Back To: BUSINESS ENTITIES, CORPORATE GOVERNANCE, & OWNERSHIP

What is a State-Owned Enterprise?

A state-owned enterprise (SOE) refers to a business enterprise that is owned and controlled by the government, whether wholly or partially. A state-owned enterprise runs commercial activities to generate money for the government, such an enterprise has a significant control form the government. Usually, the government established a state-owned enterprise through legal means so that it can partake in the commercial activities that occur in an economy. Government sponsored enterprises (GSEs) are also called state-owned enterprises. Enterprises of this nature are established to trade or engage in commercial activities on behalf of the government.

How Does a State-Owned Enterprises Work?

State-Owned Enterprises (SOE) are otherwise called government-owned corporations (GOC) or Government sponsored enterprises (GSEs). These are enterprises wherein the government holds a partial or whole ownership of the enterprises. They are created to undertake commercial activities in place of the government. SOEs can be found in many countries of the world such as the United States, New Zealand, China, and many others. It is important to know that state-owned enterprises (SEOs) are not the same as public corporations such as listed companies. Despite the fact that the government has part or the whole of the ownership of SEOs, they are required to abide by the laws and regulations that govern businesses in the states where they operate.

Examples of State-Owned Enterprises Across the Globe

Many state-owned enterprises are present across the globe. Since they can be readily found in many countries of the world, there are numerous examples of SEOs. Freddie Mac and Fannie Mae are examples of state-owned enterprises in the United States, these enterprises are mortgage companies that engage in commercial mortgage activities on behalf of the United States government. Eskom in a well recognized SEO in South Arica, it provides power utility services for the citizens. Other examples of state-owned enterprises across the globe are CSN, Vale do Rio Doce in Brazil, Jin Jiang Hotel in China, Telebras and many others.

SOEs and Corporatization

Corporatization is an important term in the description of a state-owned enterprise, it refers to the process of creating a SEO from a state or government agency. In the real sense, many SEOs were created out of government agencies, when created, SEOs can engage in commercial activities for the purpose of creating profits and revenue for the government. SEOs are created through a process called corporatization. Although, the government has a level of control and ownership of SEOs, they operate as commercial enterprises. SEOs are often created in industries where the government seeks to make the most profit, this means SEOs are not just created across diverse industries. Because profit is at the center of their creation, the industry they function in is quite essential.

SOEs and Profit

Not all state state-owned enterprises produce profit for the government, although a large percentage of them were established as for-profit business enterprises. There are many factors that may contribute to the failure of an SEO to produce profit or the government, these factors often affect business operations and in turn, the profitability of the business. In some cases, the government provide funds to enable a SEO continue its operations, especially when the services rendered by such SEO is crucial to the operation of the state. In this case, the government spends money in this SEO rather than the enterprise providing profit for the government.

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State-Owned Enterprise - Explained