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Name: Unit 1 – Business organisation and environment

1.2 Types of organizations

Learning Objectives
• LO1: To differentiate between public and private sectors
• LO2: To describe the main features of for-profit commercial organisations
• LO3: To describe the main features of for-profit social enterprises
• LO4: To describe the main features of non-profit social enterprises

LO1: To differentiate between public and private sectors

What is the difference?
• Public sector: organisations which are accountable to and controlled by central or local government (the
state).
• Private Sector: businesses owned by individuals or groups of individuals.

Which are public sector and which are private sector?

Hospitals Highlands Coffee Department of Education
Fire Service H&M Schools
McDonald’s Vietjet BIS
Facebook Mobifone Police Service
Public Vs Private
Government (Taxpayers) Ownership Individuals / shareholders 2
Name: Unit 1 – Business organisation and environment

Government (Local and Central) Controlled Owner / Board of Directors

by

•Provide an essential service Aims / •Profit maximisation

•Accessible for everyone. Objectives •Growth
•Services beneficial to society •Market Share
•Prevent private monopolies •Survival
•Maintain employment
Taxes Financed Own savings / Family
Fines by Selling shares
Retained profits
Bank (loans / mortgage)

Are economies across the world the same?

No

Command economy Economic resources are owned and, planned and controlled by the state.
Mixed economy Economic resources are owned and controlled by both private and public sectors

Free-market Economic resources are largely owned by the private sector with very little state intervention.

economy
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Name: Unit 1 – Business organisation and environment

Even in most free-market economies the state provides certain important goods and services.
How many can you write down in 60 seconds?!
Healthcare
Education
Defence
Public law and order (courts, policing etc)

In some countries there important strategic industries are also controlled by the state such as energy,
telecommunications and public transport.
In recent years, privatisation – the selling of public organisations to the private sector - has become
more common. Why do you think this is?
• To raise money for govt.
• Quality may increase in the private sector
• Efficiency may increase in the private sector

Public Sector Enterprises

Clarification
• Public corporations are owned by THE GOVERNMENT, therefore they are in the PUBLIC sector.

• Public limited companies (plcs) are owned by (GROUPS OF) INDIVIDUALs therefore they are in the

PRIVATE sector.

What are some examples of public sector organisations?

• Museums, libraries, theatres, parks, hospitals, police services, fire services, defence / army /
navy etc, state tv / radio channels (e.g. BBC)
Public sector organisations do not usually have profit as a major objective. So what are their major
objectives?
• Quality of service
• Provision and access for all
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Name: Unit 1 – Business organisation and environment

State whether the points below are advantages (A) / disadvantages (D):
Can be inefficient due to lack of strict profit targets D
Governments may interfere in business decisions for political reasons, e.g. opening a new A
branch in a certain area to gain popularity / votes.
Managed with social objectives rather than solely profit objectives A
Loss-making services might still operate if the social benefit is great enough D
Subsidies from the government can encourage inefficiencies D
Finance raised mainly from the government – no limitations from banks or shareholders A
LO2: To describe the main features of for-profit commercial organisations

Important Information
There are three main differences between companies - private limited companies (ltds) and public limited
companies (plcs) – and sole traders and partnerships:
• Limited liability
• Legal personality
• Continuity

Shares
• The ownership of companies can be divided into small units called shares
• People can buy these and become shareholders (part-owners)
• It is possible to buy one share but usually people buy (many) more
• What happens if someone owns more than 50% of the shares ?
They effectively have full control of the business
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Name: Unit 1 – Business organisation and environment
Liability
• Sole traders and partnerships are unincorporated. They have unlimited liability – the owner is
personally liable for any debts the business has.

• Limited companies are incorporated (they are a ‘company’) and have limited liability, shareholders
are only liable for the amount which they invested.

Legal Personality
• Sole traders and partnerships: the owner(s) are seen as the same identity as the business.
• A company (plc / ltd) has a separate legal identity from it’s owners, e.g. if a company makes faulty
products and gets sued, it is is the company which can be prosecuted, not the owners.
• What is the impact of this?

Continuity
• In a company, the death of an owner or director doesn't lead to the break up of the company.

• Shares are inherited.

Private Sector – Sole trader

Definition: a business which has one owner who provides permanent finance and has full control and keeps
all of the profits, they have unlimited liability.
The most common form of business ownership
A small proportion of total business revenue
Advantages Disadvantages
● Easy to set up ● Unlimited liability
● Owner has complete control ● Intense competition from larger firms
● Owner keeps all profits ● Owner needs to be multi-skilled
● Closer relationships with staff (if there are
any)
● Difficult to raise capital

● Long hours and hard work

● Lack of continuity

Private sector - partnership

Definition: a business formed by 2+ people, with shared capital investment and shared responsibility. They
have unlimited liability.
Which industries are they very common in?
What is a ‘deed of partnership’?
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Name: Unit 1 – Business organisation and environment
• A partnership agreement also called a deed of partnership is an agreement between partners who
want to run a joint business. A partnership agreement is legally binding on all members (partners) a
partnership. It is not mandatory to have a partnership agreement in order to set up a partnership, but
it is the best way to regulate how the joint business will work and to avoid future disputes and
misunderstandings between the partners.

Advantages Disadvantages
● Partners may have complementary skills ● Unlimited liability
● Shared decision making ● Shared profits
● Additional capital can be raised ● Continuity issues if there is a death

● Losses are shared ● Disagreements may occur

● Greater privacy and fewer legalities than

companies.

Private sector – limited companies: private limited companies (Ltd)

Definition: a small to medium sized business owned by shareholder who are often members of the same
family. They cannot sell shares to the general public.
Advantages Disadvantages
• Limited liability ● More legal formalities than unincorporated
• Separate legal entity business
• Continuity (if there is a death)
● Can’t sell shares to general public
● Difficult for shareholders to sell shares
• Original owner can maintain control

● End-of-year accounts must be sent to government (no

• with unincorporated)
Can raise finance by selling shares to friends, family, employees.

• Greater status than unincorporated businesses

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Name: Unit 1 – Business organisation and environment

Private sector – limited companies: public limited companies (plc)

Definition: a limited company, often large, with the right to sell shares to the general public. Shares are
quoted on the national stock exchange.
Advantages Disadvantages
● Limited liability ● Legal formalities in formation
● Separate legal entity ● Costs of legal and financial advisers when
changing to plc
● Continuity (if there is a death)
● Share prices fluctuate – can’t be controlled

● Ease of buying and selling of shares for

● Legal requirements to publish information to
shareholders
shareholders and the public, e.g. accounts

● Access to substantial capital can lead to

● Risk of takeover
growth

● Directors influenced by short-term aims

of major shareholders – can lead to
divorce of ownership and control

Divorce of ownership and control

What does a shareholder want?
• Increasing share price
• Dividends (a share of the profits)

What does a manager want

• Increasing salary
• Control of their work (autonomy)

Definition:
When the shareholders and those in control such as management have different objectives leading
to conflict, for example, shareholders want increased dividends whilst managers would want increased pay.

In your own words explain how / why a sole trader would want to go through the process of changing the
legal form of their business.
Key terms to use: expand, objectives, investors, risk, desire for control
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Name: Unit 1 – Business organisation and environment

● Increasing the number of employees: Employees come with liability and you’re going to want the
protection offered by an LLC or Corporation, rather than being on the hook for everything yourself.
● Protection from liability (LLC or Corporation): In addition to the liability that comes with
employees, your business may be liable for injuries to your customers, for loans, and for other issues.
By switching to a more formal business structure, you can protect your personal assets from that
liability.
● Allowing outside investment: Anyone that wants to buy a portion of your business or become a
partner is going to want a formal structure (and if they don’t, they may not be the kind of investor
you want). And you’ll want it too! A formal structure like a corporation, LLC, or partnership
involves setting out clear rights and responsibilities up front so everyone knows how the
arrangement will work and what their options are.
● Need for greater bank financing: If you’re looking for a loan to grow your business, the bank may
want to see a formal business structure. That indicates that you’re serious about your business and
have put work into setting it up the right way. It lends a sense of legitimacy.

Progress check
I want you to create five questions (with answers) individually based on business structures! It can be:
• True/false
• Explain
• Advantages / Disadvantages
• Anything else
• The more difficult the better!
• Once you have your questions you need to create the following table:
• Each question you can give a max of 3 points (up to you) based upon:
• Quality of answer
• Speed of response
• You will take it in turns to answer all 5 questions
• Make sure you ask for your own score to write in your table!
• Highest score wins!
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Name: Unit 1 – Business organisation and environment
Versus Q1 Q2 Q3 Q4 Q5 Total My
score/15
Vs
Player 1
Player 2
Player 3
Player 4
Total

Types of Organisation
Identify the type of business and/or Recommend a type of business organisation it could change to
1. A builder who specialises in house extensions wants to meet increasing demand for loft conversions but
she currently lacks the skills to offer this service. She doesn’t mind sharing control of the business.
Partnership
2. A business has been within the same family for generations, it currently operates as a sole trader but more
family members would like to be a part of the business. However, they are dubious about investing their
money due to unlimited liability
Private limited company
3. The owner of a Beauty Salon wants to maintain full control to dictate their own working hours, they also
want to maintain all the profit the business generates
Sole trader
4. A large business needs to raise large amounts of finance to fuel overseas expansion; the business is very
established and already successful
Public limited company
5. A sole trader is finding that bearing the full responsibility of running a business is too stressful. They have
not been able to take a holiday for 5 years and long for somebody to share the workload with.
Partnership
6. A partnership needs investment to grow, however their competitors will now have access to their accounts
Public limited Company

Recap Questions
Using an example, define ‘divorce of ownership and control’. (2)
• When the shareholders and those in control such as management have different objectives leading
to conflict, for example, shareholders want increased dividends whilst managers would want
increased pay.

Explain the difference between private sector and public sector organisations. (2)
• Private sector businesses are owned by individual (s)
• Public sector are owner and/or controlled by the government
Explain how the legal structure of a partnership and a public limited company affects it’s ability to raise
finance. (4)
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Name: Unit 1 – Business organisation and environment
• A partnership involves at least two owners who can each contribute capital to help the business
grow. However, a plc can sell shares to the general public which can lead to a great deal of capital
being raised, however, ownership is diluted which can lead to divorce of ownership and control.

Explain three advantages to Vietnam of industrialisation (6)

• Gross Domestic Product (GDP) increases leading to increased standard of living
• Increasing output could lead to lower imports and higher exports of those products
• Expanding manufacturing businesses leads to more jobs being created
• Expanding and profitable firms will more taxes being paid to the government
• Value is added to the raw materials rather than just exporting the unprocessed material

LO3: To describe the main features of for-profit social enterprises

1. Social enterprises - [Link]
Define social enterprise
A social enterprise or social business is defined as a business that has specific social objectives that serve its
primary purpose. Social enterprises seek to maximize profits while maximizing benefits to society and the
environment. Their profits are principally used to fund social programs.

What are the main objectives of social enterprises?

Social enterprises are revenue-generating businesses with a twist. Whether operated by a non-profit
organization or by a for-profit company, a social enterprise has two goals: to achieve social, cultural,
community economic and/or environmental outcomes; and, to earn revenue.

What is the triple bottom line?

The triple bottom line is a business concept that posits firms should commit to measuring their social and
environmental impact—in addition to their financial performance—rather than solely focusing on generating
profit, or the standard “bottom line.” It can be broken down into “three Ps”: profit, people, and the planet.

Find examples of social enterprises from three countries

Indego Africa is a nonprofit social enterprise that supports women in Rwanda through economic
empowerment and education. This enterprise aims to break intergenerational cycles of poverty. To do so,
Indego Africa provides female artisans with the tools and support necessary to become independent
businesswomen and drive local developmen
Mercardo Global is a social enterprise organization that links indigenous artisans in rural Latin American
communities to international sales opportunities. As a result, this organization helps provide sustainable
income-earning opportunities, access to business training and community-based education programs
United Prosperity is a nonprofit organization providing an online lending platform connecting lenders to
poor entrepreneurs across the globe. A Kiva-like peer-to-peer loaning system allows anyone with spare cash
to guarantee loans to entrepreneurs in need.

2. Cooperatives - [Link]

Define cooperative
A cooperative is a private business organization that is owned and controlled by the people who use its
products, supplies or services. Although cooperatives vary in type and membership size, all were formed to
meet the specific objectives of members, and are structured to adapt to member's changing needs.
Cooperatives are formed by individuals who coordinate among themselves (horizontal coordination) to
achieve vertical integration in their business activities.
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Why are they different from normal businesses?
• Cooperatives are formed to serve the needs of their members, while corporations exist primarily to
make a profit.

• Board members come from the cooperative membership, whereas non-shareholders can be elected to
sit on a corporation's board.

• Each member gets one vote in a cooperative, while corporate shareholders get a vote for each share
they own.

• Cooperatives are taxed differently. They can, for example, issue patron dividends to their members,
which can be deducted from gross taxable income.

What are some common types of cooperatives?

• Business cooperatives are formed by businesses to purchase supplies or obtain services at a lower
cost.
• Worker cooperatives create employment opportunities and provide the benefits of ownership to
members.
• Arts and Crafts cooperatives help artists and crafts persons maximize their earning potential and
working conditions.
• Student cooperatives are set up and run by students to meet specific needs.
• Credit Unions provide at-cost financial services to a wide cross-section of the population
• Consumer cooperatives: owned by consumers who buy goods or services from their cooperative

Find examples of social enterprises from three countries

• Specialisterne was born in Denmark but it soon branched into other European countries. Its main
activity lies in the job market inclusion of people with autistic, Asperger and similar syndromes.
• Ecoalf from Spanish is a global leader in social innovation related to the recycling industry. His idea
started as a modest investment in R&D in order to replace raw material based on resources with raw
material based on waste. It has managed to make high-quality clothing from recycled materials,
mostly PET plastics and fish nets
• Einhorn is a German company makes sustainable condoms. They check their whole supply chain to
make sure that everything needed to make a unicorn (that’s how they call condoms) comes from
sustainable resources, both socially and environmentally.

What are the +/- of cooperatives?

Advangtages Disavantages
• They instill an atmosphere of cooperation. • They have less capital incentives, which do
• They provide great economic benefits to not appeal to big investors.
members. • They face interrelated investment
• They can make for engaged employees and disadvantages.
customers. • They would allow generic marketing.
• They enjoy less taxation. • They will see slow decision-making
• They are democratic. processes.
• They share pricing with competition.
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Name: Unit 1 – Business organisation and environment
3. Microfinance - [Link]

Define microfinance
The provision of very small loans by specialists finance business, usually not traditional commercial banks

Why is it needed?
• It provides financial assistance to enterprises that cannot place collateral
• It encourages women entrepreneurship
• It provides startups with much-needed support
• It offers assistance even for nominal amounts which generally are funded as hand loans
• It formalizes the process of lending and hence brings about discipline in borrowing by low-income
groups. This prevents over-borrowing and reduces complications arising out of high future debts.

Why can’t these people just borrow money from the bank?
- The traditional bank need credit rating and no collateral to borrow against.
- There may be no bank that are around
- Banking services are too expensive and not trusted enough.
- This usually happens in developing country, remote area where traditional banking and lending is
difficult or impossible.

What are the criticisms of microfinancing?

- Over-Indebtedness.
- Higher Interest Rates in Comparison to Mainstream Banks.
- Widespread Dependence on Indian Banking System.
- Inadequate Investment Validation.
- Lack of Enough Awareness of Financial Services in the Economy.
- Regulatory Issues.
- Choice of Appropriate Model.

Find examples of microfinance institutions from three countries

- Pacific Community Ventures was founded in 1998 and provides microfinance loans to small
businesses in California. Loan amounts range from $10,000 to $20,000 with the goal of creating
quality jobs and investments for social good.

- Bandhan Financial Services Limited from India received the banking license from RBI in April
2014. Presently, Bandhan Bank Limited has 4559 banking outlets helping it reach 2.01 crore
customers. Bandhan Bank Limited still serves the rural and low-income earners and has a total
advance portfolio of Rs. 71,846 crore as of 31st March 2020.

- Formed in March 2005, BMCI is a network of rural banks, cooperatives and non-government
organizations in the Bicol, Philipines region that are engaged in microfinance, over the years,
broadened its mission that is anchored on building the capacities of members to develop small
enterprises and promote local economic development.

4. Public-private partnerships - [Link]

Define PPP
Involvement of the private sector, in the form of management expertise and/or financial investment, in
public sector projects aimed at benefiting the public

Why don’t the government just complete these projects without interference from the private sector?
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Name: Unit 1 – Business organisation and environment

PPPs enable the government to take on fewer risks due to shared risk allocation. Generally, the private
sector takes on the project's life cycle cost risk, while the government assumes site risks, legislative and
government policy risks, among others.

Briefly explain the following types of PPP:

● Government funded
- The government may decide to provide direct support for the project for example through
subsidies/grants, equity investment and/or debt. These mechanisms are particularly useful where the
project does not in its own merit achieve bankability, financial viability or is otherwise subject to
specific risks that the private investors or lenders are not well placed to manage

● Private-sector funded (what is a PFI?)

- A private finance initiative (PFI) is a way of financing public sector projects through the private
sector. PFIs alleviate the government and taxpayers of the immediate burden of coming up with the
capital for these projects.
- Under a private finance initiative, the private company handles the up-front costs instead of the
government. The project is then leased to the public and the government authority makes annual
payments to the private company. These contracts are typically given to construction firms and can
last as long as 30 years or more.

● Government directed but with private sector finance and management

- The government will want to manage the provision of government support, and in particular any
contingent liabilities created through such support mechanisms. Governments seek a balance
between supporting private infrastructure investment and fiscal prudence. Striking this balance right
will help the government make careful decisions about when to provide public-money support and
manage the government liabilities that arise from such public-money support, while still being
aggressive in encouraging infrastructure investment. Government assessment of projects receiving
such support is doubly important given the tendency of lenders to e less vigilant in their due
diligence when government support is available, since this reduces lender risk and exposure.

Find examples of PPPs from three countries

- In Canada, public–private partnerships have become significant in both social and infrastructure
development. PPP Canada Inc. was created as a Crown corporation with an independent board of
directors reporting through the Minister of Finance to Parliament. Its mandate is to improve the
delivery of public infrastructure by achieving better value, timeliness and accountability to
taxpayers, through P3s. The Corporation became operational in February 2009 with the
appointments of a chair of the board of directors and a chief executive officer

- There are more than 14,000 existing P3 projects in China, totaling $2.7 trillion in aggregate value,
according to the finance ministry. The municipal government of Shantou, China signed a 50-billion
RMB PPP agreement with the CITIC group to develop a massive residential project spanning an area
of 168 square kilometers, locating on the southern district of the city's central business district. The
project includes real estate development, infrastructure construction including a cross-harbor tunnel,
and industry developments. The project, named Shantou Coastal New Town, aims itself to be a high-
end cultural, leisure, business hub of the East Guangdong area.

- From 1990 to 2009, nearly 1,400 PPP deals were signed in the European Union, representing a
capital value of approximately €260 billion. On the onset of the financial crisis in 2008, estimates
suggest that the number of PPP deals closed has fallen more than 40 percent that year. P3s in Spain,
José Francisco Bellod Redondo notes that one of the main drivers for PFI in Spain is compliance
with the fiscal restrictions imposed under the Maastricht Treaty and Stability and Growth Pact,
which set concrete limits to the national debt. Examples of PFI projects in Spain include Parque de
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Name: Unit 1 – Business organisation and environment
Valdebebas in Madrid, Ciutat de la Justicia in Barcelona, the Autovia de Noroeste in Murcia, and the
Hospital Puerta de Hierro in Majadahonda

Advantages and Disavantages of PPP

Benefits of PPPs Drawbacks of PPPs
● Many schools, roads, hospitals etc would not have • Lower job security for workers if private
been built without the secondary sector sector businesses try to cut costs
● Private sector business aim to make a profit – • PFI schemes have been criticised for
therefore the services will be efficient and costs earning large profits from high charges –
may be lower than if they were public sector paid for by the taxpayer
● Government can claim services are improved • Private sector organisations may lack
without an increase in tax expertise in certain areas, e.g. social
housing

LO4: To describe the main features of non-profit social enterprises

• Not all organisations try to make profit
• These are called non-profit organisations, they could be charities or pressure groups. Can you think of
any examples?
1. WATERisLIFE. ...
2. SafeNight. ...
3. Human Rights Campaign

• Non-profit organisations – any organization that has aims other than making and distributing profit and
which is usually controlled by a voluntary board

Non-governmental organisations (NGOs)

• An organization with no participation or representation of any government which has a specific aim
or purpose, e.g. supporting disadvantaged groups in developing countries.
• NGOs can operate on a local, national or international level to tackle issues to support the public
good.

In groups of three you will research an NGOs and present the following to the class:
● What the aims are
NGOs exist for a variety of purposes, usually to further the political or social goals of their members.
Examples include improving the state of the natural environment, encouraging the observance of
human rights, improving the welfare of the disadvantaged, or representing a corporate agenda.
However, there are a huge number of such organizations and their goals cover a broad range of
political and philosophical positions. This can also easily be applied to private schools and athletic
organizations.
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Name: Unit 1 – Business organisation and environment
● What they do
- Fight against exploitation, injustice and corruption if found against any individual, class,
community in the society.
- Educate the people for adoption of the good norms of a good citizenship and to inculcate into
the people's mind, ideals of national unity.
- Work for uplifting the status of women in the society. To work against female circumcision
and to fight against the victimization of girl /women by anybody in the society on female
circumcision or any other related issues.
- Propagate the need for tree plantation / pollution control and environmental awareness.
- Help and generate training programme for self employment of women and educated
unemployed people and to work for adult education.
- Create the means for providing medical assistance to the people suffering from diseases,
especially for helpless people.

● Where they operate

- Operational NGOs can be community-based, national or international.

● Why it was set up initially

- First, the typical development NGO focuses on relief and welfare and delivers relief services directly
to beneficiaries. Examples are the distribution of food, shelter or health services. The NGO notices
immediate needs and responds to them. NGOs in the second generation are oriented towards small-
scale, self-reliant local development. At this evolutionary stage, NGOs build the capacities of local
communities to meet their needs through ‘self-reliant local action’. Korten calls the third generation
‘sustainable systems development’. At this stage, NGOs try to advance changes in policies and
institutions at a local, national and international level; they move away from their operational service
providing role towards a catalytic role. The NGO is starting to develop from a relief NGO to a
development NGO.1
Charities: an organization set up to raise money to help people in need or to support causes that require
funding
Charities are usually allowed tax benefits and often perform useful social and environmental functions that
wouldn’t be undertaken by private businesses or government funded organisations.

How are charities usually funded? Donations

The following list is typical of activities accepted as being for ‘charitable purposes’.
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Name: Unit 1 – Business organisation and environment
Revision Questions

1,
- Public sector: organisations which are accountable to and controlled by central or local government
(the state).
- Private Sector: businesses owned by individuals or groups of individuals.

2,
- Ltd have more than one owner
- Ltd have limited liability and sole trader have unlimited liability
- Ltd have shares

3,
- A, shareholders
- B, mangers, directors
- When the shareholders and those in control such as management have different objectives leading
to conflict, for example, shareholders want increased dividends whilst managers would want
increased pay.

4,
- They want to have full control of the company by owning it as the shareholders own the company
and they might have conflict in operation.

5,
- A company (plc / ltd) has a separate legal identity from it’s owners.
- This help to reduce the risk of the shareholders facing any legal problem, build trust and gain more
investment, the company can also not be broken down if the any of the owner get arrested or having
any personal problem.
- In a company, the death of an owner or director doesn't lead to the break up of the company and
shares are inherited. This is continuity and this help to remain the operations of the company under
any circumstances.
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Name: Unit 1 – Business organisation and environment

6,
- Limited liability helps the company to gain trust from the shareholders and the stakeholders intend to
invest in the company, they will not be facing any legal issue related to the company, so they will
more likely to invest their money in to limited liability companys.

7,
- Plc have the shareholders is the owner and mangers in control which can lead to conflict as they have
different purpose, the sole trader owners and control is only one person so that the ownerships and
controls division can be avoided.

8,
- A partnership involves at least two owners who can each contribute capital to help the business
grow. However, a plc can sell shares to the general public which can lead to a great deal of capital
being raised, however, ownership is diluted which can lead to divorce of ownership and control.

9,
- VN military
- Public school

10,
a) The managers will have some frustration against the shareholders which can delay the operations of
the company and it can also lose trained labor which is a loss for the company and can lead to some
difficulties and decrease in revenue.
b) The employees may be fired because of the conflict with the shareholders.

11,
- It provides financial assistance to enterprises that cannot place collateral which is better for the
country to have more business and boost the economic growth
- It provides startups with much-needed support so that it will help the government to save money that
have to be provided to the start up as subsidies but still can have more tax and government budget.

12,
- Advantages:
o Imposing budgetary certainty by setting present and the future costs of infrastructure projects
overtime for the hospital
o Creating persification in the economy by making the country more competitive in terms of its
facilitating infrastructure base as well as giving a boost to its business and industry associated with
infrastructure development (such as construction, equipment, support services) which mean that the
infrastructure will be improved.

- Disavantages:
o Private sector will do what it is paid to do and no more than that which lead to the poor performance
of the hospital – therefore incentives and performance requirements need to be clearly set out in the
contract.
o There is a cost attached to debt – While private sector can make it easier to get finance, finance will
only be available where the operating cashflows of the project company are expected to provide a
return on investment (i.e., the cost has to be borne either by the customers or the government through
subsidies, etc.) which lead to the increase in the cost and the patients have to pay more