In the private sector, capital belongs to the public. And it takes the form of sole proprietorship, partnership, joint venture company or cooperative society.
Businesses in the private sector have the following characteristics:
- Capital
- Profit Oriented
- Price Determination
- Competition
- Risks
- Professional Team
- Survival of the fittest
- Business Combination
- Profiteering
- Advertising
Capital:
Here capital is obtained in different forms. The individual invests only his personal capital if it is a sole proprietorship. A partnership is invested by more than one person called a partner. In the case of a company, capital is raised by selling shares to the public. Capital in state-owned businesses is provided by the government.
Profit Oriented:
The main objective of business in the private sector is to make profit. Whether a business is small or large, domestic or foreign, manufacturing or service provider, all of them have profit in mind. But according to the modern trends, the big successful and international business organizations aim to provide maximum convenience and services to their customers apart from profit.
Price Determination:
Pricing in the private sector is determined on the basis of supply and demand. If demand is high and supply is low, prices will be high as in Pakistan. Conversely, if demand is low and supply is high, prices will be low. Other market forces also play a role in pricing. For example, competition, quality, publicity, and business combination. Apart from this, cost is of course also a primary factor in pricing.
Moreover, if there is a monopoly in the private sector, prices will be higher and if there is competition, prices will be lower. Many companies achieve a monopoly position by making their products better than other products despite the competition. And in this way, by keeping the price of their goods higher than others, they gain a foothold in the market. Public sector does not need much advertising as it does not face competition. For example, even if Karachi Electric Supply does not advertise, its electricity will be consumed.
Competition:
The trend of competition in the private sector is very high. Even if there is a new invention, a monopoly is established first. The success of this new invention leads to the entry of another producer, thereby establishing a duopoly. With the success of both, more producers enter the field, creating an oligopoly. Even innumerable producers enter the fray which starts the process of competition. Therefore, there is always a period of competition in the private sector. In the case of monopoly, the price tends to increase and in the case of competition, the price tends to decrease.
Risks:
Business in the private sector is always exposed to risks. Risks such as falls in prices, changes in fashion, new inventions, competition, introduction of better products, are always faced by the private sector. Government policies and laws, increase in taxes, shortage of raw materials, strikes, and competition from foreign products are also among the main threats to private enterprises. The private sector is more vulnerable to these risks than the public sector. Apart from these, there are other risks that both the private and public sectors have to face.
Professional Team:
Small and large businesses usually consist of professional employees. Large companies have a majority of highly educated, experienced and competent people. They are given attractive salaries and perks, while government institutions are in the hands of a bureaucracy that is mostly made up of non-professionals. Therefore, the efficiency of private enterprises is much higher than that of public sector.
Survival of Fittest:
Because there is open competition in this sector, survival is only for the most suitable or at least according to the standards established by the market or consumers. These standards relate to quality, timely delivery of goods, prices, durability, or robustness. Because now there is competition from foreign products whose quality is better than local products, it is feared that poor and substandard Pakistani products will gradually disappear from the market. It is necessary for their survival to improve their quality.
Business Combination:
Businesses enter into combinations to eliminate competition, reduce quality, and raise prices. Among these combinations, Cartel, Trust, Merger and Pool are worth mentioning. And thus they succeed in exploiting the consumers.
Profiteering:
Most private enterprises are involved in profiteering. This situation is at its peak in developing countries. While in developed countries this situation is not so serious. Disappearance of essential goods from the market for the purpose of profiteering. Hoarding, sale of substandard and post-dated goods, manufacture of defective and substandard products, charging excessive prices, and false guarantees are common in the private sector.
Advertising:
The private sector needs publicity. It has to resort to advertising to reach its customers. Due to competition, the need for this becomes more. Many companies' products sell only because of advertising. International trade organizations emphasize quality along with advertising which makes consumers willing to buy their products. Organizations also establish their goodwill through advertising. It also happens that good products fail simply because they are not advertised properly.
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