate SectorThe private sector is a section of the national economy that the government does not own. The business conducted under this sector is carried out by companies or entrepreneurs who focus on profit maximization and customer satisfaction.read more efficiencies while ensuring public interest. Most SOEs are lawfully reckoned as business outfits, therefore enjoying all the related rights and duties. However, they must obey the specified regulations administering their performance.
The presence of SOEs has both positive and negative implications on a nation’s economic standing. While some have helped boost revenue generation and financial expansion, others failed miserably due to massive corruption and bribery.
Thence, countries must practice SOE transparency to boost accountability and foster new collaborations. Now, let’s discuss the merits and demerits of a state-owned entity.
Advantages and Disadvantages of State-Owned Enterprise
AdvantagesDisadvantagesSuperior public serviceMore conflict possibilities in leadershipUltimate security of resourcesIncreased burden of taxationRapid industrializationProbable misuse of capitalEmployment creationPoor localization of industriesInexpensive production of itemsManagement disorganizationAffordable servicesToo much political interferenceNo more exploitation from private enterprisesSwift decisions are impossibleAssured protection to the Defence industryIncreased possibility of corruptionStabilization of product ratesLess efficiency and productivity
Examples of State-Owned Enterprise
List of State-Owned Enterprise in China
Here lies the list of 15 state-owned enterprises in China.
- China National Salt Industry Corporation (CNSIC)
- China National Gold Group Co Ltd (China Gold)
- China Eastern Air Holding Company (CEAH)
- Aluminum Corporation of China (CHINALCO)
- China Three Gorges Corporation (CTG)
- State Grid Corporation of China (SGCC)
- China Railway Group Limited (CRG)
- China Southern Power Grid (CSG)
- China Huaneng Group (CHNG)
- China First Heavy Industries (CFHI)
- China National Chemical Corporation (ChemChina)
- Nam Kwong (Group) Company Limited
- China National Administration of Coal Geology (CNACG)
- China Electronic Technology Group Corporation (CETC)
- China Communications Construction Company Limited (CCCC)
As per a recent Reuters article, Chinese SOEs in the real estate sector are acquiring properties from financially-strained private developers in a bid to save them from bankruptcy. This move aims to revive the crisis-laden property sector that contributes significantly to the Chinese economy.
List of State-Owned Enterprise in South Africa
Let’s check out the List of top 15 of South Africa’s 128 SOEs.
- Agricultural Research Council (ARC)
- Accounting Standards Board
- Airports Company South Africa (ACSA)
- Air Traffic and Navigation Services Company
- Armaments Corporation of South Africa (ARMSCOR)
- Alexkor Limited
- Brand South Africa
- Blind SA
- Broadband Infraco
- Breede-Gouritz Catchment Management Agency (CMA)
- Broadcasting Complaints Commission of South Africa (BCCSA)
- Central Energy Fund (CEF)
- Cape Town International Airport
- Commission for Employment Equity
- Commission for Conciliation, Mediation, and Arbitration
List of State-Owned Enterprise in India
In India, a state-owned business is known as Public Sector Enterprise (PSE) or Public Sector Undertaking (PSU). Here lies the list.
- ONGC (Oil & Natural Gas Corporation) Ltd
- Indian Oil Corporation Ltd.
- Coal India Ltd.
- NTPC (National Thermal Power Corporation) Ltd
- Bharat Petroleum Corporation Ltd.
- Power Grid Corporation of India Ltd.
- Gail (India) Ltd.
- Power Finance Corporation Ltd.
- Hindustan Petroleum Corporation Ltd.
- India Post
- Mahanagar Telephone Nigam Ltd.
- State Trading Corporation of India
- National Textile Corporation Ltd.
- Orissa Mineral Development Company Ltd.
- Chennai Petroleum Corporation Ltd.
Corporatization of State-Owned Enterprises (SOEs)
“Corporatization” refers to a procedure wherein a state-owned entity is formed out of a government agency. It transforms the state-run agency into a for-profit business undertaking. Now, the agency functions in compliance with government objectives while being formally designated as a commercial enterprise.
Many developing countries adopt this practice to target the most profitable economic areas and advance their financial growth.
Frequently Ask Questions (FAQs)
Q#1 – What are the advantages of a state-owned enterprise?
A – Here lie the benefits of a state-owned enterprise:
• Access to essential services at inexpensive rates
• Extensive and reliable customer base
• Control over strategic industries like arms manufacturing
• Availability of conducive guidelines
• Profound monetary assistance from the government
• Employment creation
• Regulation of demerit goods like alcoholic beverages
Q#2 – What are the disadvantages of a state-owned enterprise?
A – The disadvantages of a state-owned enterprise are:
• Stringent government control and limitations
• Rigid corporate culture and management style
• Mandatory labor union
• Less innovative workforce
• Significant political influence
• Widespread corruption
• Questionable workplace ethics
Q#3 – Why does the government establish SOEs?
A – The government formulates SOEs primarily to engage in commercial matters. This ultimately helps facilitate economic expansion, surge national capital, and alleviate the livelihood of citizens. Also, it aids in accomplishing continual development without suffering any major financial losses.
Q#4 – Why do some SOEs perform poorly?
A – SOEs are prone to corruption, bribery, and poor work ethics of employees that hampers their performance. Besides, too much government control and political interference also reduce production efficacy. In addition, the government protection shields them from competition leading to poor market performance.
This has been a guide to what is a State-Owned Enterprise (SOE) and its definition. Here we explain state-owned enterprise, along with its list and examples in China, South Africa, and India. You may learn more about financing from the following articles –