Weekly video (week 4) (state owned enterprises (SOE))
Recap
- Strategy for Ems
- Some consequences
- Theoretical challenges
Today
- Dominant organizational forms in EM
o State-owned enterprises
o Business groups
SOES
Why should they matter? (Hafsi et al, 2981)
- Present across industrialized and developing economies (e.g. NS, BBC, ABN AMRO)
- 27 among Fortune 100 (2012) are SOES
- Contribution to GDP (OECD, 2015)
o China (30%), India & Thailand (25%), Vietnam (38%), Malaysia & Singapore
(15%)
What purpose do they serve?
- Control national strategic assets
o Natural resources, transportation, energy, telecom, aerospace, defense
- Huge source of investment and employment
o Employment: China (15%), Malaysia (5%)
- Promote industrialization and technology advancement
o Indian Space Research Organization, NASA
- Promote national interest and reduce regional disparities
o State Bank of India, Bank of China
SOEs…
- Definition: instruments to service socio-political and socio-economic goals of the
government
In theory, are SOEs required? yes
1. As solutions to market failures of goods and services characterized by:
a. Public goods (e.g. natural resources)
b. Positive and negative externalities (e.g. space center, highly polluting)
c. Information asymmetries and incomplete markets
d. Natural monopolies
2. Result of ideology and political strategy of government regarding private ownership
of productive assets
a. Economic communism 9citizens as rightful owners of land and capital)
b. Economic nationalism (central control of large scale projects)
c. Economic social (achieving socially desirable objectives like healthcare)
d. Economic strategic (control of strategic assets)
Type of investments by state
,(Cuervo-Cazurra et al., 2014)
State-owned and state majority-owned firms are SOEs.
Governance challenges in SOEs (OECD, 2015)
- Undue hands-on and politically motivated government interference
o E.g.: oil marketing in India
- Unclear lines of responsibility, a lack of accountability and efficiency losses in the
corporate operations
o Weak incentives of SOEs and their staff to perform in the best interest of the
enterprise and the general public
o Likelihood of self-serving behaviour by corporate insiders/managers
- SOEs’ management may be protected from disciplining factors considered essential
in private sector corporations, i.e. the possibility of takeover and the possibility of
bankruptcy.
SO, how to improve?
Privatization.
Which factors determine privatization of SOEs? (Ramamurti, 2000)
a. Firm-level
a. Firm size (small) (small more easy to privatize)
b. Firm history (previously private or partially private)
b. Industry-level
a. Competition (high) less difficult to privatize
b. Scope for deregulation (high)
c. Country-level
a. Political commitment to change (high)
i. Easy-europe
b. Macroeconomic crisis (high)
i. India, Indonesia
c. Quality of market-supporting institutions (high)
, i. Telecom (India)
SOEs and performance (Park et al., 2006)
Market reforms in China
o Decentralization of control
o Privatization of property rights
o New industry policies
- Central government SOEs vs provincial
government SOEs (COEs = collectively owned
enterprises)
- Autonomy: COEs > SOEs
- Firm performance
o COEs > SOEs
o COEs ~ private firms
SOEs and internationalization (Cui & Jiang, 2012)
Why should SOEs internationalize?
How is it different from that of privately-owned?
Lecture week 4
Types of ownership
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