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Sep 24

Why Businesses Use SOE?

Businesses Use SOE

State-Owned Enterprise (SOE) is a government formed body that takes part in commercial activities. SOEs can undertake in commercial activities with governmental support on behalf of the government. SOEs may be fully or partially owned by the government. Being partially or fully owned by the government gives the government some control of the business while still keeping the business separate from the government when it comes to legal and operational matters. Often, SOEs are created to have public objectives, such as New South Wales’ Sydney Water Corporation, that provides drinking water to the population of Sydney while being influenced by the Minister of Finance and Services. Having SOEs lets governments be confident in the continued operation of public services while not having to bear the financial responsibility and the responsibility of managing an entire business.

SOEs qualify as separate business entities from the government but are still subject to all the rights and responsibilities associated with the government, but with the addition of the rights and responsibilities associated with the business too. Rights and responsibilities can include following laws and regulations that govern the operation of a business type. Most importantly, they are held accountable for their actions separate to the government.

Businesses become SOEs because they receive government funding to operate. Most SOEs are important to the government’s infrastructure and the failure of those activities could result in governmental collapse. SOEs receive government funding to continue operations, sometimes even at a loss to the government because they are extremely important, for example, a failure of Sydney Water Corporation could result in the population of Sydney and beyond not receiving any drinkable water.

Besides providing public services, SOE’s are also profit-making businesses. In the case of SOEs who represent the government in markets the government has a stake in, such as minerals, oil and gas produced locally, the SOE receives an operating license that enables them to trade these resources with other governments and states to produce revenue. An SOE can also be responsible for the management of the physical resource within the state, which diverts accountability and responsibility away from the government.

SOEs allow governments to venture into commercial activities without incurring a negative reputation or having to bear the responsibility of managing a business. This helps the government grow and help the state grow economically, to be able to better develop better infrastructure.

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