IGCSE, A Level Business Student Forum

Q12 Analyse the reasons of privatisation of businesses. [6]

Possible Structure:
[KN]
[AN]
[AN+]

[KN]
[AN]
[AN+]

[KN] Efficiency and Improved Performance
[AN] One of the primary reasons for Privatization is the belief that the private sector can operate businesses more efficiently. Private companies often have a profit which can lead to cost reduction and increased productivity. This can result in improved overall performance.
[AN+] This can result in improved overall performance.

[KN] Encouraging Competition
[AN] Privatization can introduce competition into industries. Competition can lead to lower prices, better quality, and increased innovation in goods and services.
[AN+] thus increased output of the firm.

[KN]Private companies are said to be more efficient and productive than government owned firms
[AN]This is mostly because private firms often have more profit incentives which drives them to cut costs and improve efficiency
[AN+]Thus a firm may decide to become private to improve the quality of output and to increase profit

[KN]Meeting customer demands
[AN]Converting to a private firm may encourage the business to improve quality of output to meet customer expectations
[AN+]Thus may lead to better brand image and customer loyalty may be created

[KN]Efficiency and Productivity
[AN]Privatization is often pursued to enhance the efficiency and productivity of businesses. Private companies are typically profit-oriented and motivated to reduce costs, improve management, and innovate to remain competitive.
[AN+]This can lead to increased productivity and better service delivery.

[KN]Reducing Government Burden.
[AN]Governments may choose to privatize businesses to reduce the financial burden of running and subsidizing state-owned enterprises.
[AN+]This can free up resources for other essential public services like healthcare and education and allow the government to spend on them as well.

[KN] private firms would generate higher productivity and efficiency
[AN] this would mean that their cost of producion is lower
[AN+] which allows them to be more mobile with prices and adapt to market changes

[KN]it also have reduced govt intervention
[AN] this allows businesses to respond to market changes in demand and supply better
[AN+] this helps with customer retention for the long run

[KN] Increase in effeciency and productivity
[AN] Private companies are typically motivated by profit, which can lead to cost savings, better management, and innovation.
[AN+] This can result in increased overall productivity.
[KN] Reducing Government Burden
[AN] Governments may wish to divest from businesses to reduce their financial burden
[AN+] Maintaining and subsidizing state-owned enterprises can strain public finances, and privatization can shift the financial responsibility to the private sector.

[KN] To increase total market share with customer base.
[AN] Private companies often have incentives to provide higher quality goods and services to customers which attract them, making way for the business to expand and enter new markets.
[AN+] Thus this will result in the opportunity to collect more revenue for the business which will encourage further business growth.

[KN] Increasing competition.
[AN] Privatization allows more and more firms to enter the industry which increases the market competitiveness. Increased competition increases the variety of similar goods which makes the demand for such goods price elastic. Thus in contrast to this, firms respond by offering lower prices with high quality which increases the choice for customers.
[AN+] Thus, customers get to enjoy better quality products so it is win win situation for them increasing their satisfaction too.

(Kn) increases competition (an) the more the private firms producing the product the more the competition and rivalry (an+) increasing the quality of the production satisfying people’s demand
(Kn) motive of making profits (an) since their only motive is to make profits they will make sure that cost efficient methods are used(an+) this will increase the demand for it compared to when it was a public firm as it had no such motive and hence no such methods or quality

[Kn] increase in productivity.
[An] private firms tend to maximize their profits by lowering their costs. which can be done by improving the productivity.
[An+] Thus to decrease to cost of production businesses privatize.

[KN] increase in profits
[an] Private firms tend to maximize their profits by producing products that are in demand in a cost effective method
[an+] This increases the demand for the firms goods and services and hence increases their profits.

[kn] pvt businesses are more keen to increase mkt share
[an] there is pressure on firms to improve quality and reduce profits to remain competitive
[an+] customers not exploited
[kn] main aim of pvt businesses is to generate profits
[an] they plan more efficiently to reduce costs
[an+] efficient allocation of resources

KN: Capital Infusion
AN: Governments may sell off state-owned assets to raise capital for other purposes, such as reducing national debt, funding infrastructure projects, or investing in essential public services.
KN: Improved Governance
AN: Private firms typically operate with a higher degree of transparency and accountability compared to government-run enterprises
AN+: Privatization can help improve corporate governance, reduce corruption, and enhance regulatory oversight.

[KN] Higher competition
[an] When more businesses enter private sector,the role of market forces demand and supply increases in resource allocation decisions
[an] As a result in order to gain maximum market share and to become a market leader, a business increases efficiency and improves quality of its products leading to high customer satisfaction

[KN]To increase productive capacity
[an] private sector invests more in capital than the govt does hence this increases quantity of capital (FOP)
[an] leading to low costs and high output, which eventually results in economies of scale

[kn] to improve both product and service efficiency and quality
[an] businesses gain greater access to resources in order to generate highest-quality outcomes for customers
[an+] higher prices may be charged leading to increased revenue

[kn] broaden business activities
[an] businessses may expand and offer wide variety of goods and services
[an+] greater competition and many substitutes for customers

(Kn) Increases efficiency (an) the main aim of private businesses is to generate profit. Hence they will become more conscious, and and provide better quality (an+) therefore increases overall efficiency.

(Kn) customer demands can be focused on (an) a private business is encouraged to produce products people are willing to buy. Hence the demand can fulfilled (an+) This will result in large output and increase in economic growth.

[KN]meeting demand
[AN] as private firms focuses on profits
[AN+] so thus when a firms became private they start producing high quality products

[KN] reduction in government burden
[AN] government may private frim to reduce their fanatical burden
[AN+] because of this investment may increase in the economy