Difference Between Privatization and Commercialization

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Privatization and Commercialization

Privatization is a policy of the government created to afford individuals, corporate bodies, the opportunity to take over ownership and control of government enterprises and companies while Commercialization is a state policy of making its companies, enterprises, parastatals, etc, more efficient and even more profit oriented. It will also make these organisations come up with efficient management of resources.

Commercialisation and Privatisation | Differences
Commercialisation and Privatisation

Similarities and Differences Between Commercialisation and Privatisation

There are certain similarities and differences between privatisation and commercialization. They include the following:

  • Privatisation and commercialization are both aimed at improving the economy and making it attractive to local and foreign investment. But the objectives of commercialisation are more limited than those of privatisation. While the central objective of commercialisation is to improve the performance of public corporations, privatisation aims at selling off or doing away with unviable state enterprises.
  • In privatisation, the government completely gives up its ownership and control of public corporations while in commercialisation, the government does not relinquish its ownership and control. But such commercialized enterprises may no longer enjoy subvention from the government. The commercialized and privatized corporations will, however, compete for additional capital requirement in the financial market.
  • Both the privatized and commercialized enterprises charge appropriate fees for their services but all proposals for increases in prices of commercialized public corporations have to be approved by the government.
  • Commercialisation requires that the public corporation should break even or pay its bills whereas a privatised enterprise is required to make profit or else it folds up.
  • Members of the Board of Directors ‘of a private company are appointed by the shareholders. The government appoints the Board of a public corporation which has been commercialised. Decision making is the responsibility of the Board in both cases but the Board of a privatised company enjoys more freedom in decision-making than that of a commercialised enterprise.
  • The government exercises direct control over the management and operations of commercialised public corporations but, it does not have any direct control over private companies. Nevertheless, the government has indirect control on all organisations in the political system whether private or public.
  • Both commercialisation and privatisation have positive and negative effects on the economy. They promote efficient allocation of resources, at least in the short run. Nevertheless, privatisation and commercialisation tend to widen the gap between the poor and the rich in the society.

Commercialization vs Privatization – Differences (Table Comparison)

Commercialization Privatization
The aim of commercialisation is to make state-owned
Business more profitable
The aim and objectives of privatisation transfer state-owned businesses to private individuals.
Government remains the full ownership commercialisation. Own by private investors.
Commercialized businesses can still seek financial assistance from the government in form of subvention. Privatized businesses may not be able to receive a financial allocation in form of subvention from the government.
Commercialization does not intend to reduce the number of public enterprises but to make them more profitable. Privatization encourages the reduction in the number of public enterprises.
Commercialization does not involve the sales of Shares and assets held in public Enterprises in the government. Privatisation entails the selling of shares and assets held by the government in state-owned enterprises.
Commercialisation encourages the restructuring and reorganization of public enterprises and financial self-sufficiency. Privatization is involves the passing of ownership of public enterprises toward profit maximization.

What is Privatization?

As privatization is known, in economics, the transfer or transfer of a company or activity that was in the hands of the State or public sector to the private sector.

Thus, the privatization of a sector that was the exclusive competence of the State allows other economic agents to participate in the financing, production of goods and provision of services.

The fundamental objective of privatization is, according to the free market economic system, to reduce State intervention in the economy, since it considers that in this way, thanks to the free exchange of goods and services, the market satisfies needs more efficiently and diligently of consumers.

Privatization implies changes in the roles and responsibilities of public bodies and private companies, which are not limited to the sale of public companies to the private sector.

Privatization is a process that can be carried out in three main ways:

  • Sale of state companies to the private sector.
  • Administration of public goods and services by private organizations.
  • Purchase of services from a private company by the State.

Historically, privatization has operated in three phases. In the first, it took over the cement plants, the sugar mills and the hotels.

Next, he focused on infrastructure, in areas such as electricity, ports, telecommunications, and highways.

Later, it has continued with social areas, such as social security, education, health or social housing.

Privatizations have always been a contentious issue, with their defenders and their detractors.

Its advocates, the neoliberalists, argue that privatizations improve the performance of many public sector institutions, increasing their efficiency and competition, resulting in satisfied users.

His detractors point out that what privatization is proposed is the dismantling of the State to leave public affairs in the hands of private capital. And they accuse privatizations of being a typical way of operating for right-wing governments to favor big business, to the detriment of the population.

What is Commercialization?

Commercialisation is the set of activities developed to facilitate the sale and / or ensure that the product finally reaches the consumer.

Being commercial exchange, the activity of buying and selling merchandise between two parties, this act is fundamental in commerce and has an impact on the market for goods, services and intellectual property.

Commercialisation is a very old practice, in its beginnings barter was used as a form of exchange, to get those products to which there was no access. From ancient times to the present day, marketing has evolved, and one of the factors that has favored trade has been trade agreements.

The Phases of Commercialization of a product

To market a good or service, the marketing and commercial area are responsible for promoting demand and selling the products to different markets. To achieve this objective successfully, they must analyze the characteristics of the markets, the competition and establish a marketing plan.

Being the key variables in the marketing process: the product, the price, the distribution and the promotion (marketing mix).

International Trade

One of the most widespread forms of commercialization is foreign trade. Like any other commercial relationship, it is based on the exchange of goods and services between companies located in different countries.

When the exchange relations take place, for example, between member countries of the European Union, it is called intra-community trade. The opposite case, a commercial exchange between a country belonging to the European Union and another foreign country outside the Union, is called extra-community trade.

Foreign trade implicitly involves a relationship of provision and consideration of different elements. What a company or country needs and what another company or country can offer. These elements are:

  • Goods: They are tangible goods, being the export the exit of goods from one country to another; and the importation of goods entering a country from a foreign country.
  • Services: They refer to a provision of activities, such as intangibles, in the case of an export or import of services, this is manifested according to the movement of money.
  • Capitals: The exchange of capitals, refer to investments and monetary movements. For example: the movement of currency between companies located in different countries, originating from an export or import operation of goods or services.

Different Meanings for the Concept

In any case, the word commercialized has a very broad meaning and could appear with other more specific uses.

For example, when we want to know if a company sells a product, there are those who say: “Does this company still market X product?” By trading he refers to whether he sells it, whether he does trade with it. It may have stopped producing it, but since there are units available for sale, you could continue to trade it.

On the other hand, the concept can be used referring to international trade or more focused on marketing. There is no more correct use than another, since this will also depend on the country in which we are. In addition, many, if not all, areas of the company are important to commercialize a product.

Since the marketing department will decide the strategies, those in charge of producing will modify their processes, the financial and accounting departments will have to take into account the new product and the company’s stores or sales will have to include it in their catalogs.

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