Topic 1

Enterprise in the Modern System of Economic Management

Outline

1. Enterprise as an economic entity.

2. Classification of industrial enterprises.
3. Legal basis of the function of industrial enterprises.
4. Main forms of unions of the enterprises.

Enterprise – is an independent entity, which has a legal entity rights and

implements industrial, research and commercial activities in order to get
income.

Enterprises possess capital assets and current assets given by the founders
and have independent balance sheet, settlement accounts in the banks, a
stamp with the name of the enterprise and a statute. An industrial enterprise
has to have a brand. The enterprise can not have other legal entities
simultaneously. Enterprises perform different activities, according to their
statutes which are not prohibited by the legislation of Ukraine.
Preconditions of enterprise creation:
• market demand of certain merchandise or service;
• availability of the raw materials and materials, necessary for a
appropriate labor;
• availability of the skilled personnel;

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 • possibilities of the technical and technological provision of the
enterprise;
• possibilities of credit service;
• possibilities of the production distribution;

Main directions of enterprise activities:

• market research – investigation of the market demand, level of
competitive ability of the products, their prices, the requirements of the
customers, demand formation and the channels of products promotion;
• innovative activity – scientific and technical works, design and
technical preparation of the new kinds of production and introduction of
innovations;
• production activity – study of production volume, adjustment of
production program and production capacity of the enterprise, provision of
the necessary resources, observance of the production schedules;
• commercial activity – organizational and economical measures for
obtaining expected profits and other indices of financial results of the
production; ;
• after-sale service - providing production service for the customers;
• economical activities – providing rational use of enterprise
resources: prognostication, planning, price formation, payment for work
labor, resources supply, accounting and reporting, etc;
• social activities – training and advanced training of personnel,
creation of the appropriate work and rest conditions, provision of the social
protection of the employees.

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 Fundamental tasks of industrial enterprises:
• satisfaction of the customers’ demands for certain products or
service;
• continual increase of the work efficiency, maximum use of
production capacity, expenses reduction;
• implementation of the scientific and technical progress achievements
as a foundation of increase in quality and competitiveness of the product;
• advanced training of the employees and increase in their material
well-being;
The work of the industrial enterprise is based upon technical-industrial,
economic andorganizing unities.

Technical-industrial unity implies that final production is the result of

combined efforts of the workers of different subdivisions and is produced on
the basis of the unitary set of technical documentation.
Economical unity implies that the expenses of the enterprise operation have
to be covered by profits and there has to be unity in planning, analysis,
accounting and evaluation of the results of the management;
Organizational unity implies existence of the unitary team of employees,
unitary management control and common responsibility for the work
outcome.

2. Classification of the industrial enterprises includes seven groups:

1) according to the purpose and kind of the activity:

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 commercial – most of the enterprises which purpose is to gain
profit;
noncommercial – charitable, educational, scientific, medical, etc.

2) according to the property category:

private enterprises – created on the ownership of individual citizen

with the right to hire employees;
collective enterprises – created on the ownership of work collective
or cooperative society;

public utilities – created on the ownership of the administrative

units;
state enterprises – created on nationwide ownership;
3) according to the national belonging of the capital:
 national – the capital belongs to the owner from Ukraine;
 foreign – the capital belongs to the foreign entrepreneurs;
 mixed (common) – the capital belongs to the owners from different
countries;

4) legal status and forms of management:

 individual – the owner is either one person or the family;

 cooperative – created on the basis of voluntary unity of the property
with joint management;
 rental – created on the basis of ownership and use of the property
according to the rental rights;
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  economic societies – subdivisions (branches, shops), separated from
the main organization, which are used on the rental rights;
:
5) sectoral and functional kinds of activity:
 industrial
 constructional;

 agricultural;
 transport;
 commercial;
 production and commercial;

 trade and intercessory;

 innovational and implanting;
 leasing;
 banking;

 insurance;
 tourist, etc

6) according to the technological (territorial) wholeness and degree

of subordination

• main – controls other subdivisions;

• subsidiary – legally independent, but all their activities are strictly

controlled by the main enterprise;
• associative – are formally independent, but because of different
reasons depend on the main enterprise;

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 • branches – have neither legal nor management independence and act
totally per procuration of the main enterprise;

7) according to the number of employees:

 big – more than 1000 employees;

 middle – from 200 to 1000 employees;
 small – in industry and construction - up to 200 employees; in other
branches of the production sphere – up to 50 employees; in the enterprises of
the non-production sphere – up to 25 employees; in trade – up to 15
employees.

3. Enterprise has to function and maintain management under the

present law, which regulates all the directions of its activities. Main
regulatory acts are:

Economic code of Ukraine

It determines:
 kinds and organizational forms of enterprises;
 conditions of the enterprises foundation and their registration;
 order of the enterprise property creation and use;

 principles of the management of the enterprise;

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  economic and social activities of the enterprise: (income, planning,
price formation; financial and credit relationships; external economic
activities, etc)
 relations between the enterprise and the state;
 order of reorganization and liquidation of the enterprise.

The statute of the enterprise.

Any enterprise has to act under the authority of the statute – a set of rules
which regulates all its activities and relations with other business entities.
The statute has to conform to the law about enterprises and include
information about:
 specific name of the enterprise and its location; (the name should
reflect a concrete name (of the plant, etc), kind of the enterprise (private,
state, etc), etc)
 owner or founder;

 mission and goals of activities;

 organs of management of the enterprise and the order of their
formation;
 authority of the personnel and its elected body;
 sources and order of property formation;
 conditions of reorganization and closing of activity.

Enterprise acquires its rights and duties from the moment of the confirmation
of the statute. The statute has to be confirmed by the owner of the property,

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and for the state enterprises – by the owner with the assistance of work
collective.

Collective agreement – is a contract between work collective in the

person of trade union and the administration of the enterprise, which uses
wage labour.
The agreement is formed every year and its constitution can not
contradict the legislation of Ukraine.
Collective agreement regulates production, labour and economic
relations of the work collective with the administration of the enterprise
according to the following directions:
creation of the favorable and safe work conditions;
implementation of the new technology;
increase in efficiency of labor;
professional training and advanced training of the employees;
social protection of the employees;
other.

4. Main kinds of unities of the enterprises.

Production unions – are integrated production and economic complexes of
production units, which produce components of the complicated production.
The union of the enterprises is created considering homogeneity of
production, technological similarity of the production, territorial
closeness of the production units and the development of the
cooperation.
Depending on the tasks, production unions can be divided into industrial,
scientific, industrial trade, agrarian and production complexes.
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Industrial union – is the complex of enterprises, which includes the main
enterprise and enterprises-subsidiaries.
There are two kinds of industrial unions:
 a union of a vertical type: plants-branches produce components, and
the main enterprise produces finished products.
This principle is used when the structural units are not distant.
 a horizontal type complex – is the aggregate of the enterprises, each
of which has a complete production cycle and produces a certain pattern of
ready for consumption product. It is used when structural units are distant
and under condition of unitary and small batch production.
Structural units, which are included into the union, can either have or not
have the status of a legal entity.

Scientific union- a complex of research and design institutions, experimental

and batch production. The main task of scientific and production union is the
creation of new and advanced kinds of equipment, technology, production
and their accelerated implementation into production.

New modern forms of unions:

Association – is a treaty union, created for the constant coordination of the
participants’ operations. The decision of the association is only advisable and
not obligatory to accomplish.
Concern – is a complicated form of unity, which includes enterprises of
different branches of economy (industrial, transport enterprises, trade and
banking sphere). The members of the concern keep formal independence but
obey unitary leadership.

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Corporation – is a treaty union, which is created on the basis of combination
of production, scientific and commercial interests with delegation of activity
regulation authority of each participant to the central organ of management.
Consortium – is a temporary statutory consolidation of industrial and bank
capital for reaching a common goal.
Cartel – is a treaty union of enterprises, usually of one branch, created for
distribution regulation.
Syndicate – is a variety of a cartel, which implies products distribution
through specially created common distribution organ or through one of the
members distribution network.
Trust – monopolistic unity of the enterprises in which all the directions of
activities are integrated and the participants lose their independence.
Holding – is the unity which uses its finances for gaining controlling
interest of other enterprises in order to control their production.

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